Nevertheless, the argument for repeal is strong. Even many liberals now acknowledge that the AMT has not fulfilled its purpose and may be doing more harm than good. The AMT was enacted as part of the Tax Reform Act of 1986. Its purpose was to ensure that profitable corporations could not discharge their entire tax liability through the use of tax deductions. The AMT set up an alternative tax system in which many tax deductions are disallowed.
Companies pay whichever system yields the higher tax.
However, just 2,000 large corporations paid 85 percent of all AMT collected. Public utilities paid the greatest amount, followed by chemicals, paper, transportation, mining and autos. One of the problems with the AMT is that liabilities can vary greatly from year to year. In a recession year like 1990, when profits fall, capital-intensive firms like auto companies still have a lot of depreciation. That is what triggers a large AMT payment.