Fact #1: Obama has been giving many speeches about how much he values American manufacturing and also introducing various initiatives which he claims will be help manufacturing businesses
Face #2: In his recent budget proposal, Obama proposed the elimination of LIFO inventory accounting for tax purposes. This would generate additional business income tax revenues for the government of an estimated $72B by 2016.
In what universe do the above two things go together?
LIFO = last-in-first-out. It means that when a product is sold, the costs allocated against the sale are those of the most recent item of the same kind which was purchased or manufactured, rather that the least recent or the average of the lot. Since it deals with inventory accounting, the elimination of LIFO for tax purposes hits only those companies dealing in tangible goods. It has no adverse impact on, say, a consulting firm or a law firm, but as this 2009 post notes, “sectors which could be severely impacted by any repeal include: industrial equipment, metal fabrication and transportation equipment..” (LIFO accounting is also often used by oil companies, and of course Obama, in line with his ongoing demonization of that industry, will tend to talk about that particular LIFO application.)
If you are a manufacturer using LIFO for tax purposes, then you are almost certainly using it because it makes your tax bill smaller than the alternative methods. With Obama’s proposed change, taxes for thousands of manufacturers would go up–government revenue is business cost.
Manufacturers do not only compete with other US and international manufacturers; they also compete in the capital markets with businesses of all types. An investor is going to put his money where he thinks he can get the best risk-adjusted return. Additional unavoidable costs for a particular type of business will drive its product prices up and/or its wages down. So if American manufacturers’ costs are increased by the proposed LIFO change (as well as by many other Obama policies), they become less competitive, less able to expand and to take advantage of some of the global changes which have (could have had) the effect of creating an American manufacturing renaissance.
See comments from Orrin Hatch, who says that “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..” Indeed, changing LIFO at this moment in time, without addressing other issues in the corporate tax system, is discriminatory specifically against tangible-goods businesses at a time when many of them are already struggling with economic and governmental assaults on multiple fronts.
Is Obama so economically clueless that he is truly unable to see the disconnect between his LIFO proposal and his increasingly vocal advocacy of manufacturing?…or is he consciously speaking with a forked tongue?
Personally, I don’t think Obama likes doing the tough intellectual work of thinking seriously about proposed policies and how they would play out in the real world if enacted. His policy positions seem to be be based on two factors: the ideas and catch-phrases he absorbed during his formative years–apparently unexamined since–and the things that he believes will get him re-elected. The logic of what actually works, especially in the long term, doesn’t really enter seem to enter the equation to any significant degree.