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Catherine Treadwell, J.D., Director of Government Affairs
|Last In, First Off - LIFO
As many of you are aware, LIFO, is a method used for inventory purposes. Under LIFO, the cost of the most recent products purchased (or produced) are the first to be expensed as cost of goods sold (COGS) – which means the lower cost of older products will be reported as inventory. LIFO is important to ASA members because with LIFO a company is able to match its recent, more-inflated costs with its sales thereby reporting less taxable income than would occur under another cost flow assumption. Also, the matching of the latest costs with recent sales is a better indicator of the company's current profitability.
The main purposes of LIFO are: 1) Track product to ensure adequate inventory on hand, track costs. 2) To track costs. A business must manage cash flow to maximize efficiencies. Since inventory items tend to be fungible, inventory conventions are a key part of tracking costs. 3) To determine income. The tax code requires taxpayers to use the best inventory accounting practice in the trade or business that most clearly reflects income. FIFO (First-in, First-out) is best suited to a business with falling prices. LIFO is best suited to a business with rising prices. 4) LIFO and FIFO achieve the same purpose: they most closely match the cost of goods sold with the cost of the replacement inventory the company must purchase in order to remain in business. However, a big myth-buster is that tracking the flow of physical inventory and tracking costs are two different things. Both FIFO and LIFO track costs, not the flow of physical inventory.
A common misconception is that LIFO is a tax expenditure. LIFO is not! LIFO is a 76-year-old GAAP-approved inventory accounting system which does not meet the statutory definition of a tax expenditure. From the start of LIFO in 1939 through today, LIFO was not included in the Joint Tax Committee list of tax expenditures, and is still not included on the Department of Treasury list of expenditures.
However, previously there has been a lot of energy and time put into repealing LIFO. The repeal of LIFO would slow the economy, cost jobs, and reduce revenue. A Tax Foundation study released in February, 2016, found that repeal of LIFO would reduce GDP by $11.6 billion per year, reduce federal revenue by $518 million annually, and cause the loss of as many as 50,300 jobs.
Let us also not forget, that LIFO repeal would require the retroactive recapture all LIFO-related deductions. Under current law this recapture tax is paid only when the company reduces its inventory levels, experiences deflation, or goes out of business. To impose that tax in the absence of any of those triggering events would be extremely overly burdensome to LIFO taxpayers.
The good news that the ASA Advocacy Team is dedicated to making sure that LIFO remains intact and that repeal does not happen. Over the next several weeks, I will be meeting with members of Congress who have been on our side fighting the repeal to thank them for their support, and also meeting with new members of Congress to educate them on why LIFO should remain off the table when discussions of a tax changes are brought up. The ASA Advocacy Team is proud to be your voice in D.C.!
- Sen. Elizabeth Warren (D-Mass.) formally announced her 2020 presidential bid in a speech focused on economic inequality. Warren championed proposals aimed at the financial industry's power in Washington and mentioned her wealth tax in the speech. (The New York Times)
- Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said he would not tweak the state and local tax deduction cap, according to a spokesperson. The comments came after President Donald Trump said he would be "open to talking about" changing the deduction limit. (CNBC)
- Trump said he won't meet Chinese President Xi Jinping before the March 1 deadline to avoid more tariffs on Chinese goods, although he added that they would "maybe" meet later. Earlier, White House economic adviser Larry Kudlow said that a meeting between Trump and Xi was "off in the distance" and declined to say if he expected the two countries to reach a deal before the end of the month. (Bloomberg)
- In his State of the Union address, President Donald Trump outlined his health goals for the next two years and beyond, calling on Congress to reduce health care costs by passing legislation to deliver consumers price transparency, and to end "global freeloading" contributing to high drug prices.
- Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Ed Markey (D-Mass.) released a framework of their so-called "Green New Deal," a massive policy package that, if enacted, would remake the U.S. economy and attempt to eliminate all U.S. carbon emissions. Their non-binding resolution laid out goals for cutting carbon emissions, but itself would not create any new programs.
