Caroline L. Harris
Former Vice President, Tax Policy & Economic Development, Former Chief Tax Policy Counsel


December 08, 2017


Earlier this week, the U.S. Chamber wrote about the last minute, unpleasant surprise the Senate inserted into its tax reform bill – the return of the alternative minimum tax (AMT). We noted the harm it imposes as well as the threat to America’s tax competitiveness its reappearance brings.

In effect, for many companies the AMT would become the primary tax system while the “regular” income tax would become the backstop system. No policy justification exists for reintroducing the AMT, which has been on most analysts “bad policy” list for many years. The Senate brought the AMT back from the dead for one simple reason – they were short of money. Oddly enough, much the same reason the individual AMT in its current form was adopted in the 1986 tax reform act.

Quite a few people agreed with our criticisms of retaining the AMT. The New York Times, The Wall Street Journal, Bloomberg, The Hill,The Washington Post,the Washington Examiner, the Financial Times, Business Insider, and The Washington Times all took notice, as did the rest of the business community in loud and in no uncertain terms. Like us, they had quite a lot to say about the adverse impacts of this stealth tax.

Trade associations like the National Association of Manufacturers were quick to point out the detriment of this tax, stating:

The corporate AMT distorts business decisions and imposes needless complexities and administrative burdens on both taxpayers and the Internal Revenue Service. By definition, companies paying the AMT are paying higher taxes than they would otherwise pay under the regular corporate income tax system. Eliminating the corporate AMT would simplify some of the most complex compliance provisions of the tax code.

The American Petroleum Institute (API) shared concerns over the AMT overriding the pro-growth impacts of this reform:

The inclusion of the corporate AMT as part of this package unwinds all the other provisions in the bill focused on implementing a pro-growth, more competitive and less complex tax regime. The corporate AMT should not be included in any final legislation.

As did the Associated General Contractors of America, noting that,

Reinstating the Alternative Minimum Tax into the tax code would claw back a lot of the positive benefits of tax reform for both pass-through businesses and corporations.

The Air Conditioning Contractors of America highlighted the damaging impacts of the AMT on investments and job creation, stating:

The Air Conditioning Contractors of America (ACCA), is the national trade association representing more than 600,000 professional heating, ventilation, air conditioning, and refrigeration (HVACR) professionals in every state. Our members understand firsthand the importance of modernizing and simplifying our tax code to ensuring greater investments and job creation, but retaining the AMT will only result in fewer investments in installing, servicing, and maintaining the systems which are the largest consumer of energy in our country and our economy depends on to provide comfort and make modern medicine possible, keep our food fresh, and ensure our information systems are operational.

The International Franchise Association also noted the damage to job creation:

Our complicated tax code already punishes job creators such as franchisees. The AMT further stifles economic growth by taking away additional funds that could be reinvested into franchised businesses as well as hiring more employees.

Others noted the damaging impact the AMT has on research and development (R&D). The Aerospace Industries Association provided that:

American innovation happens across years and breakthroughs, not months and annual budget cycles, which is why the Aerospace and Defense industry enthusiastically supported making the R&D tax credit permanent beginning in 2015. Applying the corporate alternative minimum tax with its likely consequence of restricting the use of that credit, unintentionally limits America’s leadership role in innovation.

The General Aviation Manufacturers Association echoed the importance of R&D, noting:

Research and development support innovation and technology advancements in general aviation that drive industry competitiveness and, more importantly, enhance safety. The research and development tax credit provides companies an incentive that helps ensure the general aviation industry continues thriving, providing over one million American jobs, contributing $109 billion to the nation’s GDP and remaining a top net exporter for the U.S.

Likewise, the American Gaming Association noted the importance of the R&D tax credit, stating:

The technology in the casino gaming industry is rapidly evolving and becoming increasingly complex. For that reason, the industry - and particularly the gaming equipment manufacturers and suppliers - has a strong interest in the tax rules governing these costly investments required to constantly innovate. The R&D tax credit is a key incentive for gaming equipment manufacturers and suppliers to continue to invest millions of dollars toward the development of cutting edge technologies. The R&D credit should be retained as a permanent provision of the tax code.

