Ever since Millennials and college-educated liberals flocked to defeat President Trump and replace him with a man they hardly knew, older folks who lived through the disastrous President Jimmy Carter years from 1977-1981 have been saying: “You don’t know what you have done. You are going to learn some painful lessons.”
Lesson #1 is what happens with a feckless and weak foreign policy such as Biden’s, starting with the botched Afghanistan troop withdrawal last year and continuing with Russia invading Ukraine today and probably with China invading Taiwan in the near future.
Lesson #2 is 7% annual inflation. In 1981, inflation peaked at 12%; interest rates reached 21%; and unemployment hit 12%. All were a direct result of the inane and reckless fiscal and monetary policies under President Carter. On top of Carter’s failures domestically, his lead-from-nowhere foreign policy resulted in the capture of 52 American hostages in the U.S. Embassy in Tehran, Iran, by Muslim fundamentalist Ayatollah Khomeni. They were held for 444 days until twenty minutes before President Ronald Reagan was inaugurated on January 20, 1981.
The Ayatollah and Iranian leaders knew Reagan would not put up with their intimidation of America as Carter had done.
If the past is any prologue, then Jimmy Carter’s presidency is coming home again to roost in Joe Biden’s White House.
I entered the newly-named Fuqua School of Business at Duke University in the summer of 1981 in their 24-month evening MBA program. Right off the bat, we took an accounting course which focused on how businesses should account for rapidly rising prices in a high-inflation economic environment.
The professor started talking in the first class about “FIFO” ― “first-in, first-out” ― and “LIFO” ― “last-in, first-out” ― accounting and never stopped the entire semester. At the time, no one could foresee when, if ever, America was going to exit the high inflation environment, so making the right accounting decisions was crucial to the survival of any business at the time.
In times of rising inflation, businesses can deduct the higher cost of making their product from their sales price, even if they use the lower cost earlier inventory on hand. If a product sold for $200 in 2021 and cost $100 to make, the company made a profit of $100. If inflation drove the cost of making the same product up to $150 in 2022, the profit would be reduced to $50 solely due to inflation.
The end result is that business owners will report smaller profits not only to their shareholders but also to the IRS in 2022. Their tax bill could be reduced by 50% or more.
At the same time liberal Democrats want to soak corporations and rich people to pay for their government programs, higher inflation has the perverse effect of reducing tax payments by big corporations through LIFO accounting.
You can’t make this stuff up. At a time when liberal Democrats say they want wealthy people to pay more taxes, they are supporting policies that will lower their tax bill, not raise them.
America is the only country where accounting for inventory can be done under LIFO according to GAAP or “generally accepted accounting principles.” Smart accountants and tax lawyers can always out-smart elected politicians who pass tax laws, especially ones who have never worked a day in the private sector in their lives.
No self-respecting private company or public-traded corporation has hired the last three Democratic presidents (Biden, Obama, Bill Clinton) before or after their terms to run their business. They don’t have the economic or business background and skills to do so ― even though the American people elected them to run the largest financial organization the world has ever known. Any board of directors which hired them as CEO would be committing financial malfeasance if they hired an executive who did not understand anything at all about economics, business or accounting.
Inflation is the most regressive and dangerous “tax” on moderate-to-lower income Americans that can ever be imposed. The damage inflation does to average American family households is the worst part of the LIFO-ification of our economy since Biden took office.