WASHINGTON — Retail groups decried the Obama administration’s new tax reform proposal on Wednesday as not going far enough to lessen the tax burden on U.S. companies.

This story first appeared in the February 23, 2012 issue of WWD. Subscribe Today.

Under the administration’s tax reform plan, the corporate tax rate would be reduced to 28 percent from 35 percent. Manufacturers would receive a reduction in their effective rates to 25 percent.

The proposal, which is seen as more of a marker laid down by the White House for further discussion with Congress on tax reform and is not expected to be enacted this year, also calls for the elimination of dozens of tax loopholes and expenditures, including an accounting method regularly used by retailers.

“The President’s proposal is a significant step forward and we hope the Administration will work closely with those in Congress who have proposed going even further,” said Matthew Shay, president and chief executive officer of the National Retail Federation. “Tax reform is a once-in-a-generation opportunity and we need to get it right. Reform needs to address small businesses as well as corporations, and needs to be fair to all industries rather than favoring one over another.”

Shay said retailers benefit from few of the tax provisions that benefit other industries and often pay among the highest effective rates of any U.S. industry. He said the NRF supports a proposal from House Ways & Means chairman Dave Camp (R., Mich.) that would lower the top rate to 25 percent for both corporations and individuals.

“Unfortunately, the president’s proposal preserves special preferences that give some industries advantages at the expense of others,” said Kirt Johnson, vice president for tax policy at the Retail Industry Leaders Association. “We think the [overall corporate tax] rate should be reduced lower for everybody. I think that is really the biggest issue we have with this proposal.”

Johnson said Obama’s proposal to eliminate the “last in first out” accounting method used by some retailers to account for their inventories could have a negative impact in the short run. Under the method, an assumption is made that the cost of items sold out of inventory are equal to the cost of the items of inventory that were most recently purchased or produced.

“If they were to eliminate LIFO, [retailers] would have to transition to a different accounting system that might not be as favorable,” he said. “In the short run, they would take a hit on reported income because of the change. It would cost them in the short run, but in the long run they would be able to accommodate it.”

The White House said in its framework proposal that the reason for eliminating LIFO is because it “allows some businesses to artificially lower their tax liability.”

But Rachelle Bernstein, vice president and tax counsel at NRF, said highly inflationary businesses, such as jewelry companies, which have seen the cost of gold rise dramatically in the past year, find LIFO to be the most accurate method for determining their inventory costs, year to year.

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