Want to Help Minorities? Eliminate Opportunity Zones.
It's becoming more and more clear every day: If policymakers actually want to help struggling minorities, they’re certainly doing a poor job of it.
For years, lawmakers have been paying lip service to black communities, gaining votes on the backs of policies that only hurt the people they claim to help. Black families have especially struggled economically. The average household income for black families is over $28,000 less than white families. Wages paint a similar tale, with blacks earning, on average, $212 less per week than whites. For decades, lawmakers on both sides of the aisle have offered a bad solution to this problem: tax incentives, especially in urban neighborhoods plagued by poverty and gun violence.
The latest example of this is Qualified Opportunity Zones (QOZs), included in the 2017 tax cuts. The way QOZs work is that investors get a capital gains tax break for investments made in qualified areas. The tax break scales with time. The lowest benefit an investor can receive is a temporary tax deferral on capital gains income that is reinvested into the zone. The tax benefit increases to a 10-percent tax exclusion for any reinvested gain held for over 5 years in a qualified area. Finally, if an investor holds an investment for over 10 years in a zone, he can permanently exclude 100 percent of capital gains income produced from investing in a QOZ from taxation. President Trump routinely touts this as a way his administration has helped racial minorities economically. He shouldn’t be so proud.
So it goes, QOZs are merely windfall for wealthy investors.
America contains more than 8,700 QOZs picked by governors and local politicians. It’s no coincidence that 15 out of 30 NFL stadiums are eligible to receive these tax credits, including the Las Vegas Raiders’ new $2 billion dollar stadium. Unfortunately, local politicians often chose to subsidize already-planned investments in their cities. According to an Urban Institute study, only 30 percent of QOZs are located in low-investment areas while 28 percent of them are in areas that attract some of the highest levels of investment in the nation. Cities like Louisville, which sustained the most protests following the deaths of George Floyd and Breonna Taylor, were especially hurt by poor selection. Louisville’s local politicians picked many of the fastest-gentrifying neighborhoods for this tax break while neglecting seven of the city’s poorest neighborhoods.
Not only are they often designated in the wrong places, QOZs are also too complex to be of any use to the poor. In fact, the IRS has released over 500 pages of regulations and guidance since the program was created. Only wealthy investors have the extensive tax planning resources to navigate these regulations, and low-income minorities are, once again, left on the fringes.
Investors seeking high returns tend to invest in luxury apartments and hotels that attract rich, white spenders over small businesses employing people who live in the distressed areas. This is exactly what’s happened in Denver, as the city’s Opportunity Zones have seen over $1 billion invested in high-end real estate since the program was established.
For these reasons, an analysis found that “22 [QOZs] have seen the number of households with an income over $200,000 grow by at least ten percentage points.” Here, too, the poor lose —when wealthy residents move into these urban areas, local rent prices inflate, pushing out those who can no longer afford them. Instead of helping low-income Americans, this policy is robbing them of their own homes.
The policy's failure is nothing new. Tax credits designed to boost the economies of low-income areas have never achieved their main goal. Bill Clinton’s Empowerment Zones cost taxpayers over $100,000 for every new job created according to one study. The New Markets Tax Credit, created in 2000 and covering some of the same areas as Opportunity Zones, also largely failed in stimulating new investment in economically distressed areas. The evidence suggests that Opportunity Zones will have the same result as these failed policies: They cost $7.7 billion over five years, and with very little to show for it.
Our politicians love to pretend they’re helping minorities with these programs, but do very little to actually give them the hand back up that protestors are demanding. That hand up would look a lot like school choice, relaxed zoning laws, and workable criminal justice reform. But in the meantime, politicians should stop steamrolling the struggling minorities with terrible tax policy. That’s just cruel.
Travis Nix is a contributor for Young Voices and a student of tax law at Georgetown Law. His tax and budget commentary has been featured in Fox News, National Review, the Washington Examiner, The Federalist, and the Chicago Tribune among other publications. Follow him onTwitter @tnix113.