House Votes On Alternative Minimum Tax Refunds

by Mike Godfrey, Tax-News.com, Washington

25 October 2001

The House of Representatives yesterday narrowly voted through a tax cut package which includes over $25 billion in alternative minimum tax refunds for US companies. The vote of 216-214 marked a narrow but essential victory for House leaders.

The AMT was introduced in 1986 in order to ensure that large companies could not reduce their tax liabilities to the point where they were paying little or nothing in federal taxes. It runs parallel with ordinary corporate income tax, and the taxpayer pays whichever rate is the higher.

Critics of the tax, such as the National Center for Policy Analysis, say that it acts as a disincentive to investment in America at a time when a cash injection is most needed, and that its removal will give all US citizens a much-needed boost. The House Ways and Means Committee supported this conclusion recently, and added that the tax 'inhibits capital formation, and is administratively complex.'

Others, however, struggle to see how a repeal of the AMT, which would principally benefit profitable corporate giants, could stimulate the economy in any real way: 'Whatever the virtues or drawbacks of the AMT, repealing it can no longer be construed as a stimulus package,' argued Brookings Institution tax economist William Gale.

The hotly disputed provision, which accounts for one quarter of the tax cut bill's cost, is opposed by the majority of Democrats, and even President Bush has come out against the idea of refunds. However, these are seen by supporters to be necessary, because tax credits stored up by businesses in years when they pay the AMT can be used to reduce regular tax liability in future years, and these would be worthless if the tax was repealed.

Yesterday's House vote has annoyed Senate Democrats and Republican moderates, and Democrats let it be known they would be taking a dramatically different approach, with more federal spending aimed at addressing infrastructure and national security needs arising from the recent terrorist attacks.

"It is clear the House bill cannot pass the Senate as it is," said Senator John Breaux, the Louisiana Democrat who was instrumental in whittling down the first Bush tax cut, and Majority Leader Tom Daschle said he agreed with Mr O'Neill's recent assessment that the House vote was mainly "show business".

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