Republicans slam administration LIFO proposal

Top Republicans are slamming the administration’s proposal to roll back an accounting method often employed by manufacturers in its push to find new revenues for a deficit-reduction package.

The administration has signaled in recent days that it wants to discuss eliminating the so-called “last in, first out” method, which has helped manufacturers reduce their tax bill and which the White House has proposed scrapping in recent budgets.

LIFO essentially allows operates under the assumption that companies sell their newest inventory first, thus allowing them to value older holdings at older prices.

The White House has indicated that such a move would lead to both a simpler tax code and a more level playing field in the manufacturing sector, and that it could be part of a balanced package to reduce the deficit. 

But key GOP lawmakers like Sens. Jon Kyl of Arizona and Orrin Hatch of Utah disagree, saying Tuesday that the proposal was the latest misguided attempt by the administration to raise taxes on job creators. The White House’s most recent budget said repealing LIFO would save more than $50 billion over a decade. 

The Republicans, who spoke out on the same day that the president visited an Iowa manufacturing company, said the proposal would raise taxes on that sector by tens of billions of dollars. 

The back-and-forth over LIFO also comes as the two parties continue to spar over whether new revenues would be included in any deficit-reduction agreement that leads to raising the $14.3 trillion debt ceiling. 

“The point is that most tax increases are very harmful to economic growth,” Kyl, the Senate’s No. 2 Republican and a participant in the debt talks that were being led by Vice President Joe Biden, said at a Tuesday briefing. “When you have the kind of sensitive economy that we have right now, with less than 2 percent growth in the last quarter, the last thing you want to do to an ailing economy is to saddle it with more taxes.”

For his part, Hatch signaled that LIFO would be better examined in a push for tax reform, and asserted that he thought repealing the method was as misguided as the stimulus package.  

“It’s time for this White House to get with the program, cut spending to cut the deficit, and stop putting forward proposals that threaten an economic recovery,” Hatch, the ranking member on Senate Finance, said in a statement. “If there is a tax-policy case to be made for repealing LIFO, then that case should be made in the context of tax reform in a broad-based effort to reduce tax rates. It shouldn’t be done to enable further wasteful government spending.”

Business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers have also piled on the administration proposal, both when it has been broached in White House budgets and in the current deficit discussions. 

“Repealing LIFO could have some very harsh real world impacts for the very company you stood before today,” the Chamber’s Caroline Harris said in a Tuesday blog post, referencing the president's Iowa trip.