The Senate last week agreed to include a 15% corporate minimum tax in the Inflation Reduction Act (IRA), a maneuver that is projected to raise $258 billion in new tax revenue over the next decade. On this week’s episode of Now & Then, “Does Anyone Love Taxes?,” Heather Cox Richardson and Joanne Freeman discussed the politicking and cultural reactions behind different taxation schemes, from the 1765 Stamp Act to the 1920s pro-business machinations of Treasury Secretary Andrew Mellon. The corporate minimum tax that buoys the IRA has caused its fair share of battles, including a fierce 1995 debate following then-House Speaker Newt Gingrich’s insurgent Contract with America proposals.
On April 5th, 1995, the House of Representatives passed a $189 billion, five-year tax cut, the first in an effort to bring about the most significant reduction since the Reagan administration’s supply-side frenzy in 1981. “It gives me great pleasure to look the American people in the eye and say: The days of tax and spend are over,” declared Texas Republican Congressman Bill Archer, the bill’s prime booster. “The days of smaller government and less taxes are at hand,” he added.
The proposed tax cut was the last item on the Republican “Contract with America,” a bundle of small government legislation that Gingrich had vocally championed after the Republican victories of the 1994 midterm elections and his assumption of the Speakership. In the first months of 1995, the House had passed a cornucopia of conservative legislation, from massive welfare cuts to death penalty expansions.
The House tax bill proposed to entirely undo the corporate alternative minimum tax (AMT), one of the crowning legislative achievements of the bipartisan Tax Reform Act of 1986, by the year 2000. The Act had applied the individual AMT, which had been set at around 20% for higher-income taxpayers since the 1970s, to corporations.
Back in 1986, the AMT had bipartisan support, including from President Reagan. The AMT was a response to a striking fact: 130 of the 250 largest American corporations paid no federal income tax for at least one year between 1981 and 1985. The provision ensured that companies making over $1 billion would pay taxes at no lower than a 20% rate.
In his October 1986 remarks upon signing the Tax Reform Act, Reagan specifically praised the AMT: “Vanishing loopholes and a minimum tax will mean that everybody and every corporation pay their fair share.”
Between 1987 and 1992, the AMT led to a moderate increase in tax revenue from big corporations–$21.6 billion in increased tax revenue, 3.8% of the total taxes that companies paid during the period. Only around 28,000 corporations paid the AMT, representing about 1.2% of American companies.
In the late 1980s, however, more strident anti-tax voices in the Republican Party began to critique the impact of the AMT on American industry: Gingrich, Archer, and Archer’s fellow Texas Republican Representative Dick Armey. The anti-AMT voices stressed the strain of the provision not only on corporations, but also on state and local governments, which had benefited from corporate purchases of bonds that they were less likely to buy if subject to taxation.
Not all Republicans were on board with eliminating the corporate AMT. Among the skeptical legislators was Oregon Republican Senator Bob Packwood, a central force in the passage of the Tax Reform Act of 1986 and the Chair of the powerful Senate Finance Committee both during the 1986 debates and beginning again in January 1995.
Packwood, however, was far from a perfect leader for the subset of Republicans who hoped to keep the corporate AMT. He was in the midst of a years-long sexual misconduct scandal. In November 1992, ten women — including Packwood’s own staffers and campaign aides — told the Washington Post that Packwood, sometimes in states of extreme drunkenness, had sexually propositioned them, often grabbing and attempting to kiss them.
A political prodigy, Packwood had joined the Senate at age 37 in 1969 and had carved out a niche as both a tax expert and a social liberal in an increasingly conservative party. In 1971, he had introduced the first congressional legislation to federally legalize abortion. In 1991, he was one of only two Republicans to vote against Clarence Thomas’s nomination to the Supreme Court. He also developed a reputation as a leading opponent to Big Oil, one of the principal interest groups most opposed to the AMT.
By the middle of 1995, nineteen women had come forward with allegations against Packwood. Increasingly defiant, Packwood had entered into a long fight against a congressional subpoena of his daily diary, even destroying certain entries that incriminated him.
Despite the continuously mushrooming scandal, Packwood called for a high-profile hearing to explore Republican opposition to the AMT. Newspaper headlines published now-cringeworthy ledes considering Packwood’s attempt to mediate the debate amid his scandal.
The Baltimore Sun, for example, published this on April 3rd, 1995: “Sen. Bob Packwood may not know how to control himself in the presence of some women, but when it comes to the nation’s finances, the Republican senator from Oregon has an excellent grasp of what not to do: cut taxes willy-nilly just to gain votes.”
