Orrin Hatch and Mitch McConnell Alex Wong/Getty Images

Senate Republicans passed their massive tax bill in the wee hours of Saturday morning.

A last-minute change to keep in place the corporate alternative minimum tax could lead to a number of unintended consequences and suppress research spending.

Business groups are slamming the change, and the GOP will likely need to address it in a conference committee.



Republicans have some patches to make on their tax plan to avoid killing a key corporate benefit.

The Senate version of the Tax Cuts and Jobs Act that was passed around 2 a.m. on Saturday maintains the alternative minimum tax (AMT) for corporations, a parallel set of rules for filing taxes for qualified companies.

Originally, the Senate bill proposed to repeal the corporate AMT, but Senate Republicans added it back in at the last minute to generate revenue for other priorities. The Wall Street Journal's Richard Rubin, who first noticed the change, noted that by keeping the corporate AMT, the bill would undermine key credits that help drive innovation.

The AMT is designed to prevent businesses from taking so many credits and deductions that they pay no tax. So a business computes what they owe under the normal system and under the AMT. Then, they pay the higher amount.

The corporate AMT was rarely used in previous years because it was set at 20%, well under the 35% corporate rate. But, with the corporate rate dropping to 20% under the bill, companies would be forced into using it. A company paying under the AMT is not allowed to take the research and development credit.

The R&D credit allows companies to get back from the federal government money they spend on the cost of developing new products. By forcing more firms into the AMT, fewer would be able to get the credit, potentially dissuading the use of the provision and stifling innovation spending.

The move has drawn a massive amount of blowback from business groups, and opponents of the bill decried the 11th-hour change as evidence of unintended consequences that come with the rushed process.

The US Chamber of Commerce said that maintaining the corporate AMT undermined the bill's ability to generate economic growth.

"Retaining the AMT in reform is even more harmful than it is in its present form - among other things, it eviscerates the impact of certain pro-growth policies like the R&D tax credit and exacerbates the international anti-abuse rules," wrote Carolina Harris, chief tax counsel at the Chamber. "This cannot be the intended impact from a Congress who has worked for years to enact a more globally competitive tax code."

Given the blowback, Republicans are expected to address the issue during a conference committee in which members of the House and Senate tax-writing committees iron out the differences in the two versions of the TCJA.

Exactly how it will be addressed is so far unclear, but the committee is set to begin work on the unified bill this week.

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