Business says "jump." Republicans ask, "how high?"
The headline writer missed the boat on today's NY Times' front page story headlined "Republicans Drop a Tax Plan after Businesses Protest:"
Actually, this was a completely stupid idea from the get go. They were looking for a way to fund the idiotic proposed $100 gasoline rebate and came up with the idea of doing away with "last in, first out" (LIFO) inventory accounting for tax purposes. The original proposal was focused exclusively on the oil industry, but it morphed somehow into a more widespread change, affecting all businesses that use LIFO.
Apparently, no one had really thought this one through, because the impact would be huge, and the consequences for public reporting unpredictable. Right now, if you use LIFO accounting for tax purposes, you must use it for public reporting purposes. [In most cases, it leads to lower reported income in periods of rising prices]. If the tax benefits were eliminated, most businesses would probably switch to FIFO (First in, first out) accounting. Then, what would happen to the old LIFO reserves (the accumulated difference between the balance sheet value of the inventories under LIFO and FIFO. In some cases these are huge, because large quantities of inventory are valued at prices that are decades old)? Do we bring them back into reported income as a windfall profit? Do we amortize them into profit over some period of time?
The end result would probably be that no one would be able to interpret the public financial statements -- of course, no one can anyway, but this would just make it worse.
It's the decision to lay this egg at all that shows what idiots the Republican leadership are, not the decision to keep it unhatched.
WASHINGTON, May 1 — Senate Republicans on Monday hurriedly abandoned a broad tax proposal opposed by the oil industry and business leaders, another sign of their struggle to come up with an acceptable political and legislative answer to high gasoline prices.The headline should read "Business says 'jump.' Republicans ask 'How high?'"
Actually, this was a completely stupid idea from the get go. They were looking for a way to fund the idiotic proposed $100 gasoline rebate and came up with the idea of doing away with "last in, first out" (LIFO) inventory accounting for tax purposes. The original proposal was focused exclusively on the oil industry, but it morphed somehow into a more widespread change, affecting all businesses that use LIFO.
Apparently, no one had really thought this one through, because the impact would be huge, and the consequences for public reporting unpredictable. Right now, if you use LIFO accounting for tax purposes, you must use it for public reporting purposes. [In most cases, it leads to lower reported income in periods of rising prices]. If the tax benefits were eliminated, most businesses would probably switch to FIFO (First in, first out) accounting. Then, what would happen to the old LIFO reserves (the accumulated difference between the balance sheet value of the inventories under LIFO and FIFO. In some cases these are huge, because large quantities of inventory are valued at prices that are decades old)? Do we bring them back into reported income as a windfall profit? Do we amortize them into profit over some period of time?
The end result would probably be that no one would be able to interpret the public financial statements -- of course, no one can anyway, but this would just make it worse.
It's the decision to lay this egg at all that shows what idiots the Republican leadership are, not the decision to keep it unhatched.
posted by walldon | 8:57 AM
0 Comments:
Post a Comment
<< Home