Intended or otherwise, the Republican tax reform bill that takes effect next year will be a boon for investors in the private prison industry - an industry already thriving amid increased incarceration rates in the United States.
Under the new GOP law, investments in so-called “real estate investment trusts” (reits) will see a 25% reduction in tax, from 39.6% down to 29.6%.
Corecivic, formerly Corrections Corporation of America (CCA), and the Geo Group, which together own more than 80% of private prison beds in the US, both restructured as reits in 2013 after a private letter ruling by the Obama Administration IRS green-lit the change.
Even before the tax plan lowered rates, prison companies reaped a mighty benefit from the loophole allowing them to claim reit status:
Before converting to a reit in 2013, Corecivic was subject to a 36% corporate tax rate. After the reorganization, it reported paying an effective tax rate in the first quarter of 2015 of just 3%.
According to [Lauren-Brooke Eisen, an attorney at the Brennan Center for Justice], prison companies have essentially argued that renting out cells to the government is the equivalent of charging a tenant rent, thus making such business primarily a real estate venture. In her new book, Inside Private Prisons, Eisen examines the way this classification has boosted industry earnings.