Donald Trump said they had created “countless jobs” and poured $100 billion of new investments into low-income neighborhoods. Sen. Tim ScottTimothy (Tim) Eugene ScottHow expanded credit data can help tackle inequities Dems erupt over GOP 'McCarthyism' as senators vet Biden bank watchdog pick Why Democrats' prescription drug pricing provision would have hurt seniors MORE (R-S.C.) hailed them as “the first, new major effort to tackle poverty in a generation.”
These were “Opportunity Zones” to focus on lifting up impoverished communities. It was the Republicans’ answer to Democrats' free spending poverty programs. The key was investors in these projects would largely escape capital gains taxes. It was to be a win-win, the rich get a little richer while distressed communities are lifted up with more jobs and opportunities.
It was a win ... for the rich. However, it has done precious little for the poor and disadvantaged neighborhoods. This fact is brilliantly captured in a new book, “Only the Rich can Play” by David Wessel, who documents it with prodigious reporting and research, vivid anecdotes and stories, and, where possible, data.
Wessel, a scholar with the Brookings Institution, was a colleague of mine at the Wall Street Journal and probably the best economic correspondent in all my years in Washington. He combines a deep understanding of the dismal science with a remarkable ability to explain it to lesser lights like me.
Opportunity Zones were the brainchild of Silicon Valley billionaire Sean Parker — to lure investors, with generous tax breaks, to invest in poor neighborhoods. He assembled a think tank, Economic Innovation Group (EIG), with Washington political operatives, a Democrat and a Republican. They added a couple blue chip economists: Republican Kevin Hassett, later President TrumpDonald TrumpOmar, Muslim Democrats decry Islamophobia amid death threats On The Money — Powell pivots as inflation rises Trump cheers CNN's Cuomo suspension MORE's chief economist, and Democrat Jared BernsteinJared BernsteinAnnual inflation hits 30-year high The Hill's Morning Report - Presented by Facebook - GOP dealt 2022 blow, stares down Trump-era troubles Expected price increases raise political stakes for Biden MORE, now in the Biden White House.
Parker learned the mother's milk of getting things done in Washington: money. In 2012, he contributed $571,000 to Democrats, only $10,200 to Republicans. Two years later he again gave $571,000 to Democrats, but $409,000 to Republicans.
They then persuaded two aggressive sponsors, a sine qua non for moving under-the-radar legislation: Sen. Scott and Sen. Corey Booker (D-N.J.), both Black.
EIG struck it rich with the election of Trump and his legislative priority, a massive tax cut, the vehicle they needed. Scott got the president on board and helped shepherd it through. As Wessel recounts, there were no hearings, minimal analysis, many lawmakers probably unaware of the provision. They ignored requests for more accountability and rejected critiques from experts like the Urban Institute.
More than 8,000 sites were eligible; not surprisingly, Wessel notes the Trump Treasury official in charge of oversight lacked qualifications.
The investors who set up these OZs with capital gains were able to defer any taxes and then escape taxes on any profits for ten years. In addition to few regulations, there was a huge loophole: areas contiguous to impoverished communities were eligible.
Predictably, Wessel writes, a number of these investments, which cost the government billions, went to projects like a Ritz Carlton Hotel in Portland, Ore., with 15 stories of condominiums on top, ranging in price from $1.6 million to $7 million.
He quotes Anthony ScaramucciAnthony ScaramucciAnti-Trump Republicans endorsing vulnerable Democrats to prevent GOP takeover 'Only the Rich Can Play' documents how Republican program to help the poor didn't Want to evaluate Donald Trump's judgment? Listen to Donald Trump MORE, the one-time Trump sycophant turned Trump hater, boasting about using an OZ fund to invest in a “swank, boutique hotel that's going to create excessive economic rents.”
Other OZ funds, Wessel shows, invested in luxury college student housing Louisville, Ky., Champaign-Urbana, Ill., and Lafayette, La. College students don't have much income, but they sure don't meet Sen. Scott's description of lifting poor people out of poverty. Neither do OZ investments in large storage units: 1,155 units in Dallas, Texas; 109,000 square feet of capacity in Los Angeles; 100,000 square feet in New London, Conn., in a strip mall. Self-storage units create very few jobs, nor expand economic opportunities.
To be sure, Wessel notes, there were a few laudable initiatives: some affordable housing units in Los Angeles, a small mixed-use commercial and housing project in Baltimore, downtown renewal in Erie, Pa.
But these are the exceptions.
The Congressional Joint Tax Committee, with access to the 2019 tax returns, found only a small percentage of eligible communities — 16 percent — received OZ investments, and few of those went to really distressed neighborhoods. The average income of the investors was more than $1 million. Other studies, the book reports, find most of these projects would have been built without the tax break.
The Rev. Donte Hickman, a Baltimore pastor and entrepreneur, initially was a big Opportunity Zone booster; he stood next to President Trump at a White House ceremony to celebrate the opportunities.
Reality set in: Little was going to poor communities, creating few jobs. “Opportunity Zones are nothing more than a monetary play,” he tells Wessel. “It's all about money.”
The claim by Scott that this was a sequel to the Enterprise Zones advocated years ago by the late Jack Kemp, was a reach. Kemp rewarded investments in inner city communities with a jobs and tax cuts condition: no Ritz Carltons. (After several email exchanges with his office, Sen. Scott declined to comment on the Wessel critique.)
Can this anti-poverty sham be fixed? Some Democrats have proposed limiting the OZ tax advantages to investments in genuinely distressed communities.
Two top Biden White House officials, Bernstein and chief of staff Ron KlainRon KlainNew variant raises questions about air travel mandates White House scrambles for safety on holiday parties The massive messaging miscues of all the president's men (and women) MORE, were both involved with EIG — but there is no way this administration can support a supposed antipoverty program that, as “Only the Rich Can Play” shows, provides a lot more for well-heeled investors than for poor people.
Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then The International New York Times and Bloomberg View. He hosts Politics War Room with James Carville. Follow him on Twitter @AlHuntDC.