President releases deficit reduction plan, LIFO included

This morning President Obama released a proposal for $3 Trillion in deficit reduction, which includes $1.5 Trillion in tax increases. This proposal marks President Obama's first entree to the Congressional Joint Select Committee ("Super Committee"). Included in President Obama's proposal is the repeal of LIFO, which the Obama Administration estimates will raise nearly $60 Billion.

Other proposals in President Obama's plan include:

• Allowing the "Bush tax-cuts" for the top tax bracket to expire.
• Limiting charitable deductions for individuals in the top tax bracket.
• Saving $1 Trillion, by winding down U.S. involvement in Iraq and Afghanistan.
• Cutting $248 Billion from Medicare and $72 Billion from Medicaid.

Additionally, President Obama has stated that he will veto any plan for entitlement reform that does not include tax increases. Congressional Republicans have stated that they will not pass tax increases, but would like to pass a complete overhaul of both the corporate and personal tax code.

LIFO Under Heavy Attack from Obama Administration

As the United States continues to move closer to its $14.3 Trillion debt ceiling in August, negotiations between Congressional leaders and the White House have broken down over the Obama Administration's insistence on increasing revenue through tax increases, including a repeal of LIFO and a tax on LIFO reserves. This proposal represents a devastating and unprecedented retroactive tax on businesses and could cause price increases and in some cases force businesses to shut their doors.

With just over a month left in debt limit negotiations, it is important for HARDI members to act now and let our leaders know how devastating the Obama Administration's proposed LIFO repeal would be to manufacturers, suppliers and distributors. All HARDI members are encouraged to take a few minutes and contact the leaders listed below and tell them how vital LIFO is to your business and our industry.

Urge These Elected Officials to Oppose a LIFO Repeal

President Obama : (202) 456-1111
Senator Max Baucus: (202) 224-2651
Rep. Chris Van Hollen: (202) 225-5341

Thank These Leaders for Standing up for LIFO
Speaker of the House John Boehner: (202) 225-0600
Senator Jon Kyl: (202) 224-4521
Majority Leader Eric Cantor: (202) 225-4000

Gridlock, Deficits, and an Election Year

I spent much of last week on policy issues trying to poke holes in my own assertions that Washington has all but shut down already for the rest of the year as it pertains to major legislation such as energy/climate, financial reform, and tax policy. Unfortunately I'm now back in Columbus with little evidence to the contrary. Today's piece in The Politico reinforces the Senate's lack of appitite for any more monster initiatives and spending. The key challenge is that there are plenty of smaller, inexpensive or non-spending measure bills out there that could pass, but leadership's insistence on packaging these items into massive, monster-bills with ever-ballooning price tags seems likely to submarine several good ideas. All that being said, I also left D.C. wary of what we might see come up during the Senate's "lame-duck" session after the November elections. These are always unpredictable sessions, and there could be several key Senators no longer with constituencies to worry about pleasing with these votes.

HARDI Sets Record During 2010 Congressional Fly-In

161 meetings with legislators in about 8 hours. Growing every year, HARDI's third Congressional Fly-In held last week in Washington had over fifty members all over the Capitol advocating for an extension of the residential energy efficiency tax credits, passage of an improved Home Star bill, and long term estate tax relief and certainty, among other things.

Rep. Rangel to Step Down from Ways & Means

Congressman Charles Rangel (NY-15) announced today that he is "taking a leave of absence" from his chairmanship of the powerful House Ways and Means Committee which oversees tax policy. His successor is very unclear, though California Rep. Pete Stark is next on the seniority list. This brings further into question tax-related issues such as LIFO repeal and the fate of the 2001 and 2003 Bush tax cuts as budget and tax legislation is completed this summer.

