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Obama Friends Business While Trying to Wreck Its LIFO

One of the meanest things I ever did was in college, when I was involved in a campus-wide game in which you were given someone’s name and you were supposed to tag them with a tennis ball. Then they were “out,” and you got a new name, unless someone got you first.

I actually pretended to be someone’s friend in order to get close enough to them to tag them with the ball.

I’ll never forget the look of disappointment on her face as I tagged her out.

Oh well, I guess she probably eventually realized that not having me as a friend isn’t the worst thing that could happen to someone.

I’m reminded of this as I watch President Obama trot around the country portraying himself as the pal of small business and the savior of manufacturing. He rarely passes up an opportunity to extol the glories of the “salt of the earth” companies that drive our economy forward.

Meanwhile his aides have been quietly but aggressively pushing a provision as part of the deficit negotiations that would add $72 billion in tax bills to businesses’ bottom line over ten years. Many of these companies would be small businesses and manufacturers, and they are working feverishly to avoid such a calamity.

This Obama plan, which was also part of his annual budget proposal, would prohibit use of “last in, first out,” or “LIFO” accounting, to determine income.

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Obama and Biden embrace at the empty warehouse of a company not using LIFO.

In short, the technique allows companies to be taxed on the difference between the cost of their most recent inventory acquisition – the “last in” – and the selling price, even if they are actually selling older inventory.

This saves lots on taxes because older inventory generally cost less. If businesses have to count the actual, older product sold, they would record a higher profit – because they paid less for the product – and therefore incur a higher tax.

Business officials say it’s a legitimate tax benefit that’s been around since 1939 – that it lets them deal with changing prices as they need to replenish inventory. After all, if Obama wants business to stimulate the economy by purchasing supplies, what kind of incentive is it to build inventory if the tax break for holding it is suddenly taken away?

“They want to repeal LIFO for one very simple reason – there’s a lot of money there” in tax revenues, said National Association of Wholesaler-Distributors President Dirk Van Dongen.

White House Press Secretary Jay Carney counters that “this is an appropriate proposal to make to get accounting basically in line with where practice is headed.”

Let’s forget about whether this is a good or a bad accounting practice. If businesses are using the tax benefit to fund purse snatching operations, you’re still taking $72 billion away from them.

But what’s Obama doing? Staging event after event in presidential swing states where he touts various “Isn’t that special?” little programs that might have some marginal effect down the road but that mainly serve to mask the tax grab that’s really going on here.

During a June 28 appearance at Alcoa Davenport Works in Bettendorf, Iowa, for example Obama was focused on getting community college kids into manufacturing.

Businesses say they’re having trouble finding enough skilled workers to fill the openings that they have.

And so three weeks ago, we announced new commitments from businesses and universities to make it possible for 500,000 community college students — half a million students — to earn industry-accepted credentials for manufacturing jobs that companies across the country are looking to fill.

Awww, isn’t that special? Meanwhile, the LIFO proposal would eat away at the funds available to hire them.

The White House has been portraying LIFO as the refuge of Evildoers, saying 40 percent of the benefits would accrue to the oil and gas industry. But business officials say more than a third of all the country’s businesses use LIFO and that manufacturers and small businesses would be sent reeling from the change.

“It will have a devastating impact on hundreds of thousands, if not millions of businesses,” Van Dongen said.

Van Dongen’s NAW is part of sweepingly broad coalition of business groups fighting the revocation of LIFO, including the U.S. Chamber of Commerce, the National Association of Manufacturers, and the major small business lobby, the National Federation of Independent Business.

It’s not likely these trade associations would all be shilling for the oil guys.

Even the Office of Advocacy within the administration’s own Small Business Administration thinks the proposal is bad news for small business.

“Ultimately, eliminating the ability to use LIFO would result in a tax increases for small business that could ultimately force many small businesses to close,” the Office wrote in a September 2009 letter to Congress.

On June 24, Obama was in his famous “high tech neat idea” mode during an appearance  at the National Robotics Engineering Center at  Carnegie Mellon University in Pittsburgh.

