{"id":12144,"date":"2018-05-15T00:28:57","date_gmt":"2018-05-15T00:28:57","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=12144"},"modified":"2018-05-16T00:32:41","modified_gmt":"2018-05-16T00:32:41","slug":"tax-laws-opportunity-zones-wont-create-opportunities-for-the-people-who-need-it-most","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/tax-laws-opportunity-zones-wont-create-opportunities-for-the-people-who-need-it-most\/","title":{"rendered":"Tax law’s ‘opportunity zones’ won’t create opportunities for the people who need it most"},"content":{"rendered":"

Timothy Weaver<\/a>, University at Albany, State University of New York<\/a><\/em><\/span><\/p>\n

The latest federal effort to revitalize impoverished parts of the country using tax incentives is beginning to take shape. Unfortunately, if history is a guide, it won\u2019t work.<\/p>\n

New York<\/a>, New Hampshire<\/a> and Florida<\/a> are among the latest states to nominate low-income neighborhoods for the new Opportunity Zone program<\/a>, created as part of the tax law passed late last year. They hope to join the 18 states already in the program<\/a>, which offers investors a big tax break in exchange for plowing money into areas designated as opportunity zones. <\/p>\n

The program\u2019s backers claim<\/a> this will reduce poverty, increase employment and spur growth. However, research conducted by myself<\/a> and others<\/a> shows that this approach tends to fail. <\/p>\n

An old approach<\/h2>\n

At the heart of the Opportunity Zone program is the simple idea that tax incentives for investors will transform declining areas into thriving economic hubs. This is based on the faulty notion that urban or rural deterioration results from excessive taxation undermining capital investment.<\/p>\n

Specifically, the program lets investors avoid the usual tax on capital gains by putting their profits into so-called opportunity funds, an incentive that lasts until 2026. At least 90 percent of the assets in such funds must be invested in designated low-income zones, which are based on statistical geographic subdivisions known as \u201ccensus tracts<\/a>.\u201d Other incentives kick in if the investment is held for at least 10 years.<\/p>\n

This approach is nothing new. In the 1980s, Margaret Thatcher\u2019s government first tested<\/a> the idea by creating 11 \u201centerprise zones<\/a>\u201d in the U.K. that offered a range of tax breaks and regulatory relief. The most famous of these was in London\u2019s dilapidated docks \u2013 including Canary Wharf \u2013 which soon after underwent a dramatic transformation and is now home to many of the country\u2019s major financial institutions. <\/p>\n

Because it showcased the apparent virtues of the free market, the enterprise zone idea quickly crossed the Atlantic and attracted the interest of conservative<\/a> politicians and thinkers in the United States, such as Brookings Institution policy analyst Stuart Butler<\/a> \u2013 formerly of the Heritage Foundation \u2013 and then President Ronald Reagan<\/a>. <\/p>\n

More than 40 U.S. states eventually created<\/a> these zones, which offer a range of incentives, such as tax relief and job training. <\/p>\n

Although Democrats were generally skeptical at first, over time more became sympathetic to pro-market solutions to the problem of urban decay. The Clinton administration, for example, created a related program<\/a> in 1994 that set up \u201cempowerment zones.\u201d <\/p>\n

Both programs have since expired. <\/p>\n

\n \"\"
\n Former President Bill Clinton created a similar program to set up \u2018empowerment zones\u2019 to revitalize poorer communities.<\/span>
\n AP Photo\/Wilfredo Lee<\/span><\/span>
\n <\/figcaption><\/figure>\n

Do they work?<\/h2>\n

Numerous efforts have been made to assess the effectiveness of such zones, both in the U.S. and the U.K. On the whole, scholars have reached the strikingly similar conclusion that the programs did not work, at least not as hoped.<\/p>\n

In their exhaustive study of 75 enterprise zones in 13 states, Alan Peters and Peter Fisher, professors of urban and regional planning, found<\/a> that the tax incentives had \u201clittle or no positive impact\u201d on economic growth. <\/p>\n

In my own research<\/a> on Philadelphia, I found that the effect of empowerment zones was negligible. The places inside the empowerment zone boundaries actually fared worse in terms of income and employment growth when compared with similar census tracts. They were only marginally better in terms of reducing poverty, which was still more than a third of the city\u2019s households in 2007, over a decade into the program.<\/p>\n

Opportunity zone advocates, meanwhile, have pointed to states like New Jersey<\/a> and Indiana<\/a> as examples of success. However, one study<\/a> suggested that increased economic activity in zones in New Jersey came at the expense<\/a> of non-zone areas nearby, while an analysis<\/a> of the Indiana program suggested that the incentives encouraged a switch to less productive forms of economic activity. <\/p>\n

In the U.K., supporters of the enterprise zone program highlight the London Docklands, which went from a derelict port to a thriving financial services hub. Yet government studies<\/a> showed that relatively few jobs were created and that each one cost US$35,000 to $45,000 in spending and lost revenue. And my own research shows<\/a> that despite these gains the area is still home to some of the most \u201cincome deprived households\u201d in the U.K. <\/p>\n

The goverment\u2019s recent effort to revive the program created 29,000 jobs as of 2017, just half the number<\/a> it promised<\/a>, at a cost of about $3 billion. <\/p>\n

\n \"\"
\n At least some of the areas that may be designated opportunity zones are already the target of investment, such as the old grain terminal in the Red Hook neighborhood of Brooklyn, NY.<\/span>
\n mike<\/a>, CC BY-ND<\/a><\/span>
\n <\/figcaption><\/figure>\n

Helping the poor<\/h2>\n

Despite the lackluster performance of the tax incentive approach in terms of job creation and poverty reduction, the idea continues to attract support on both sides of the Atlantic and across the political divide<\/a>. <\/p>\n

Sadly, these policies almost inevitably result in tax giveaways for investment that would have occurred anyway, as we\u2019re beginning to see with opportunity zones. Under such circumstances, displacement from gentrification is the likely result. <\/p>\n

For example, in Louisville, Kentucky, the central business district and the fast-gentrifying tracts of Nulu, Butchertown and Portland were deemed<\/a> opportunity zones despite having already seen major capital investment<\/a> in recent years, yet seven of the 18 poorest tracts were not. <\/p>\n

We see the same pattern in New York<\/a> where places like Sunset Park, Brooklyn, have been targeted despite having already attracted substantial private investment. The New York Times even identified Sunset Park as one of the city\u2019s \u201chot new neighborhoods<\/a>.\u201d<\/p>\n

\"TheSo what might work to revitalize poor neighborhoods and help the 40.6 million Americans in poverty<\/a>? While there\u2019s no panacea, I argue policies that enhance what I call urban social citizenship<\/a> and empower people to invest in their communities would be far more successful than tax breaks for investors.<\/p>\n

Timothy Weaver<\/a>, Professor of Urban Policy and Politics, University at Albany, State University of New York<\/a><\/em><\/span><\/p>\n

This article was originally published on The Conversation<\/a>. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Timothy Weaver, University at Albany, State University of New York The latest federal effort to revitalize impoverished parts of the country using tax incentives is beginning to take shape. Unfortunately, if history is a guide, it won\u2019t work. New York, New Hampshire and Florida are among the latest states to nominate low-income neighborhoods for the […]<\/p>\n","protected":false},"author":44,"featured_media":12145,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[277],"tags":[803,3810],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/12144"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=12144"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/12144\/revisions"}],"predecessor-version":[{"id":12146,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/12144\/revisions\/12146"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/12145"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=12144"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=12144"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=12144"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}