LIFO Back In The Tax Reform Crosshairs
As Connecting the Dots reported last week, the Metals Service Center Institute (MSCI) submitted comments to the U.S. Finance Committee regarding comprehensive federal tax reform.
The LIFO Coalition, which MSCI is part of, also submitted comments, as did MSCI’s partners at the S-Corp Association. Both sets of comments mirrored MSCI’s. The S-Corp Association outlined three principles for reform that said:
- Tax reform must be comprehensive since millions of workers in the United States are employed at pass-through businesses that pay taxes at the individual rates, not the corporate rates;
- Congress must reduce the tax rates paid by individuals and corporations to similar, low levels because excessive marginal rates discourage investment and hiring and because splitting business income and taxing it at significantly different rates encourages planning to circumvent the higher rates, ultimately resulting in wasted resources and lower growth; and
- Congress should continue to reduce the incidence of double-taxing business income.
The LIFO Coalition’s comments are available here.
The pace of tax reform is definitely picking up in Congress and in the executive branch and, according to reports, a full proposal could be released as early as mid-August. While that is still an ambitious schedule, and something less than a full, fleshed-out proposal is likely to be released first, the cancellation of part of the congressional August recess makes it possible. What is clearer is that the relevant tax teams from the House, Senate, and White House are meeting regularly and making progress on a reform proposal. Additionally, despite the previous intense focus on House Blueprint, the Senate is deeply involved in developing a tax reform plan and it appears that they are further along than previously understood.
What is also clear from these discussions is that LIFO repeal is part of the tax reform discussion. While MSCI and its partners at the LIFO Coalition do not believe that any decisions have been made, we know that tax writers are actively looking for sources of revenue to pay for reduced tax rates and other reform proposals. As MSCI members are aware, the House tax plan included a Border Adjustment Tax (BAT) that would raise more than $2 trillion in revenue. That proposal was very controversial and most tax observers believe it will not be included in a final tax reform proposal. Without the BAT, other revenue sources have to be found, and that search for other revenue puts LIFO in peril.
MSCI will need its members to engage on this issue. Stay tuned to Connecting the Dots as this story, and MSCI’s advocacy efforts, develop.