We’ve launched an all-hands-on-deck effort between our brightest academic minds, some of our boldest business leaders, and our most dedicated public servants from science and technology agencies, all with one big goal, and that is a renaissance of American manufacturing.

We’re calling it AMP, A-M-P -– the Advanced Manufacturing Partnership.

AMP. Very cute.

Beware of friends carrying tennis balls.

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18 Responses to Obama Friends Business While Trying to Wreck Its LIFO

  1. My brother’s a small businessman. He owns a couple of tanning salons in Tuscaloosa, AL (yes, the same one that was nearly destroyed by tornadoes). His employees are mainly college kids from the University of Alabama, but he does have a few residents in his employ. Before the economy took a downturn, he had planned on opening a third shop. When Obamacare added a tanning tax, he had to throw out his plans for the third. He’s told me that with the coming expiration of the Bush tax cuts (he’s a Subchapter S, which means he files company profits on his personal tax form) and the hit Tuscaloosa’s economy took from the tornadoes, that the increase in taxes on his inventory would force him to shutter one of his shops. That would, in turn, kill the jobs of the people who work there.

    But the left will claim he’s doing it because he’s greedy for wanting his wife and three daughters to eat something other than ramen noodles.

    • Right William and if you look at the employment stats, businesses like your brothers, quite hiring when Obamacare kicked in….go figure!

    • According to Obama, your brother is one of the millionaires and billionaires. Like Scrooge McDuck he’s sitting in his mansion counting his money. Obama needs your brother’s treasure so he can spread it around.

      Boehner called into Rush a short while ago. He claims there is no deal, but he is negotiating. He said he has to be the “responsible” person since Obama won’t. In other words the compromise to extend the debt ceiling in Cut, Cap, and Balance wasn’t compromise enough for the socialist democrats. Boehner will give Obama everything he wants just like he did in April. The House members need to walk out on Boehner at the conference meeting he called for tomorrow at 9:00 am.

    • That’s amazing William. Your brother would be getting through, perhaps in decent shape, despite the recession, except for two POLICY decisions made by our politicians in Washington.

      The Subchapter S issue is always ignored in Washington. The press swallows the line about this merely being tax cuts for the rich.

      Sorry.

  2. AMP reminds me of Wreck the Future and also of that CPI sneak attack, which I am sure is still lurking someplace. A friend is not 62 yet and always checks her SS to see what she will get when the time comes. For 2010, it was $14 less than they told her in 2009. She asked was it because she had a bad yr–they said no it was to use the money for tax cuts for millionaires and billionaires. Was it just that representative or is this now SS policy?

  3. In times of rapid inflation, LIFO is the way a business can use their profits to replenish their inventory. Removing LIFO as a legitimate tax accounting practice will cause a business failure or a new kind of “creative” accounting system.
    MrO’s enthusiasm for certain business venues is part of a political scheme to show that he’s all about the small business owner and the drones who work at the mind-numbing chores that produce the product. His support of college students aiming for jobs in manufacturing only showcases his lack of ever having a factory job and the issues that are facing the business owner.
    He’s not fooling the business community with his photo op trips to small factories. He’s not fooling us either; the trips are campaign photo ops and an excuse for him to fly around in AF1.

  4. LIFO is the lifeblood of the union. That’s how they keep all their crony deadwood employed. Boehner needs to lose his job if he agrees to this. I will be doing a wordscan on Advanced Manufacturing Partnership in any bill they post for the mandatory 3-day period.

  5. One thing about LIFO that interests me. In a world where Just In Time inventory is being used by all the big companies, they are not stocking much inventory, so how will they be hurt by LIFO? It’s the smaller suppliers that have to stock up on inventory to meet the demands of the big guys using JIT. So in reality, this won’t really hurt WalMart or GE, but is going to really impact their smaller suppliers who are stuck holding the inventory for the large buyers.

    BUT, rather than eliminate LIFO, eliminate having to depreciate equipment over 10 years and allow a 100% write off the year of purchase, it might really help small and medium business, but then the government wouldn’t get their blood. Which makes me wonder if Dracula was not originally written to be symbolic of government.

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