Analysis: Late change to the Senate GOP tax bill could give big businesses more of a break

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 would prevent some tax hikes on businesses from going into effect in 2026 if tax revenue hits a certain "trigger" level. In total, businesses would get nearly $120 billion more in breaks in 2026 and 2027 if the trigger goes into effect.

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 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.

"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 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.

For the trigger to kick in, federal government revenue would need to come in about $1 trillion ahead over the nine-year period from 2018 through 2026, or about $110 billion higher per year. That still would not be enough to cover the full cost of the tax cuts, but it would be slightly higher than Congress' official estimators are predicting.

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 government revenue.

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, the official rule keeper, will have final say on whether the trigger is allowed this time. There is no trigger in the bill to raise additional revenue if government receipts fall substantially short of projections.