Trump tax breaks for low-income neighborhoods draw scrutiny

Trump tax breaks for low-income neighborhoods draw scrutiny
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A section in President TrumpDonald John TrumpPelosi eyes end of April to bring a fourth coronavirus relief bill to the floor NBA to contribute 1 million surgical masks to NY essential workers Private equity firm with ties to Kushner asks Trump administration to relax rules on loan program: report MORE’s tax law aimed at revitalizing economically distressed communities is receiving increased scrutiny from lawmakers. 

The GOP tax law, enacted in late 2017, created the “opportunity zones” program, which provides capital gains tax breaks to those who make investments in certain low-income census tracts.

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There is broad bipartisan support for the objectives behind opportunity zones and interest from lawmakers on both sides of the aisle in providing more transparency via reporting requirements about the investments made.

But Democrats are pushing for more substantive changes to the program and have become increasingly concerned about opportunity zones in recent weeks, following news reports highlighting how wealthy developers are influencing and benefiting from the program.

“Reporting is not sufficient to ensure that tax revenue is forfeited only if the intended public purpose is fulfilled,” a group of Democratic lawmakers in the Congressional Black Caucus wrote in a letter Monday. Signers of the letter include House Majority Whip James Clyburn (D-S.C.) and Sens. Cory BookerCory Anthony BookerEnlisting tech to fight coronavirus sparks surveillance fears Democrats urge administration to automatically issue coronavirus checks to more people Democrats ask EPA, Interior to pause rulemaking amid coronavirus MORE (D-N.J.) and Kamala HarrisKamala Devi HarrisEnlisting tech to fight coronavirus sparks surveillance fears Biden says his administration could help grow 'bench' for Democrats Is Texas learning to love ObamaCare? MORE (D-Calif.), who are both running for president.

The opportunity zone portion of the GOP tax law provides several different types of capital gains tax breaks to investors in the zones. The program was based on bipartisan legislation that had been introduced by Sen. Tim ScottTimothy (Tim) Eugene ScottHow much damage? The true cost of the Senate's coronavirus relief bill Senate unanimously passes T coronavirus stimulus package Senate rejects GOP attempt to change unemployment benefits in coronavirus stimulus bill MORE (R-S.C.) and Booker.

Investors who realized capital gains and then rolled over the gains into “opportunity funds” investing in the zones can temporarily defer taxes on those existing gains. If investors hold their previously earned capital gains in opportunity funds for at least 5 years, they pay less in taxes on the investments. And if investors hold investments in opportunity funds for at least 10 years, they don’t have to pay any capital gains taxes on new gains produced by those investments.

The opportunity zone provision is one of the portions of the tax law that Trump likes to highlight. In a speech last week at the Economic Club of New York, Trump called opportunity zones “one of the biggest successes that you’ve ever seen.”

But the program, which is still in its early stages, is drawing concerns from Democrats that it lacks enough rules, amid stories highlighting specific zones and projects that critics think are problematic.

Some articles and think-tank studies have drawn attention to specific areas designated as opportunity zones, including areas included in zones because they are adjacent to low-income census tracts, areas that are already gentrifying and areas that are in college towns that aren’t disadvantaged but appear to be low income because much of their populations are students. There have also been several reports about areas being designated as opportunity zones after developers lobbied government officials.

One specific zone that has drawn criticism is in Storey County, Nevada. The New York Times reported last month that Treasury Secretary Steven MnuchinSteven Terner MnuchinTrump eyes additional funds for small businesses impacted by pandemic Decentralized leadership raises questions about Trump coronavirus response Progressive group knocks McConnell for talking judicial picks during coronavirus MORE instructed the department to designate the area as a zone — after it had been previously determined to be ineligible — after spending time with former “junk bond king” Michael Milken, who co-owns a company that holds land in the area. Treasury said that Mnuchin was unaware of Milken’s investments in Storey County and that the decision to reexamine the zone came at the request of Nevada politicians.

There have also been reports that focus on specific investments being made in opportunity zones that critics say aren’t benefiting low-income residents of the areas, such as investments in luxury apartment buildings.

A Treasury department spokesperson said opportunity zones “were defined by Congress as low-income areas in accordance with census data, and chosen by state and local leaders.” The spokesperson noted that census tracts that are in opportunity zones because they are adjacent to low-income areas also were subject to income restrictions and argued that critics of the program are cherry-picking and vilifying specific projects.

