Rep. Wayne Long (R – Bradford) recently filled HB1216: Tax Exemptions for Businesses in Opportunity Zones.
Though an admirable idea, this is a government (taxpayer) sponsored Economic Development plan which has proven ineffective at best. The bill provides tax exemptions to businesses located in a opportunity zones, including income tax, corporate franchise tax, and the elective pass-through entity tax. Though it will result in less money flowing to state government, it would forego the better most effective economic growth plan of providing tax incentives across the board rather than to an ineffective group.
Conservative View:
KEY TAKEAWAYS
Newly created Opportunity Zones included in the 2017 Tax Cuts and Jobs Act offer lower tax rates on targeted investments in designated low-income Census Tracts. Forty years of research show that targeted economic development subsidies have failed to increase employment, raise wages, or advance general economic opportunity. Lower taxes on investment are most effective at allowing economic development and opportunity when the policy is available to all taxpayers.
https://www.heritage.org/taxes/commentary/the-big-fib-about-opportunity-zones-and-your-tax-dollars
KEY TAKEAWAYS
On paper, the idea behind the Opportunity Zones program – a lesser-known provision of the 2017 Tax Cuts and Jobs Act – seems sound: help economically distressed areas around the country by delivering special tax advantages for certain investments. In practice, however, similar programs haven’t worked out as intended. Before expanding the program, as some members of Congress and state legislatures have proposed, lawmakers should wait to make sure Opportunity Zones yield results absent from past programs.
Broadly available tax cuts benefit all Americans, especially the most vulnerable, through a strong economy that generates demand for workers and raises their wages through productivity gains. But targeted development programs similar to Opportunity Zones fail to help those in need. In fact, they have a history of unintended consequences and corruption.
Good intentions aren’t enough. Subsidies from Washington fail to address the underlying causes of concentrated poverty – causes such as lack of educational choice, restrictions on worker freedom, and onerous local regulation and mismanagement.
The gleaming luxury apartment buildings, high-tech industrial parks, and designer shopping centers constructed in these zones generally serve individuals who are already thriving. Place-based economic planning won’t help those saddled with more complex institutional problems.
Liberal View:
https://www.bostonreview.net/articles/the-false-promise-of-opportunity-zones/
The OZ initiative starts from the premise that communities are distressed because of a lack of private investment and that tax policy offers an easy solution. As the Economic Innovation Group (EIG)—a think tank established in 2013 to promote this view—puts it, “the tax code should encourage private investment in communities that are struggling to attract capital, create jobs, and lift residents out of poverty.”
The scheme may sound attractive: What could be so bad about giving the wealthy an incentive to pour money into impoverished neighborhoods? But contrary to Trump’s breathless claims, a mounting body of evidence shows that OZs simply don’t work—at least if the goal is to help lift low-income communities out of poverty rather than redistribute wealth upward, subsidize luxury real estate development, and facilitate gentrification.
In fact, the idea that tax breaks can help revitalize distressed communities has a long history, one that stretches back to the early days of the neoliberal revolution in the United Kingdom. The scheme was imported to the United States by conservatives and eventually won bipartisan support in the 1990s, but the strategy didn’t work in the UK, and it hasn’t worked here. Contrary to the hopes of the Biden administration and a bipartisan group of reformers in Congress, Trump’s overly lax program cannot be salvaged with better reporting and oversight. Addressing place-based deprivation requires a different approach all together—one that empowers communities and local governments rather than seeks to court private investors.
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In short, enterprise and opportunity zones face six key problems:
- They reward the wealthy for making investments they would have made anyway.
The aim is to stimulate new investment that would not have occurred without the tax incentives. But the risk—and the reality in the overwhelming proportion of cases—is that tax expenditures go to subsidizing developments that would have happened anyway. As a result, government is wasting potentially vast amounts of money. This pattern is clearly evident for OZs, which led economists Patrick Kennedy and Harrison Wheeler to conclude in April 2021 that OZs “disproportionately benefit a narrow subset of tracts in which economic conditions were already improving prior to implementation of the tax subsidy.”
- They amount to shuffling the decks.
In many cases investors are simply relocating investments that would have happened anyway so that they occur inside a zone. In other cases, designated zone areas are widened so that projects already in the works receive tax benefits. As in Port Covington, lobbyists have sought to persuade governors or the Treasury to add certain census tracts because of planned investments that fall just outside the zone. In one particularly egregious example, Florida’s then-governor, Rick Scott, amended his nominations for OZs in order to add a tract in which a donor, Wayne Huizenga Jr., had planned to develop a superyacht arena. In these cases there is no net new investment; money is simply moved around.
- They pay little attention to who exactly is benefiting.
Even if the tax incentives spark new investment, the distributional consequences are ignored; it’s usually the wealthy—not the poor—who are benefiting most, or benefitting at all. The construction of market-rate housing in distressed neighborhoods is more likely to push residents out—or force them to spend even more on rent—than to benefit them. As Kennedy and Wheeler note, “the direct tax incidence of the OZ program is likely to benefit households in the 99th percentile of the national household income distribution.” The conceit that these rewards will be shared with low-income earners is just another holdover of trickle-down economics.
- They risk making things worse for the poor.
Indeed, OZs may even exacerbate inequality. Besides displacement, new investment can trigger gentrification as expensive coffee shops, microbreweries, and boutique clothing stores replace diners, dive bars, and Dollar Stores. From the point of view of the gentrifier, the neighborhood has improved, but the ordinary resident faces rising cost of living and a diminished sense of community.
- The benefits—when they exist—may not be justified by the costs.
Even in cases where zone incentives seem to have a made a difference without fueling displacement and gentrification, the costs associated with foregone tax revenue must be weighed against what could have been done with.
- They are undemocratic.
With the possible exception of empowerment zones, the zone idea fails to give residents any say as to what kind of investments they want or need. Unlike mechanisms such as participatory budgeting, which empower residents to have a say in the way local government revenue is spent, poor people are excluded from all OZ decision-making processes; the best one can hope for is the good intentions of venture capitalists and state governors. The reality is that most investors are motivated by avoiding tax and securing profitable returns; whether poor people benefit doesn’t factor into their decisions.