Sunday, June 18, 2017
LIFO Coalition Meeting Highlights
The LIFO Coalition held a meeting in Washington, DC on Monday, June 12th. LIFO-PRO attended the meeting and also met with LIFO Coalition Executive Secretariat Jade West on Tuesday. Highlights of these meetings are provided below:
LIFO Repeal Update
As of the date of this meeting, LIFO repeal is not part of any tax proposal, and as far as Coalition members know, there are no active discussions regarding LIFO repeal in the tax reform debate. The LIFO Coalition has been active on the Hill for years, and was very pleased when LIFO was specifically preserved in the GOP Tax Blueprint released in 2016. It also should be noted that recent LIFO Coalition efforts have largely attributed to LIFO repeal being off the table at the current point in time. Both White House officials and newly appointed Treasury secretary Steven Mnuchin have also recently stated that LIFO repeal was not being considered at at this time.
The potential for LIFO repeal debate being rekindled on The Hill in the future largely depend upon the fate of the Border Adjustment Tax (BAT). This key component is hoped to generate more than a trillion dollars in revenue that will be needed to make up for the anticipated reduction in IRS collections that would likely occur from a reduction in business tax rates. A House member was quoted stating, “Revenue sources have to be found if the BAT is not included in tax reform. If the BAT were to fail, we’ll be looking under every rock for other ways to generate revenue”.
Tax Reform Developments
As it stands today, no fully-drafted tax reform bill exists. Congress appears to still be debating fundamental concepts regarding tax reform. Discussions regarding the pros and cons of a revenue neutral bill vs. one that would increase the federal deficit are currently taking place. Many lawmakers and industry experts believe that the scope of The Hill’s version of tax reform are far too broad and go way too deep. A large source of the active debate occurring related to tax reform have been the Border Adjustment Tax, Value-Added Tax (VAT) and Expensing (cash-basis accounting). Detailed updates for each of these proposed pieces of tax reform are provided below:
BAT – Speaker Paul Ryan believes that the BAT is imperative for comprehensive tax reform to prevail because of the potential revenue that it generates. According to sources on The Hill, there appears to be renewed support growing for the BAT from members of the House Ways & Means Committee.
VAT – The VAT faces more opposition than the BAT due to the potential for further complexities within the U.S. income tax system to arise from its adoption. Other concerns of this consumption tax include conflicts of interest that with World Trade Organization treaties that could arise from it being enacted.
Expensing – Expensing would force the majority of businesses from accrual to cash-basis accounting. Both the BAT & VAT would essentially eliminate deductions and calls for companies to immediately expense their costs of doing business. In the short-term, expensing reduces IRS collections, but both the BAT and VAT require for the integration of a cash-basis accounting system. Inventory experts have stated that it’s likely that the scope of an expensing regime would exclude inventories if the BAT/VAT were to be included in tax reform. Expensing also appears to be less appealing to the White House because of the loss of interest deductibility that the real estate industry would ultimately be forced to recognize.