Since millennials and graduate liberals flocked to defeat President Trump and replace him with a man they barely knew, older people who lived through the disastrous years of President Jimmy Carter from 1977 to 1981 said, “You don’t know what you’ve done. You will learn painful lessons.
The first lesson is what happens with an inept and weak foreign policy like Biden’s, starting with the botched Afghan troop withdrawal last year and continuing with Russia invading Ukraine today and probably with the 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 reached 12%. All were the direct result of the foolish and reckless fiscal and monetary policies under President Carter. In addition to Carter’s failures domestically, his dead-end foreign policy resulted in the capture of 52 American hostages at the United States Embassy in Tehran, Iran by Muslim fundamentalist Ayatollah Khomeni. They were held for 444 days until twenty minutes before the inauguration of President Ronald Reagan on January 20, 1981.
The Ayatollah and Iranian leaders knew that Reagan would not endure their bullying of America as Carter had.
If the past is prologue, then Jimmy Carter’s presidency is coming home to roost in Joe Biden’s White House.
I entered the new Fuqua School of Business at Duke University in the summer of 1981 as part of their 24-month evening MBA program. Right from the start, we took an accounting course focused on how businesses need to 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 all semester. At the time, no one could predict when, if ever, America would emerge from 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, companies can deduct the higher cost of making their product from their selling price, even if they use up earlier lower-cost inventory. If a product sold for $200 in 2021 and cost $100 to manufacture, the company made a profit of $100. If inflation caused the cost of manufacturing the same product to rise to $150 in 2022, the profit would be reduced to $50 solely due to inflation.
The end result is that business owners will report lower 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 as liberal Democrats want to soak corporations and the wealthy to pay for their government programs, higher inflation has the perverse effect of reduce tax payments by large corporations via LIFO accounting.
You can’t make this stuff up. At a time when liberal Democrats say they want the wealthy to pay more taxes, they support policies that will lower their tax bill, not raise it.
America is the only country where inventory accounting can be done under LIFO in accordance with GAAP or “Generally Accepted Accounting Principles”. Smart tax accountants and lawyers can always outsmart smart elected politicians who pass tax laws, especially those who have never worked a day in the private sector in their lives.
No self-respecting private company or publicly traded company has hired the last three Democratic presidents (Biden, Obama, Bill Clinton) before or after their term to run their company. They don’t have the economic or business experience and skills to do so, even though the American people elected them to lead the greatest financial organization the world has ever known. Any board that hired them as CEOs would be committing financial malfeasance if they hired an executive who understood nothing at all about economics, business, or accounting.
Inflation is the most regressive and dangerous “tax” that can ever be imposed on middle to low income Americans. The damage caused by inflation to average American family households is the worst part of the LIFO-ification of our economy since Biden took office.