One of the most controversial parts of the Senate Republican version of the tax bill is that it makes most tax cuts for businesses permanent, while the breaks for families and individuals go away after a few years. A change inserted in the bill the night before the Senate Finance Committee voted on it would make tax breaks even more generous for large corporations if more money comes in than expected.
In a section titled “Revenue-Dependent Repeals,” the Senate plan gives an additional $120 billion in tax breaks to businesses in 2026 and 2027 if the U.S. government hits certain tax revenue “triggers.”
Republicans say it's a sign of fiscal responsibility. The additional corporate tax cuts only kick in if the government is bringing in more money than expected.
But Democrats say it's another indication of how the bill is slanted in favor of multinational corporations. Instead of using any extra money to help the middle class — who would lose their tax cuts entirely in 2026 — any additional revenue is used to aid businesses.
“Corporations would get another $79 billion in tax cuts in 2027. That’s before Republicans would devote a single dollar to protect low- and moderate-income households from the tax increases they would face under this bill,” says Chye-Ching Huang, deputy director of federal tax policy at the Center on Budget and Policy Priorities, a left-leaning think tank.
The Senate tax bill is expected to add $1.4 trillion to America’s debt over the next decade, according to the official experts at the Joint Committee on Taxation. If tax revenue from businesses and individuals comes in better than expected by 2026 – reducing the total price tag by about half -- then the trigger goes into effect and businesses get a larger tax cut.
The tax cut could still lose money and hit the trigger level, but it would have to lose less than $1.4 trillion.
The provision was inserted in the bill by Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) at the same time that he included the repeal of the individual mandate that requires most Americans to buy health insurance or pay a penalty. The Congressional Budget Office predicts that 13 million people will lose their health insurance if the bill goes into effect.
The trigger provision was at the back of the list of changes and received almost no attention until Huang and David Kamin, a tax law professor at New York University who previously worked in the Obama administration, blogged about it Wednesday. (Huang's post is here. Kamin's post is here).
“This is a one-sided bet, a one-sided giveaway to business,” says Kamin, who says he thinks Republicans were likely trying to hide it.
A senior GOP aide on the Senate Finance Committee who spoke on the condition of anonymity to share details of behind-the-scenes negotiations said the triggers are meant to be a “fail-safe” to “ensure that corporations are subject to tax hikes” to fill any revenue gaps. In other words, if revenue falls short, businesses would end up paying $120 billion in taxes those years, not getting a discount.
But if the trigger does go into effect, corporations would get all the benefits. They would be able to take larger deductions for operating losses, research and meals for employees. They also wouldn't have to pay such high taxes on income earned abroad in low-tax countries. The Senate bill includes many protections to try to stop big companies from paying lower taxes by shifting their profits and intellectual property (IP) overseas. If the triggers kick in, some of those guardrails are weakened.
Republicans argue that the tax cuts are likely to cause the U.S. economy to grow much faster. If tax receipts are strong by 2026 because the tax cuts are working, it would be wise to lower the burden on businesses. But Huang says “it's another signal as to who is going to get taken care of first” by Republicans.
While the vast majority of economists do not believe the tax cuts will generate that much additional government revenue, it's possible that other factors could result in higher tax receipts.
One sticking point is whether this trigger provision will even be allowed to stay in the bill. Republicans are trying to pass the bill under a process known as reconciliation, which only requires a simple majority of senators to vote yes instead of 60 senators like most bills done under “regular order.” But using reconciliation means the bill most satisfy the “Byrd Rule,” says the bill cannot add to the deficit after a decade.
In the past, triggers have typically not been allowed because they make it very difficult to determine whether a bill violates the Byrd Rule. The Senate parliamentarian will have the final say on whether the trigger is allowed this time under the Byrd Rule. There is no trigger in the bill to raise additional revenue if government tax receipts fall substantially short of JCT projections.