Tax Policy

Congress substantially revised the corporate alternative minimum tax in 1986 to ensure that no corporations with substantial income avoided paying a large share of its taxes through the use of exclusions, deductions, and credits. Congress also made changes to the alternative minimum tax so that corporations that reported significant income on their financial statements for a given year would pay some tax in that year. The corporate alternative minimum tax raised nearly $2.6 billion in net revenue in 1992. This report discusses the number, size, and industry class of corporations that paid the tax during 1997-92; why they were liable for it; whether the tax achieved its purpose; and how the tax might affect corporate investment.

GAO found that: (1) AMT accelerated tax payments of $27.4 billion and corporations used credits totalling $5.8 billion from 1987 to 1992; (2) at the end of 1992, corporations had accumulated $21.6 billion in credits that would result in lower tax revenues in the future; (3) of the 2.1 million corporations subject to AMT, 2,000 large corporations paid 85 percent of all AMT in 1992; (4) the two AMT provisions that produced the largest increases in taxable income were the depreciation adjustment, used by 87 percent of all AMT payers, and the adjusted current earnings adjustment, used by 67 percent of all AMT payers; (5) manufacturing, transportation, and finance industries paid the most AMT; (6) AMT has achieved its objectives of making profitable corporations pay tax and causing corporations that report positive amounts of income in a particular year to pay some tax in that year; (7) the effects of AMT on corporate investment are unclear due to insufficient data; and (8) while AMT might reduce present cash flows, future cash flows may be enhanced as taxpayers recover AMT credits.