Bi-Partisan Pushback on Administration's Proposal to Repeal LIFO

Courtesy of yesterday's Bureau of National Affair's cover story:

House Members Raise Bipartisan Questions Over Obama's Call to End LIFO Accounting

House Ways and Means members crossed party lines in Feb. 3 budget hearings to criticize the Obama administration's proposal to raise an additional $59 billion in tax revenues by eliminating firms' ability to use the last-in, first-out accounting method. “If we do this, if we end it, what's going to happen is U.S. small businesses are going to take a big tax hit and their competitors overseas are going to have a terrific advantage over us in the marketplace,” Rep. Mike Thompson (D-Calif.) told Treasury Secretary Timothy Geithner. “There're some industries that have to hold their inventory for a long time; this is a fair and reasonable way to recognize that and I would strongly urge you to go back and revisit that.”

The practice can reduce a business's tax liability, particularly in times of rising inflation, because it takes into account the higher costs of replacing inventories. The LIFO method is especially important to companies that maintain large inventories over a period of years, such as wineries and distilleries that need to age their inventories. As a result, shifting to a first-in, first-out accounting practice would have the effect of giving those producers income on which they would have to pay taxes, even though the products they have put into inventory may not be available for sale for several years.

Rep. Geoff Davis (R-Ky.) said the proposal not only hurts distillers, but also the aerospace industry and other business fields that sit on inventory for many years. “If we want to create jobs in manufacturing, the repeal of LIFO creates many challenges,” Davis said, noting that Congress already rejected the same proposal from Obama in his fiscal year 2010 budget (41 DTR G-7, 3/5/09). “You brought it back to us. You told me there was a difference of opinion on that, but we had very broad bipartisan support to keep it,” Davis told Geithner.

Similarly, Reps. Devin Nunes (R-Calif.) and John Yarmuth (D-Ky.) also questioned how repealing LIFO would aid the administration's goal of boosting small business activity and creating jobs. Geithner said the administration still believes the change would be a “reasonable policy,” but he promised to work with Congress on the idea. “I know not everybody agrees. That's how this process works. We get to sit down and look at these proposals and figure out what's going to make the most sense,” Geithner told the committee.

By Brett Ferguson

Proposed Budget is a Mixed Bag

The President's $3.8 trillion proposed budget released today for fiscal year 2011 proposes to extend several of the "2001 Bush tax cuts" and the somewhat misleading "payroll tax credit", but not for all taxpayers. Further, the proposed budget assumes extension of 2009's estate tax with a $3.5 mil exemption and 45% tax rate, and the repeal of the LIFO accounting method which is estimated to miraculously generate $59 bil.

The budget proposes a 2.7% increase in discretionary, non-military spending from 2010 levels to $1.16 trillion, however that deemed "non-security spending" is proposed to drop 1.1%.

LIFO Repeal in Presidential Budget

Below is an alert to all LIFO Coalition members (HARDI is a member) signaling that efforts to repeal LIFO are on the way.

TO: LIFO Coalition memnbers
FR: Jade West, NAW Sr. VP, Government Affairs
RE: LIFO repeal in the Obama budget


Early alert:

President Obama sent his fiscal year 2010 budget to Congress this morning. LIFO repeal is included in the (hundreds of billion of dollars of) tax increases in his budget.

Unlike the usual Presidential budget, this document is very brief (140 pages versus many hundreds) and is more of a narrative than a budget. LIFO repeal appears ONLY in a table of tax revenues. The revenue “score” on repeal is $61.2 billion starting in 2012. That score is clearly different from the $105 billion that the Joint Tax Committee reported in the Rangel “mother of all tax reform” proposal for full repeal.

Since the budget includes no explanatory material, we do not yet know the details of the repeal proposal. We are in the process of trying to get that information, and will let you know as soon as we learn more.

For those of you who don’t normally follow the federal budget process: The President is required to submit a budget to Congress in February. Congress does NOT act on that budget. Once Congress receives the President’s budget, the House and Senate Budget Committees begin work on their own budget resolutions; it is the Congressional budget resolutions that will eventually be voted on by Congress. It will be several weeks before the Budget Committees report their budgets to the House and Senate for consideration.
We therefore have time to ensure that everyone who cares about LIFO repeal communicates in the strongest possible terms the impact of repeal to every Member of the House and Senate, starting with the Members of the Budget Committees.