The voices of Tax Policy Center's researchers and staff
The Senate’s last-minute decision to preserve the corporate alternative minimum tax (AMT) has drawn strong opposition from business and its advocates. Its fate now lies with House and Senate negotiators who are trying resolve differences between the two versions of the Tax Cuts and Jobs Act (TCJA). As you watch this ongoing debate, keep in mind that different industries are affected very differently by the current corporate AMT.
According to the most recent IRS data, firms paid $4.2 billion in corporate AMT in 2013. That is a tiny fraction of the $293 billion in total corporate income tax liability that year, after foreign tax and other credits. Currently, the corporate AMT is heavily concentrated in the insurance, finance, and mining industries. The following table shows how sectors of the economy fare under the current minimum tax.
Combined with the many other corporate tax changes in the TCJA, a retained AMT at a 20 percent rate could affect industries very differently from the current version.
The Joint Committee on Taxation estimates that the corporate AMT would raise only an additional $40 billion over 10 years in the Senate bill. However, others assert the provision would raise several times that much and could effectively eliminate popular incentives like the research and experimentation (R&E) tax credit. They say it could also undo much of the bill’s effort to shift to a territorial tax system by disallowing the deduction US corporations could claim on dividends paid by their foreign subsidiaries.
The renewed debate over the corporate AMT has focused a spotlight on this often-overlooked feature of the current tax system. The AMT is a parallel system to the regular corporate income tax that limits or eliminates certain deductions, credits, and other tax preferences. The current corporate AMT rate is 20 percent, much lower than the top corporate income tax rate of 35 percent. But both the House and Senate versions of the TCJA would lower the corporate rate to 20 percent, making the corporate AMT—if it survives—the de facto corporate tax for many corporations.
If Congress decides to keep the corporate AMT, the distribution of minimum tax payments would be quite different from current law. While the AMT would become the de facto corporate income tax for many firms, the distribution of that tax would also be very different from current law because the tax base of the AMT is so different the tax base of the regular corporate tax.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Matthew Brown, File/AP Photo