Democrats in Congress have taken a number of actions in recent weeks to increase oversight and impose more guardrails over the program.

Some of their efforts have focused specifically on the Storey County zone. House Ways and Means Committee Chairman Richard NealRichard Edmund NealDemocrats urge administration to automatically issue coronavirus checks to more people One year in, Democrats frustrated by fight for Trump tax returns Pelosi forms House committee to oversee coronavirus response MORE (D-Mass.) and Senate Finance Committee ranking member Ron WydenRonald (Ron) Lee WydenDemocrats ask EPA, Interior to pause rulemaking amid coronavirus Democrats say more unemployment benefits needed in wake of record unemployment claims Democrats fear coronavirus impact on November turnout MORE (D-Ore.) sent a letter to Mnuchin earlier this month seeking information about how the decision was made to designate Storey County.

Neal, Wyden, Rep. John LewisJohn LewisGeorgia makes it easier to get mail-in ballots after delaying primary Kennedy said DSCC prevented him from helping Democrats flip GOP seats Pelosi stands firm amid calls to close Capitol MORE (D-Ga.) and Booker have also asked the Government Accountability Office to issue a report on the census tracts designated as opportunity zones and Treasury’s implementation of the program, while Booker and Reps. Emanuel Cleaver (D-Mo.) and Ron KindRonald (Ron) James KindTreasury watchdog to investigate Trump opportunity zone program How the 31 Democrats in Trump districts voted on impeachment Nearly all Democrats expected to back articles of impeachment MORE (D-Wis.) have asked the Treasury inspector general to review its implementation.

Wyden has also introduced legislation that would terminate zones that are not low-income and specify that investments for certain types of projects, such as sports stadiums and luxury apartments, don’t qualify for the tax incentives. Similar legislation has been introduced in the House by Clyburn.

More Democratic efforts could be on the way.

A spokeswoman for Neal said that the Ways and Means Committee could hold a hearing on opportunity zones in the future.

Rep. Alexandria Ocasio-CortezAlexandria Ocasio-CortezOvernight Health Care: Global coronavirus cases top 1M | Cities across country in danger of becoming new hotspots | Trump to recommend certain Americans wear masks | Record 6.6M file jobless claims Trump blasts Schumer over 'incorrect sound bites' on coronavirus Trump warns against 'partisan investigations' after Pelosi establishes select committee on virus response MORE (D-N.Y.), a prominent progressive, said that she’s been talking to other lawmakers about opportunity zone legislation.

“I don’t have it right on the docket right now, but it’s definitely an area of policy that I think we need to address,” she told reporters Friday. She expressed concerns that “opportunity zones aren’t satisfying the actual intent behind which they were created.”

There is interest from Republicans in making some improvements to the opportunity zones programs as well.

Bipartisan legislation has been introduced in the House and Senate to boost reporting requirements. Stand-alone bills on opportunity zones that predated the 2017 tax law had reporting requirements, but those requirements were not included in the GOP tax law because of the budget rules used to pass the bill in the Senate with only a simple-majority vote.

The Treasury Department and IRS late last month released a draft form to collect information about the amount of investments that opportunity funds are making by census tract.

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Republicans have continued to praise opportunity zones and are critical of legislation like those from Wyden and Clyburn.

Scott blasted the legislation in a statement last week, saying that it would “needlessly punish low-income communities who are hoping to use Opportunity Zones to transform areas left behind.” He argued that legislation would terminate some zones with significant poverty rates and that only a small percentage of zones are in gentrifying areas.

A White House spokesperson said that since Treasury is still working on final rules to implement opportunity zones, “it’s premature to make drastic changes to legislation that so far has created amazing results.” The spokesperson pointed to planned opportunity zone investments in affordable housing, technology startups and rural health centers.

But Democrats are keeping up their pressure.

Rep. Wm. Lacy ClayWilliam (Lacy) Lacy ClayDems unlikely to subpoena Bolton Lawmakers honor JFK on 56th anniversary of his death Trump tax breaks for low-income neighborhoods draw scrutiny MORE (D-Mo.), a co-sponsor of Clyburn’s bill, said Scott should be more open to changes like those in his legislation.

“I don’t want opportunity zone tax [breaks] used for a soccer stadium. I think that was not the original intent of Mr. Scott,” Clay told reporters Friday.