Hidden in the new tax code passed by a Republican-led Congress and signed by the Trump administration is a new program that critics say will reward gentrification by giving billions in tax breaks to wealthy venture capitalists, individuals and corporations who invest in low-income communities.
On Wednesday, April 17, as journalists waited for the release of the much-anticipated Mueller Report, the Treasury Department issued a set of proposed regulations related to a little-known provision in the 2017 Tax Cuts and Jobs Act (Also known as the Wypipo Welfare Act), the GOP’s overhaul of the tax laws. The new rules included government guidance for Opportunity Zones, described by the IRS as economically-distressed communities “where new investments, under certain conditions, may be eligible for preferential tax treatment.”
A report from Rice University’s Institute for Urban Research called it “gentrification on steroids.” Some lawmakers worry that it will lead to poor people being pushed out of their homes. But Ben Carson insists it will help blacks become self-sufficient and the Trump administration seems to think it will work even though it has been tried many times and always fails.
“This incentive will foster economic revitalization, create jobs and spur economic growth that will move these communities forward and create a brighter future,” said Treasury Secretary and super-villain-in-training Steve Mnuchin with an evil grin.
Essentially, venture capitalists and investors will create “opportunity funds” that will invest in zones primarily located in areas designated as “low-income communities” such as Birmingham’s Civil Rights District and Southeast Washington, D.C. In exchange, the San Jose Mercury News reports that investors would receive “significant tax breaks,” and that “interested investors and developers are lining up, setting the stage for a possible building boom.”
Under the rules, an investor who put their money into an opportunity fund would get a 15 percent tax break after five years. In seven years, the tax incentive would jump to 20 percent. And after ten years, investors in opportunity funds that built businesses in poor neighborhoods wouldn’t have to pay a single dime on the money they invested.
If this sounds like a good idea that would benefit poor communities and regular people who want to invest their money, not so fast my friend.
First, you should know that one can’t just take his or her savings and invest it into an opportunity fund. Nah, homey, you have to already be rich to get this government welfare.
You see, while anyone can invest in a business in low-income areas, the Trump tax break only applies to capital gains earnings that are re-invested into opportunity zones. That’s right—the only way to get the Trump tax break is to invest money that you’ve already made from investing money, which means, under the Republican gentrification plan, one must already be rich to make money from poor communities...
And pay zero in taxes!
Curiously, the Trump regulations don’t require the opportunity zone real estate investors to lease to residents who already live inside the zones. They don’t even require businesses to hire from within the communities from which they are getting huge tax breaks.
The result of the incentive will probably be communities like Solé Mia, a $4 billion dollar real estate development in a distressed part of North Miami, Fla. where residents worry about rising rents and gentrification. Bloomberg reports that an investment company is already pumping money from opportunity funds into the project, despite the fact that the venture capitalists would have likely gone through with the project anyway. Instead, the tax breaks simply increase their profit and allow them to colonize more of the poor south Florida neighborhood.
Residents in California’s Bay area; Brooklyn, N.Y. and Houston, TX share the same concerns. Basically, the Trump administration’s tax break amounts to an increase in profit for investors who are already skilled at hiding money from the IRS. The plan simply gives them incentives to buy up real estate and businesses in poor areas without re-investing the money into those communities.
Will it work?
Well, the Clintons called them “empowerment zones” in the ‘90s and it was a bust. Citylab found the effects in Philadelphia were “negligible.” Another study found that gentrification was significant in the Rust Belt’s opportunity zones. States and municipalities have tried the approach and it has never ever worked.
Unless, of course, gentrification is actually the goal.