As Congress grapples with how best to stimulate the economy, the House is preparing to debate a controversial provision that would cost the federal government billions in lost revenues. The House Ways and Means Committee, as part of their economic stimulus package, has proposed permanently repealing the corporate Alternative Minimum Tax (AMT) – a proposal that budget watchdogs estimate could cost the federal government more than $24 billion over ten years. The AMT was established in 1986 in response to large corporations that were exploiting loopholes to avoid paying taxes on revenues and has undergone many changes aimed at further discouraging corporate tax avoidance. But the House provision would reverse that trend. The plan would retroactively repeal the corporate AMT to 1986, forcing the federal government to pay out billions in rebate checks to corporations that have paid taxes under the law.About $5.7 billion of these rebates would go to only 13 companies. IBM alone would receive about a $1.4 billion rebate. With the Administration and Congressional leaders openly commenting on a possible return to budget deficits, permanent repeal of the corporate AMT would dampen the government's fiscal outlook. Repeal would be a strong incentive for the business community to use existing tax breaks and to seek additional deductions in the future, according to the nonpartisan Center on Budget and Policy Priorities. Without a clear ceiling on how much money the business community can shelter from taxation, federal revenue losses could go through the roof. Losses would diminish the government's ability to make necessary investments in defense, education, and other national priorities. Tax rebates to large corporations would not necessarily lead to new investments in the economy. Most economists argue that the economic effects of any stimulus package should be felt in the next four months. The full effect of repeal of the AMT would not be realized for ten years. Leaders from across the political spectrum have spoken out against including permanent tax cuts in the stimulus package. White House Budget Director Mitch Daniels and Senate Majority Leader Tom Daschle (D-SD) have stated that tax cuts should be temporary to avoid long-term deficits.
Economic stimulus must not come in the form of permanent tax breaks for Fortune 500 companies. The economic benefits of repealing the AMT are questionable at best. Repeal would only erode the government's ability to meet pressing national priorities.
Also see:
Center on Budget and Policy Priorities Analysis of Ways And Means Package
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