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1 Chris R. Edwards, A Primer on the Corporate Alternative Minimum Tax 1 (1994)

handle is hein.taxfoundation/srdaxz0001 and id is 1 raw text is: TAX(;%F- FOUNDATION March 1994 Number 30 A Primer on the Corporate Alternative Minimum Tax By Chris R. Edwards Economist Tax Foundation Figure I Federal Corporate A4MVT Collections 1987-1991 s9.0 S8.0 S7.0 S6.0 S5.G S4.0 S3.0 S2.0 s1.0 SO.0 A new corporate alternative minimum tax (AMT) was enacted as part of the Tax Reform Act of 1986 (TRA86) to serve one overriding objective, according to the House Ways and Means Committee report. That objective was to ensure that profitable corporations would not avoid significant tax liability by using various exclusions, deductions, and credits to which they were otherwise entitled. Thus, the AMT was consistent with the general thrust of TRA86 to broaden the base of the personal and corporate income tax systems while lowering tax rates. Unfortunately, the other main theme of TRA86, simplification, was partly sacrificed in the process. Source: Tax Foundation: Internal Revenue Service. The Economic Recovery Tax Act of 1981 (ERTA) planted the seeds for the AMT by allowing corporations to reduce current taxes paid in years with. for example, large capital investments. However, Congress began to reassess the pro-capital investment philosophy of ERTA, particularly in response to publicity focusing on some major U. S. corporations paying little tax vet reporting significant book income. The AMT was enacted to ensure that these corporations pay some minimum level of current taxes. This objective of the corporate AMT has been achieved: Tax collections from many corporations have significantly increased and collections are more evenly distributed among firms and among industries. In 1991, 30,400 corporations had A-MT liabilities totaling S5.3 billion. The National Association of Manufacturers claims that the AMT has become the primary tax system for some major industries, such as the automotive, steel, and mining industries. Unfortunately. the effect of the AMT goes beyond simply increasing taxes on corporations. The AMT is a disincentive to investment, hits companies particularly hard during economic slowdowns when they can least afford it, and adds substantial complexity to the tax system. The Omnibus Budget Reconciliation Aci of 1993 (OBRA93) contained modifications to the AMT which should alleviate some of these problems and investment disincentives. However, the tax continues to be controversial because its significant economic and compliance costs may exceed any intended policy gains. The Corporate Income Tax In fiscal year 1994, the federal government will collect about S131 billion from the corporate income tax, including both regular 1987 1988 1989 1990 1991

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