RETAILERS DECRY INVENTORY CHANGE, MINIMUM WAGE IN CLINTON’S BUDGET

Byline: Joyce Barrett

WASHINGTON — Congressional Republicans aren’t the only ones complaining about President Clinton’s plan unveiled last week to balance the budget in seven years.
Retailers are critical of his proposal to repeal a method of valuing inventory as well as his suggestion that the minimum wage be hiked 90 cents over the next 18 months. The minimum wage hike, identical to a another proposal unsuccessfully advanced by the administration this year, is seen by Morrison Cain, vice president legal and public affairs for the International Mass Retail Association, as a campaign ploy.
“Obviously this is designed to start sounding the campaign theme that the Republicans are cruel and heartless,” Cain said.
IMRA is “strongly opposed” to the president’s budget, Cain said.
“Adding the minimum wage hike makes it less likely that the White House and the Republicans can come together on an agreement,” Cain said. “I can’t believe the administration believes this is anything other than a rhetorical device.”
Under the President’s plan, the minimum wage, currently at $4.25 an hour, would be raised in two 45-cent increments to $5.15 by July 1, 1997.
Also in the administration’s plan is a proposed repeal of the lower-of-cost-or-market (LCM) inventory valuing method. Used by an estimated 40 percent of retailers, the accounting method permits retailers to devalue their inventory to lower their tax bill. While the majority of department store retailers use the last-in first-out (LIFO) method of valuing inventory, many — including jewelers, catalog retailers, discounters and electronics retailers — use the LCM method. It is useful in valuing inventories that can’t be sold at normal retail prices because of damage, imperfection or because they have been dated in some way.
The White House unsuccessfully attempted to add the change in inventory valuation in the implementing legislation for GATT in 1994.
John Motley, senior vice president of government and public affairs for the National Retail Federation, said the LCM method of valuing inventory has been used for decades by retailers. The Internal Revenue Service prefers to see retailers lower the value of their inventory after they have sold it rather than devaluing it before it’s sold, he said. Yet retailers prefer the LCM method because without it, they are forced to pay taxes on illusory profits.
“For certain retailers, this change means big money,” Motley said. “This is a way to reduce their tax bill.”
Cecelia Adams, director of tax, budget and health care for IMRA, said that repeal of the inventory method would have “serious impacts” on retailers with substantial amounts of inventory that use it. If the repeal were enacted, Adams predicts that retailers would be forced to switch to the LIFO method of inventory accounting, which would raise administrative costs. — Fairchild News Service

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