The effect of the alternative minimum tax on corporate tax burdens

The Tax Reform Act of 1986 revised the corporate alternative minimum tax (AMT) and explicitly linked corporate taxation to financial accounting "Book Income". Congress added the book income adjustment (although temporarily) to eliminate highly publicized instances in which corporations with substantial book income paid no tax. The intent of this study is to assess the incidence of the AMT and the industry groups expected to pay additional taxes under the new law. Our results indicate that while corporate taxes paid increased after implementation of the law, the incidence of the new law did not necessarily fall on those firms expected to pay the new tax. Firms with increased tax burdens did not necessarily incur lower tax burdens prior to the implementation of the new AMT, nor were they the most profitable. Consequently, the potential negative impact of this new law may have overshadowed its expected revenue generation and corrective benefits.