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Sen. Tim Scott's 'Land of Opportunity' (Zones)

The presidential hopeful's signature poverty-fighting policy is a
bust.

South Carolina Sen. Tim Scott may soon be joining the bonfire of
long-shot Republican candidates hoping to dethrone former President
Donald Trump for the GOP nomination in 2024. Earlier this month, Scott
formed a presidential exploratory committee, made a trip to the key
primary state of New Hampshire, and went on a round of media appearances
to boost his profile (where he mainly sidestepped questions about his
stance on a national abortion ban). Rumors have circulated for years
about Scott's presidential ambitions, and there's every indication
that he will run. Scott seems intent on countering Trump's bleak
"American carnage" view of a country in decline with one of sunny
optimism, returning to platitudes about "a land of opportunity," as the

**Wall Street Journal** editorial page glowingly dubbed
<[link removed]>
it.

Unfortunately for Scott's efforts to set himself apart in the race,
the two-term senator's list of policy accomplishments could fit on a
cocktail napkin. His signature legislative achievement was an obscure
measure included in President Trump's Tax Cuts and Jobs Act that few
noticed at the time, but has since wreaked havoc on low-income areas:
opportunity zones.

This benign-sounding policy is intended to revitalize poor urban
communities. In reality, it is an Orwellian disaster that turns such
neighborhoods into domestic tax shelters for the wealthy. Thus far, the
opportunity zone program has mostly fueled gentrification and rampant
speculation in real estate, and even facilitated corruption through the
management of the funds that allocate the investments. Though Sen. Scott
receives the lion's share of the blame, many others from both parties
are also implicated, including Sen. Cory Booker (D-NJ), who helped
co-sponsor the legislation and continues to laud its supposed successes.

The way the zones work is that investors and corporations can defer
paying capital gains taxes by investing into a designated low-income
zone through a qualified opportunity fund (QOF), essentially acting like
an investment vehicle for interest-free loans. The top beneficiaries of
the tax breaks are hedge funds, private equity firms, and real estate
trusts. Amazon, which notoriously built much of its business model
around evading taxes, has strategically placed fulfillment centers and
other sites into over 170 opportunity zones around the country.

In the 1980s and '90s, various iterations of these enterprise zones
were all the rage. Former British Prime Minister Margaret Thatcher and
then-President Bill Clinton experimented with different kinds of
place-based "Empowerment Zones" that couched business-friendly tax
write-offs as anti-poverty programs. These earlier zones were largely a
flop in terms of achieving their stated goals, but at least they were
actually tied to some baseline of job creation. Today, by contrast,
Scott-Booker opportunity zones don't have even that requirement, and
therefore are mainly a tax giveaway for luxury real estate developments.

As author David Wessel details in his recent book on the zones,

**Only the Rich Can Play**, Silicon Valley titan and Napster founder
Sean Parker revived interest in the idea and began using his influence
to promote its re-adoption. Opportunity struck in the midst of the 2017
tax cut negotiations, when the Trump administration was facing backlash
for the president's comments about the far-right rally in
Charlottesville. Sen. Scott used the media frenzy to urge President
Trump to include his then-little-known legislation in the tax bill to
save face by promoting a "do-gooder" project.

[link removed]

Soon after the enactment of the zones, big investors began lobbying the
White House and Trump aides to get preferred carve-outs in the
designation process deciding which areas would get covered as
opportunity zones for investment. That's where egregious political
favoritism came in, sometimes making a mockery of the policy's stated
intentions. A swanky Ritz-Carlton hotel near Portland, Oregon, for
instance, received investments from a QOF.

In 2019, junk bond king Michael Milken personally lobbied
<[link removed]>
his friend, then-Treasury Secretary Steve Mnuchin, to get a tract of
land in Nevada that hardly qualifies as distressed included as an
opportunity site. As it turned out, Milken owned property in the
designated area.

Elsewhere, the Port Covington neighborhood in Maryland famously became
an opportunity zone after aggressive lobbying efforts by Goldman Sachs
as well as Gov. Larry Hogan, a former real estate developer, even though
it contains many high-income earners and businesses. The hedge fund run
by former Trump aide Anthony Scaramucci ended up as the lead investor
into a QOF that helped build a waterfront hotel in New Orleans, run by
billionaire Richard Branson's Virgin Group.

Outside of corruption in the designation selection, the zones have
hardly achieved the stated goals of reducing poverty, according to a
number of recent studies
<[link removed]>.
For one, over half of the tax breaks went to just 1 percent of the 8,000
zones and mostly financed luxury developments.

To be sure, a certain segment of opportunity zone funds have gone to
worthwhile projects that helped low-income areas. But on the whole, many
of the development projects that the funds finance likely would
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have happened anyway without the tax breaks.

Yet another criticism of the zones is that they give wealthy investors
further incentive to accelerate gentrification by building high-rise
lofts and commercial real estate. While these projects may boost
property values, many residents get pushed out of the neighborhoods
before they can experience any of the benefits. According to a recent
report
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from Strategic Actions for a Just Economy, the designation of
opportunity zones in Los Angeles County increased the displacement rates
within those areas by 23 percent. As the organization points out, the
tax breaks going to wealthy investors in those projects could have
instead financed affordable-housing units.

More broadly, the ongoing disaster of these zones should be a lesson in
the failures of an economic philosophy that holds that the only way to
fix a social-policy problem like poverty is to help the wealthy get even
richer. Unfortunately, it's an economic theory that still has a grip
on members of both parties and holds back real solutions. It's long
overdue to put direct public investment and universal welfare programs
back into the core of poverty-fighting policy.

~ LUKE GOLDSTEIN, WRITING FELLOW

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