It should be clear by now that a minimum tax is no substitute for the complicated determination of whether any particular activity should be treated preferentially over any other. Congress showed that it could correct many features of the tax system that led to preferential treatment of different activities. If it is believed that certain activities continue to receive preferential treatment, even a small reduction in the incentive for regular tax purposes is preferable to targeting the incentive solely through the minimum tax. Reducing the value of tax preferences, while generally moving the tax system in a direction closer to taxing economic income, will not eliminate the possibility that firms will pay no tax even as they report positive profits to their shareholders. Differences will arise between the time in which certain expenses may be deducted for financial purposes and tax purposes.
Tax credits can also potentially reduce tax liability to zero even if taxable income is positive.
But taxable income and income measured on financial statements are used for different purposes, and such differences should not in themselves be disturbing. The only way to ensure that a firm reporting positive profits pays positive taxes is to rely exclusively on financial statement income for tax purposes. The short-lived experience of the book income adjustment of the AMT suggests that this would serve neither tax interests nor financial interests well. In general, there are few safeguards against a corporation reporting too little income for financial purposes, just as the tax system has no penalties for a corporation that wishes to overpay its taxes. It is inconceivable that a tax system that allows a corporation's tax liability to be a function of its willingness to understate its earnings for financial purposes would have any desirable characteristics.