The Alternative Minimum Tax, passed in 1986, is coming under increased scrutiny since it appears to kill competition, discourage job creation and puts U.S. companies at a disadvantage in global markets, critics say.

The AMT was established to prevent profitable businesses from paying little or no tax. But many companies that actually are losing money are reportedly being further burdened by the AMT. Critics say the tax is unfair because it is rooted in a depreciation system that fails to account for continuing technological advances in equipment.

• Under the current AMT, the length of time for depreciation is nearly doubled compared to the regular depreciation schedule.

• The practical result has been that low-profit firms and companies that make significant investments before or during a recession are hit hardest.

• Critics say AMT depreciation rules subject capital-intensive U.S. companies to the worst capital-cost-recovery system in the industrialized world, and when firms lose capital they lose business.

• For example, a steel manufacturer in the U.S. recovers only 57.7 percent of the cost of its investment in new continuous-casting equipment, versus 79.3 percent in Germany and 88.3 percent in Brazil.

In newly-industrialized nations such as Singapore, investors in such machinery as engine blocks and pulp and paper manufacturing equipment can recover one-third more of their costs than investors in similar equipment here in the U.S.

• DRI/McGraw Hill estimates that reforming AMT depreciation rules immediately would lower the cost of capital by about 10 percent relative to current law.

• This would produce about an $8 billion to $10 billion increase in investment in capital equipment and would lower capital costs by 10 percent.

• By 2002, our economy would grow by about $15 billion more annually, creating at least 100,000 net new jobs yearly until then.

• Due to the new machinery available to American workers, productivity would go up by an estimated 1.6 percent.

A bill proposed in the Senate would correct the depreciation and the credit problems of the AMT system by allowing businesses to use the same depreciation system for AMT as they use for regular tax purposes.

Source: Monica McGuire (National Association of Manufacturers), "Unfair Tax on Corporations," Investor's Business Daily, June 24, 1997.