Republicans confront new snag for corporate tax cut

Republicans confront new  snag for corporate tax cut
© Greg Nash

Republican senators are wrestling with how to handle the corporate alternative minimum tax (AMT) in the final tax-cut bill.

Senators had initially proposed repealing the corporate AMT. But not long before the chamber passed its tax bill early Saturday morning, they reinstated it to help offset other tax provisions.

The late addition has roiled business groups, who warn that keeping the corporate AMT would be harmful and dampen the economic benefits of the legislation. 

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Many Republicans say they want to repeal the tax or mitigate its impact. But there are challenges to doing so because lawmakers will have to find other ways to raise revenue.

 

“It would be nice if we could eliminate the AMT. However, I’d like to see what the pay-for would be,” Sen. Mike RoundsMarion (Mike) Michael RoundsChamber of Commerce endorses McSally for reelection Senate GOP eyes early exit Senate Republicans signal openness to working with Biden MORE (R-S.D.) told reporters Wednesday.

When asked if the corporate AMT would be in the final bill, Senate Finance Committee Chairman Orrin HatchOrrin Grant HatchBottom line Bottom line Senate GOP divided over whether they'd fill Supreme Court vacancy  MORE (R-Utah) said, “Right now it doesn’t look like it, but you never know.” 

The corporate AMT is a parallel tax code with a rate of 20 percent and a tax base that takes away many tax preferences.

Because the Senate tax bill would lower the regular corporate tax rate to 20 percent, matching the AMT rate, it would effectively eliminate the research and development tax credit and other tax preferences for many businesses.

The Joint Committee on Taxation, Congress’s official tax scorekeeper, estimated that including the corporate AMT in the bill would raise about $40 billion over 10 years. Some tax experts suggest that number should be even higher.

Businesses have argued that including the corporate AMT could make the tax bill less conducive to fostering economic growth.

“Research and development is the lifeblood of manufacturing. The [National Association of Manufacturers] supports pro-growth tax reform, and is working with key policymakers to ensure the final bill does not inadvertently harm manufacturing,” said Chris Netram, vice president for tax and domestic economic policy at the National Association of Manufacturers.

Joe Pasetti, senior director of government affairs at the Semiconductor Industry Association, said that keeping the corporate AMT “effectively repeals the [research and development] credit and potentially undermines several major international reforms.”  

“As a highly research-intensive industry with over 80 percent of sales abroad, [the Semiconductor Industry Association] is gravely concerned about the impact of the AMT on domestic semiconductor research, and we have urged conferees to adopt the House position of full corporate AMT repeal,” he said in a blog post on the group’s website.

Several Senate Republicans said they would prefer that the corporate AMT be eliminated. 

“I think it’s better policy,” Sen. Rob PortmanRobert (Rob) Jones PortmanRomney undecided on authorizing subpoenas for GOP Obama-era probes Congress needs to prioritize government digital service delivery House passes B bill to boost Postal Service MORE (R-Ohio) told reporters Wednesday.

House Republicans would eliminate the corporate AMT in their bill and continue to believe it should be eliminated.

Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyBusinesses, states pass on Trump payroll tax deferral Trump order on drug prices faces long road to finish line On The Money: US deficit hits trillion amid pandemic | McConnell: Chance for relief deal 'doesn't look that good' | House employees won't have payroll taxes deferred MORE (R-Texas) told reporters Wednesday the cost of complexity associated with the AMT “actually undermines some of the pro-growth provisions that we kept in the tax code, such as the research and development tax credit.”

He said House Republicans “feel strongly that the House position [in conference] should be to repeal permanently both the individual and the corporate AMT.”

The issue for Republicans is that if they repeal the corporate AMT, they may need to find another way to pay for part of their tax cuts. Under the Republican budget resolution, the tax bill can’t add more than $1.5 trillion to the deficit.

It’s possible that Republicans may not end up fully repealing the corporate AMT but instead scale it back.

Sen. John ThuneJohn Randolph ThuneWhat Senate Republicans have said about election-year Supreme Court vacancies The Hill's 12:30 Report - Presented by Facebook - Don't expect a government check anytime soon The Hill's Morning Report - Sponsored by The Air Line Pilots Association - Trump contradicts CDC director on vaccine, masks MORE (R-S.D.) said there are “different ways you could structure a repeal or a partial repeal.” For example, the rate could be lowered.

But Portman said lawmakers could just decide to repeal the corporate AMT and try to make up the revenue elsewhere.

Ultimately, it’s up to a House-Senate conference committee to resolve the issue. The Senate voted on Wednesday to go to conference, after the House did so on Monday.

“People are letting us know their concerns, and we’ll just have to take that into account,” Senate Majority Whip John CornynJohn CornynBipartisan praise pours in after Ginsburg's death Chamber of Commerce endorses McSally for reelection Airline job cuts loom in battleground states MORE (R-Texas) said.

Besides the corporate AMT, the conference committee will have to determine the fate of the alternative minimum tax for individuals. The House bill would do away with the individual AMT, while the Senate bill keeps it but increases the exemption amounts.

When asked about the AMT on Wednesday by radio host Hugh Hewitt, Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellObama calls on Senate not to fill Ginsburg's vacancy until after election Planned Parenthood: 'The fate of our rights' depends on Ginsburg replacement Progressive group to spend M in ad campaign on Supreme Court vacancy MORE (R-Ky.) said that repealing it was the “original goal” and is “one of the dials that has to be twisted.”

McConnell also said that he couldn’t say what the final bill will look like because there are many moving parts.

“It’s just impossible for me on your program, or frankly to anybody else at this point, to predict exactly how the final product turns out,” McConnell told Hewitt.