WASHINGTON - For nearly eight months, municipal market participants were tantalized by the idea that come Jan. 1, 1996, they might not have to worry anymore about the corporate alternative minimum tax driving up their cost of borrowing.
That hope was born March 9, when House Ways and Means Committee chairman Bill Archer, R-Tex., stunned bond proponents by proposing to repeal the corporate AMT after 2001 and end its application to municipal bond interest after this year.
Hope finally died last week when House and Senate tax conferees approved a much smaller AMT provision in this year's tax bill, agreeing only to ease depreciation rules on firms subject to the levy - a far cry from what Archer had originally wanted.
What's interesting about the route that this particular provision took through the legislative process is that from the beginning most Capitol Hill watchers with an interest in seeing the AMT changed - including many not involved in the municipal market - did not believe that major changes in the minimum tax were in the cards this year, despite Archer's strong support for them.
So those who may have thought the corporate AMT was really on its way out were kidding themselves.
No sooner had the Ways and Means panel approved Archer's AMT proposal as part of the Contract With America tax provisions on March 14 than lobbyists were predicting the Senate would come up with a much narrower AMT measure.
That prediction was fueled in part by the $30 billion price tag of an AMT repeal - a large amount of money anytime, but never more so than this year when House Republicans are also trying to push through several other major tax cut proposals.
Another strike against Archer's minimum tax plan was that one of the two major architects of the current AMT law chaired the Senate Finance Committee - Sen. Bob Packwood, R-Ore. Packwood, according to the conventional wisdom, would never agree to roll back one of the cornerstones of the Tax Reform Act of 1986.
Packwood's abrupt departure in September in the wake of sexual misconduct allegations spurred speculation that the AMT proposal in the House might have new life; the finance panel's new chairman, Sen. William Roth, R-Del., is known as a big supporter of cutting corporate taxes.
But in the end, the price tag loomed too large, and the Senate's rather minor modification to AMT depreciation rules carried the day.
There's still another dynamic at work in the background that may not make achieving repeal of the AMT any easier in years to come: the fairness question.
When it was enacted in 1986, the corporate AMT was hailed as the solution to the perennial problem of making sure big firms pay their fair share of taxes. More recently Archer and other critics have said the AMT does nothing more than cripple economic growth and job creation. But the AMT's aura of fairness hasn't diminished for others.
Take Rep. Maurice Hinchey, for example. Just last month the New York Democrat introduced a resolution calling on Congress to preserve the minimum tax "and prevent large corporations from operating tax-free," according to an Oct. 25 statement released by his office.
Hinchey said it would be hypocritical for Congress on the one hand to cut back on the earned income tax credit, as it plans to do in the upcoming budget and tax package, while simultaneously getting rid of the AMT on corporations.
According to Hinchey, between 1980 and 1985, more than half of the biggest U.S. corporations paid virtually no taxes to the federal government. He didn't offer any statistics showing how many of those corporations were snagged after 1986 by the AMT, but he did say that "tens of thousands of profitable businesses have paid federal taxes that could otherwise have escaped taxes entirely through creative accounting."
Hinchey's resolution certainly wasn't the primary reason conferees watered down the AMT provision. But the issue of fairness and the high cost of getting rid of the AMT probably mean it will be around for some time to come.o
