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.
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.