In his press conference yesterday, President Obama turned up the heat on congressional Republicans who are resisting efforts to raise taxes.  Calling for a “balanced approach,” the President said, “The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners.”

The President forgot to mention one tax increase that is on the table, namely a proposal to end the last-in first-out accounting method that many manufacturers use (LIFO).  It’s a big tax hike too—$72 billion.  But it’s all “just part of simplifying the tax code,” says the Administration.

Manufacturers have been using the LIFO accounting method for nearly 70 years.  The gist of the method is the following: manufacturers can match their current sales revenues with current inventory replacement costs. By taking into account the cost of replacing inventory, LIFO results in a more accurate measure of the financial condition of a business and the amount of income that can be taxed.

Requiring manufacturers to stop using LIFO could have an immediate and negative impact.  Not only would they be subject to higher taxes in future years, they would also be hit with a big one-time tax bill because they would have to pay tax on the so-called LIFO reserves they’ve built up over the years.  So it’s not just a tax increase on future income—it’s a retroactive one as well.  Such a tax increase would strain manufacturers of all sizes.

The LIFO proposal is meeting strong resistance on Capitol Hill and off it as well.  For more from the NAM, see here.

The National Association of Manufacturers this afternoon sent a “Key Vote” letter to the U.S. House of Representatives calling for specific votes on three amendments to H.R. 1, the continuing resolution, that would promote a jobs- and growth-oriented energy policy. The premise:

Manufacturers support energy policies that: 1) expand domestic supplies; and 2) lower costs for U.S. consumers and for manufacturers, which use one-third of our nation’s energy. Access to competitively priced energy helps U.S. companies compete in the global economy and preserves high-paying jobs here at home.

The NAM urges a vote for two amendments:

• OCS Exploration. Amendment 251 sponsored by Congressman Steve Scalise (R-LA-1) would prevent delays in approving plans/permits for energy exploration in the Outer Continental Shelf (OCS).The Department of Interior’s (DOI) permitting requirements have effectively brought drilling activities in the Gulf of Mexico to a halt, creating a de facto moratorium.
• Coal Ash Regulations. Amendment 217 sponsored by Congressman David McKinley (R-WV-1) would prevent the Environmental Protection Agency (EPA) from moving forward with plans that would classify coal combustion residuals (CCRs) or coal ash as a hazardous waste under the Resource Conservation and Recovery Act (RCRA). Regulating coal ash as a hazardous waste will trigger an increase in disposal expenses for coal-fired power plants and other coal ash generators, likely resulting in higher energy costs for manufacturers.

The NAM urges a no vote on one amendment:

Punitive Taxes on U.S. Energy Producers. Amendment 213 sponsored by Congressman Ed Markey (D-MA-7) would impose roughly $50 billion in tax increases on major oil and gas companies by: repealing the Section 199 domestic manufacturing tax credit for these companies; prohibiting their use of last-in, first-out (LIFO) accounting methods; changing the tax treatment of dual capacity taxpayers; and more.

The NAM strongly opposes discriminatory tax policies, especially when they single out a particular type of business or industry sector. Tax increases on the oil and gas industry will lead to increased fuel costs for American manufacturers and consumers. Raising the price of fuel for manufacturers and the broader business community will further stifle their ability to expand and create jobs.

NAM “key votes” are used to determine a member of Congress’ record on manufacturing-related legislation.

While promises to increase taxes on businesses, particularly those with operations overseas, may play well on the campaign trail, it’s clear that, when the dust settles, the rhetoric has no basis in reality. 

In today’s Washington Post, columnist Geoff Colvin does a good job of dispelling any notion that U.S. corporations are up to no good when it comes to the tax code.  In fact, the tax changes proposed by the Administration represent a major change in long-standing tax policy designed to “level the playing field” in a global economy where most countries tax business income at a lower rate.  At the end of the day, these proposals amount to a hefty tax increase on U.S. multinational companies.  The international tax changes, combined with other tax increases like the repeal of “LIFO” and the new carbon “tax and trade,”  are bad news for all of us.  As any economist knows, corporations don’t pay taxes, we—customers, shareholders and workers— do.