- David Bernhardt, acting secretary of the Interior Department who has been nominated to lead the agency, said his job "is one of balance" between environmental and production interests, and that while the agency will maintain its emphasis on energy, it will also support conservation. (The Wall Street Journal)
- The Interior Department announced it has shelved a plan for seismic testing of oil and gas resources to take place in Alaska's Arctic National Wildlife Refuge this year, though the postponement will not impact its plan to open the 1.5 million-acre zone called the 1002 Area to energy production. Oilfield services company SAExploration Holdings Inc. hopes to perform the tests, which can only be performed in winter, when snow cover allows trucks to traverse the tundra. (The New York Times)
- The first tax filing season under the new tax law is off to a slower start, and taxpayers who have filed so far are seeing smaller average refunds, according to Internal Revenue Service data. Average refund size has dropped 8 percent to $1,865 from last year. (The Wall Street Journal)
- Trump's re-election campaign launched a state-by-state effort to try to prevent a 2020 primary challenge, including taking steps to change state party rules. Recent primary challenges against incumbent presidents have not been successful, but the Trump campaign hopes to prevent a repeat of problems at conventions that highlighted the weaknesses of Presidents George H.W. Bush and Jimmy Carter in their unsuccessful re-election bids. (The Associated Press)
- Sen. Elizabeth Warren formally launched her 2020 presidential campaign at an event in Lawrence, Massachusetts. The Bay State Democrat struck a populist tone in her speech, linking Trump to "a rigged system that props up the rich and powerful and kicks dirt on everyone else."
- Rep. Rob Woodall, a Georgia Republican who won the closest congressional race in the 2018 midterms, announced he will not seek re-election next year. The state's 7th District was already listed by the Democratic Congressional Campaign Committee as a pickup opportunity in 2020, and Carolyn Bourdeaux, who challenged him last year, said she intends to run again.
- Democrats Push $100 Billion for School Infrastructure. Public schools serving low-income students could see a $100 billion boost in funding for buildings and technology infrastructure via legislation introduced by Democratic lawmakers in the House and Senate. The bill (H.R. 865) would target K-12 schools that have difficulty raising additional funds and have severe issues with their buildings. (Dain Hanson, IAPMO Group Washington Update—February 8, 2019)
- Pittsburgh To Spend $50M to Replace Lead Pipes. Pittsburgh's beleaguered water authority will spend $50 million to replace lead service lines, give filters to low-income residents and take other steps to address the city's lead crisis under a settlement approved Thursday by state utility regulators. It comes a week after the Pennsylvania attorney general's office filed criminal charges against the Pittsburgh Water and Sewer Authority, alleging it mishandled a lead pipe replacement program in 2016 and 2017 and put more than 150 households at elevated risk of lead poisoning. The authority, which had previously admitted civil liability in the case and was fined $2.4 million by state environmental regulators, is fighting the charges. (Dain Hanson, IAPMO Group Washington Update—February 8, 2019)
- The House and Senate are in session this week.
- Both the House and Senate will prioritize the passage of a comprehensive funding bill to avert another partial government shutdown after February 15.
U.S. taxpayers are filing their first returns under the 2017 tax code overhaul that lowered rates for most people. What makes the paperwork headaches tolerable for many is the promise of a tax refund at the finish line. Yet more taxpayers will end up with no refund, or a smaller one, compared with a year ago, before the lower rates fully took effect. How could that be? The explanation rests with the many other changes that made it into the revised tax code. Some Americans are venting their surprise and anger.
Kaiser Health News
Former Rep. John Dingell, the Michigan Democrat who holds the record as the longest-serving member of the U.S. House, died Thursday night in Michigan. He was 92.
And while his name was not familiar to many, his impact on the nation, and on health care in particular, was immense.
For more than 16 years Dingell led the powerful House Energy and Commerce Committee, which is responsible for overseeing the Medicare and Medicaid programs, the U.S. Public Health Service, the Food and Drug Administration and the National Institutes of Health.
The Wall Street Journal
Portions of law-enforcement records related to a federal probe of President Trump’s former lawyer will be made public, a federal judge said Thursday, in a ruling that will grant visibility into the investigation that led Michael Cohen to implicate Mr. Trump in federal crimes.
The ruling also affirmed that federal prosecutors are continuing to explore possible crimes arising from Mr. Cohen’s role in two campaign-finance violations.
The EPA is facing a lawsuit over its Renewable Fuel Standard—not from corn or oil interests that have recently locked horns over the issue, but from producers of biomass, biogas, and waste energy.
Major trade groups for the industries that convert organic matter into renewable fuels and power filed suit this week trying to force the Environmental Protection Agency to implement part of the renewable fuels law that allows renewable electricity fuels from biomass, biogas, and waste energy.
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