New Bill Would End Tax Breaks For Private Prisons
“Companies that make money from the Trump administration’s inhumane immigration policy and a criminal justice system that disproportionately imprisons people of color are going to pay taxes like any other corporation.”
Sen. Ron Wyden (D-Oregon) introduced legislation on Thursday to end tax exemptions for private prison companies. President Trump’s zero-tolerance immigration agenda has relied heavily on private prison contractors, who have benefited not only from a surge in federal contracts but also from legal designations that allow them to avoid paying taxes.
“The private prison industry is booming, particularly with the Trump administration holding more immigrants in detention than any time over nearly the past 20 years. Companies that profit off of putting children in cages shouldn’t get tax breaks,” Wyden said in a statement.
Tax Loopholes for Private Prisons
Private prison companies like CoreCivic and GEO Group, which together provide more than two-thirds of the beds for migrants in detention, are classified as real estate investment trusts (REITS), which means their profits from real estate holdings are not taxed at the corporate level. Instead, they are taxed at the individual level when the companies’ shareholders earn dividends.
Lauren-Brooke Eisen, author of Inside Private Prisons, told the Guardian the Obama administration originally allowed private prison companies to make the legal switch in 2013 because the industry convinced the IRS that “renting out cells to the government is the equivalent of charging a tenant rent, thus making such business primarily a real estate venture.”
Sen. Wyden’s proposal would force private prisons and detention centers to pay taxes at the corporate level. The Oregon senator introduced similar legislation in 2016 but it did not make it out of the committee.
“My proposal is simple. Companies that make money from the Trump administration’s inhumane immigration policy and a criminal justice system that disproportionately imprisons people of color are going to pay taxes like any other corporation,” continued Wyden’s statement.
Eisen, who is also an attorney at the Brennan Center for Justice, told the Guardian: “The way they are able to get away with that, is that they’re not allowed to keep a lot of cash on hand, they have to give it back to investors through dividends. But it allows them to have an incredibly low tax rate.”
Private prison companies’ business model is not only subsidized by billions of dollars in taxpayer money, but also hundreds of millions in loans from major banks. While JP Morgan Chase and Wells Fargo recently divested from private prisons after public outcry, their REIT classification is part of what made them attractive to major financial institutions in recent years.
Hedge funds that manage pensions have also been major investors in the private prison industry, and the renewed focus on stripping private prisons of REIT status could significantly curtail their private financing. The American Federation of Teachers (AFT) President Randi Weingarten told Axios she became aware of the issue after receiving numerous requests from members concerned their pensions were indirectly funding family separation and immigrant detention.
“Hedge funds that invest in private prisons are not only profiting off a broken justice system and abetting the administration’s policies of family separation … They are also making a risky bet on an industry rightfully under siege,” said Weingarten.
Private prisons have not only been accused of inhumane living conditions, but also slave labor. In the Immigration and Customs Enforcement’s “voluntary labor” program, detainees work for a minimum of $1 per 8 hour work day. According to the Project on Government Oversight, “they clean, they cook, they do laundry, and they garden—some advocates say they keep the facilities running.”
The Obama administration planned to phase out private prison use, but Trump’s Justice Department reversed that decision in February 2017. Private prison companies like GEO Group and CoreCivic enjoyed soaring stocks after the 2016 election, and have been major campaign donors to the president.