Despite the uncertainty about Packwood’s future, the Senate Finance Committee converged on May 3rd, 1995, to debate the AMT. In his opening statement, Packwood reiterated his opposition to repealing the minimum corporate tax: “It just must not be allowed to lead to corporations and people of immense wealth paying no tax, or it destroys the faith in the tax system by 90 percent of the taxpayers in this country.”
The Committee first heard from Leslie B. Samuels, the Assistant Treasury Secretary for Tax Policy. In a data-heavy presentation, Samuels, highlighted how many companies would escape taxation without the AMT: “We estimate that approximately 76,000 corporations that would otherwise have paid income tax in 2005 would avoid paying any tax.”
The assembled Senators, who also included another central figure in the 1986 Reform Act debates, Democratic New Jersey Senator Bill Bradley, next heard from Robert McIntyre, who had worked closely with Packwood and Bradley on the Act from his perch as the Director of Citizens for Tax Justice.
McIntyre pulled no punches in his opening statement: “The House has decided, in its wisdom, that it should offer a slap in the face to the designers of the 1986 Tax Reform Act; to you, Senator Bradley, President Reagan, all the others of us who worked on it. They make no bones about the fact that they want to return to the bad old days of widespread corporate freeloading.”
Much of McIntyre’s testimony zeroed in on Big Oil, and particularly on Mobil Oil Company, which in the Spring started running anti-AMT advertisements in the New York Times and Time Magazine. “The AMT has become a nightmare, penalizing capital intensive, low profit margin companies—that is much of American industry,” read one Mobil ad with the headline “Tax Policies That Work.” Within weeks, the ads became more blunt: “Ideally, the corporate AMT would be repealed.”
McIntyre called Mobil’s advertisements “certainly a predictable position for an oil company to take, since they took the position before the Tax Reform Act that it was un-American for an oil company to pay taxes.”
McIntyre also attacked Mobil’s declarations that the AMT inordinately hurt the steel industries by often extending the timing for being able to write-off mill assets longer than the desired seven years: “I mean, how long does Mobil think a steel mill lasts? Seven years? Gosh, they must be making them out of papier mache these days.”
In a passionate denouement, McIntyre rattled off other oil and energy corporations who would likely avoid taxes altogether without the AMT: “So, if you think that CSX, and Champion International, and Dow Chemical, and FINA, Mitchell Energy, Phillips Petroleum-we have a long list-should not pay any tax, by all means adopt the Gingrich-Armey-Archer plan.”
Following the hearing, anti-AMT leaders reiterated their aversion to the tax. On May 22nd, Ari Fleischer, Archer’s spokesman and the future Press Secretary for President George W. Bush, told the Wall Street Journal bluntly about the origins of Archer’s quest to get rid of the corporate minimum tax: “We were struck by how many companies said: ‘If you really want to do something for big business, repeal the AMT.’”
The anti-AMT Republicans never fully got their wish to eliminate the system. While Packwood, certainly a barrier to their repeal efforts, resigned in September 1995, his successor as Senate Finance Committee Chairman, Delaware Senator William Roth, focused far more on reforming the individual AMT than on getting rid of the corporate equivalent.
The 1995 GOP tax bill eventually morphed into the Taxpayer Relief Act of 1997, in which Roth implanted the Roth IRA, a tax-free retirement account, to offset the number of Americans subject to the individual AMT. Archer kept up his attempts to end the corporate AMT until June 1997, when he bowed to voices within the GOP who were eager to end the almost-two-year standoff with President Clinton and congressional Democrats and pass the cuts they could get. Ohio Representative John Boehner said of Archer’s crusade, “It’s just that it’s bad politics, and the Democrats will use this against us.”
Even if the corporate AMT escaped the “Gingrich-Armey-Archer” knife in the 1990s, however, its total revenue generation fell as corporations learned how to utilize various new tax credits to avoid the tax. Now, as the new and comparatively stringent corporate minimum tax moves toward implementation, a descendent of the corporate AMT may bring back the intense tenor of the Contract with America-era taxation debates.
For more on the Contract with America and 1990s tax policy controversies, read Julian E. Zelizer’s 2021 Burning Down the House: Newt Gingrich and the Rise of the New Republican Party.
And head to the Twitter account of Now & Then Editorial Producer David Kurlander for supplemental archival threads on each Time Machine piece: @DavidKurlander.
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