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1 Alex Muresianu & Alex Durante, The Role of LIFO in the Tax Code 1 (2025)

handle is hein.taxfoundation/rlelfoitx0001 and id is 1 raw text is: *%TAX FOUNDATION The Role of LIFO in the Tax Code Alex Muresianu Senior Policy Analyst Alex Durante Senior Economist February 2025 Key Findings • Last-in, first-out (LIFO) and first-in, first-out (FIFO) are two methods of inventory accounting used for both financial accounting and tax purposes. • Both LIFO and FIFO rely on the accounting principle of deducting costs from income when goods are sold. • This principle often comes into conflict with the economic principle of deducting costs when incurred, which prevents inflation from eroding the deduction's value. • However, LIFO comes close to matching the economic ideal while still remaining true to the account- ing principle. • Repealing the option to use LIFO would reduce long-run GDP by less than 0.05 percent ($5.6 billion), long-run wages by less than 0.05 percent, and employment by approximately 7,000 jobs. • LIFO repeal would also impose a punitive one-time tax on the historical benefits of LIFO, which would come with higher short-term economic costs, particularly on smaller firms incapable of absorbing the tax. • Repealing LIFO would disincentivize inventory investment, hampering efforts to make US supply chains more resilient and penalizing goods-producing and goods-trading industries. The Tax Foundation is the world's leading nonpartisan tax policy 501(c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 taxfoundation.org