October 23, 2017

LIFO Repeal Will Reduce GDP, Employment, And Federal Revenues

The U.S. House and Senate have both passed a fiscal year 2018 budget resolution, paving the way for comprehensive federal tax reform to move forward. House Ways and Means Committee members already have started writing the tax legislation, but we’re still uncertain whether lawmakers intend to preserve the last-in, first-out (LIFO) accounting principle as part of their efforts.

As Connecting the Dots noted earlier this year, with the border adjustment tax off the table since late July, LIFO repeal may be discussed as another method to broaden the tax base and offset revenue losses incurred by tax cuts.

MSCI opposes LIFO repeal because, according to a February 2016 study issued by the Tax Foundation, it would result in:

  • An $11.6 billion annual reduction in U.S. gross domestic product;
  • A $518 million annual reduction in federal revenue; and
  • Job losses totaling about 50,300 every year in the short term.