Opportunity Zones: Trump’s Plan to Drive Private Investment Into America’s Poorest Neighborhoods

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President Donald Trump put an emphasis on economic development when he entered the Oval Office, quickly pushing the Tax Cuts and Jobs Act while cutting back regulations on businesses. These two moves contributed to one of the strongest economies Americans have seen in decades.

Now, he’s working to ensure that Americans living in the nation’s poorest neighborhoods have the same opportunity to enjoy the successes of the economy as the rest of the United States.

As IJR previously reported, Trump signed an executive order creating a council to oversee economic development and investment into low-income neighborhoods — areas he’s calling “opportunity zones.” During his December signing, the president told reporters he hoped this program would allow all Americans to enjoy the growth of the American economy:

“With the creation of today’s council, the resources of the whole federal government will be leveraged to rebuild low-income and impoverished neighborhoods that have been ignored by Washington in years past. Our goal is to make sure America’s great new prosperity is broadly shared by all our citizens.”

Four months after his executive order, opportunity zones are beginning to come to life.

What are opportunity zones?

The U.S. currently has more than 8,700 neighborhoods listed as opportunity zones, with every state and territory participating. A neighborhood qualifies as an opportunity zone based on census data and a nomination from a state’s governor that proves there is a need for economic investment in a low-income area.

Sen. Tim Scott (R-S.C.) and Housing and Urban Development Secretary Ben Carson spearheaded the opportunity zone initiative with Trump.

According to Scott, the goal of opportunity zones is to use tax incentives to recruit private businesses to invest in low-income areas that lack the jobs, infrastructure, and funding needed to bolster economic success.

Watch Scott explain opportunity zones:

“Instead of looking at it from a government perspective, can we find a way to attract more private-sector capital into distressed communities and, by doing so, see the type of renaissance that we’ve seen all across America hit our most distressed communities. Opportunity zones help us get there.”

As Scott explained, recruiting businesses into opportunity zones is the first step.

In the Tax Cuts and Jobs Act, Republicans carved out a tax incentive that allows investors to pay less in capital gains taxes for seven years if they make a long-term economic investment in a qualified neighborhood. The deferred tax percentage grows the longer the business stays in a neighborhood.

The hope is that businesses will develop and stay in these neighborhoods, providing employment opportunities and services these communities would otherwise go without.

Are they working?

According to Carson, businesses have already invested $25 billion into opportunity zones. As IJR previously reported, Carson visited an opportunity zone in St. Louis.

Carson explained that opportunity zones differ from previous economic development plans in that the private investment must be long term in order for the incentive to be worth it.

Watch below:

“The real difference with these opportunity zones is that the investment doesn’t really pay off until [the business] has been there for five years. You’re going to be very interested in your return on investment so you’re not just going to walk away. That’s really going to make a big difference. That’s never been done before.”

Business owners across the country have expressed their excitement about the ability to invest in opportunity zones while scaling back their tax burden.

Scott Goodman, a businessman and former adviser to President Barack Obama, told the Chicago Tribune that the opportunity zones allowed him to save money while making an investment that mattered.

“We want to be purposeful and profitable,” Goodman told the Tribune. “The idea is to come into sites like this, where it’s been in desperate need of investment for a long time. This tax code has allowed it to be a more attractive target for investors.”

While many of the investments will come from large businesses or multimillionaires, that doesn’t mean that small businesses can’t get in on opportunity zones. The Small Business Administration has been urging lower-level investors to consider opportunity zone incentives in their states.

The White House Council of Economic Advisers also found that counties with opportunity zones are seeing wage growth at a rate that outpaces other areas.

What’s the catch?

With $25 billion already invested into opportunity zones, it seems as though the program is off and running, but there are some criticisms of the program coming from both the businesses and the communities that are impacted.

On the business side, investors haven’t been flocking to the program as quickly as some hoped. According to a report from Bloomberg, some companies are not willing to risk investing in an opportunity zone because of the long-term requirements.

If the business were to fail before the seven-year mark, investors would be stuck with not only a failed business, but they’d have to answer for the capital gains taxes as well.

The U.S. Treasury expected around $100 billion to be invested, but with the program deadline of June 29 drawing closer, it doesn’t look as though it will hit that estimation.

On the community side, some have expressed fear that opportunity zones will lead to gentrification that could price residents out of living in an area. Some argue that the policy could backfire, resulting in tax incentives for businesses while low-income families are priced out of their own new-and-improved neighborhood.

Private investment in opportunity zones is just getting started, so it remains to be seen what the long-term impacts of the proposal could mean for both businesses and the communities they invest in.

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