The Associated Builders and Contractors expressed concerns over the AMT’s contribution to accounting method complexities:

If we don’t eliminate the individual AMT, many of the positive benefits of the tax reductions will be lost on ABC members. So even though the threshold for having to use percentage of completion has been raised significantly, those companies under the revenue threshold will STILL have to use percentage of completion for alternative minimum tax.

The National Stone, Sand and Gravel Association highlighted the impact corporate AMT can have on production projects:

NSSGA opposes the Senate proposal to retain the corporate AMT with the rates for both systems at 20% since many of our members would never be a regular taxpayer and effectively lose the percentage depletion benefit thereby increasing their tax liability. Percentage depletion was enacted so that the natural resources industries could account for the uncertainty in reserves and future revenues when investing in and developing and operating production projects in the United States.

Others expressed concern over the impact of the AMT on various bond markets. The Airports Council International-North America focused on private activity bond issues, noting that:

Continuing the AMT for both corporations and individuals will increase the cost of airport infrastructure bonds, since interest earned on those bonds is subject to the AMT. The full repeal of the AMT along with the preservation of Private Activity Bonds represents pro-infrastructure policy.

And the Property Casualty Insurers Association of America highlighted the impact in the municipal bond market:

Maintaining AMT at the same rate as the new corporate rate could have extremely severe negative consequences on the market for municipal bonds, because it will cause all insurers, as one of the top corporate investors in municipal bonds and other corporations with tax-exempt investments, to become permanent corporate AMT payers, effectively making their tax-exempt interest taxable. Insurance companies would face a permanent AMT tax on municipal bond interest, resulting in an overwhelming economic incentive to shift their portfolios entirely to non-tax-exempt investments with higher interest rates, which could not only significantly contract municipal bond demand and available capital, but could trigger serious short-term market dislocations and sell-offs in municipal bond markets.

The American Council of Life Insurers echoed these concerns, noting:

If the corporate AMT is not repealed certain life insurance industry investments, including investments in affordable housing, as well as in tax-exempt municipal bonds that support infrastructure spending, will be severely curtailed, and purchases of corporate owned life insurance, which support employee benefit and retirement programs, will be adversely impacted.

The Insured Retirement Institute and its member companies support the repeal of the corporate AMT, noting its adverse impact on retirement,

The corporate AMT as currently proposed, negatively impacts the retirement income industry by preventing both life insurers and their business customers from taking critical deductions. It will also impair their own as well as their clients’ ability to use incentives available to engage in long-term retirement planning. In addition, subjecting companies to the corporate AMT negates one of the stated goals of the President and majority leadership of the House and Senate for undertaking comprehensive tax reform – that being simplification of the tax code.

The Edison Electric Institute noted the negative ramifications in the electric power space, stating:

For the electric power industry, the inclusion of the corporate alternate minimum tax by the Senate puts tens of billions of energy infrastructure investment at risk and will likely lead to a number of future projects being shelved. Because the AMT rate is set at the same level as the corporate rate in the Senate legislation, it will eliminate businesses’ ability to take current credits, such as the wind production tax credit which can be detrimental as it can impact projects that are already completed or are currently under construction.

And banks were not without their own concerns. The Financial Services Roundtable noted:

Reducing the regular tax rate to 20% while leaving the AMT rate also at 20% will have a number of unintended consequences for banks. Because the AMT tax base is, by definition, a broader tax base that allows fewer tax deductions, tax credits and exempt income, institutions may find themselves subject to AMT for the first time, and for an indefinite period. As a result:

As we said earlier this week, the message is pretty clear: For tax reform to be as pro-growth as possible, that means repealing the AMT. We’re fairly certain the tax conference committee has gotten the message and is as inclined as the business community to bury the AMT once and for all.

Editor's note (12/11/2017): Comments from the American Council of Life Insurers, the Edison Electric Institute, and the Financial Services Roundtable were included.

Tell Congress: The time for tax reform is now.

About the authors

Caroline L. Harris

Caroline Harris is former vice president, tax policy and economic development, and chief tax policy counsel at the U.S. Chamber of Commerce.