April 3, 2015

MSCI, Allies Must Work Hard To Prevent LIFO Repeal

As we reported in last week’s Connecting the Dots, MSCI is ramping up its efforts to stop Congress from ending the last-in, first-out (LIFO) accounting principle as part of its efforts to pass federal tax reform and cut the corporate income tax rate. 

To start, last week the LIFO Coalition, of which MSCI is a member, sent a letter to members of the Senate Finance Committee arguing against repeal. The letter argued, “[A] reduction in income tax rates would not in any way offset the repeal of LIFO” and noted “The situation facing pass-through companies on LIFO is even worse inasmuch as, based on the current debate, they could lose the use of LIFO without a reduction in the individual tax rates that they pay.” 

MSCI President and CEO Bob Weidner also sent an email to MSCI members whose senators serve on the Senate Finance Committee Working Group on Business Tax Reform asking them to contact these lawmakers over the spring Congressional recess to ask that they oppose LIFO repeal. Last week MSCI spoke with a U.S. senator who suggested submitting letters to the editor and opinion columns to local newspapers is an especially effective way to move lawmakers’ opinions on this issue. If you are interested in drafting a letter or column, please let MSCI Vice President of Finance and Government Affairs Jonathan Kalkwarf know and MSCI will help with the drafting and placement of these pieces. 

If you prefer to call your senator to tell them to preserve LIFO, you can find their information on MSCI’s website. Information for members of the Finance Committee working group on this issue can be found here. MSCI asks its members to tell their senators:

  • LIFO and first-in, first-out (FIFO) are both appropriate inventory accounting methods; FIFO is not the acceptable “default” system and LIFO is not an exception;
  • There is no one-size-fits-all inventory accounting system to suit all companies. If a company sells inventory that tends to rise in price, LIFO likely works best for them; if the product declines in price, FIFO is likely best. FIFO and LIFO accomplish the same purpose for the companies that use them: most closely matching the cost of goods sold with the cost of replacement inventory so the company can retain enough after-tax profit to purchase the replacement inventory it must have to remain in business.
  • Repeal of LIFO would impose a retroactive tax increase that is punitive and unfair and could in fact put some companies out of business.
  • Please provide information on how LIFO repeal would impact your company with as much specificity as possible: will you cut jobs, postpone hiring, cancel planned expansions, reduce contributions to health care or retirement plans, have to borrow money to pay the tax, etc.
  • LIFO should not be repealed either retroactively or prospectively. To force companies currently on LIFO to start using FIFO would create distortions in the tax code, favoring companies which sell one type of inventory over others. There is no reason that companies selling technology that declines in price should be favored in the tax code and a company selling inventory that rises in price punished.
  • There is no factually accurate substantive argument being made for LIFO repeal – those proposing repeal are simply trying to use LIFO repeal as a source of revenue to pay for other tax changes. Punishing LIFO users with a damaging retroactive tax increase to benefit some other taxpayers is an onerous and unfair misuse of the tax code.