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Trump Order Is Latest Effort to Bolster Opportunity Zones

Aug. 26, 2020, 8:45 AM

The White House is highlighting a new executive order as the latest action taken by President Donald Trump to help poor communities, but critics say opportunity zones may not be the best target of such action.

The order, issued Aug. 24, directs federal agencies to give priority to opportunity zones and other distressed areas when considering where to locate offices and other facilities. Opportunity zones, established in the 2017 tax law to spur investment in low-income and distressed areas, offer capital gains tax breaks for financing projects within designated census tracts.

The White House described the executive order as a way to direct federal investment away from expensive central business districts in favor of disadvantaged areas. The administration estimated earlier this week that opportunity funds raised $75 billion by the end of last year and the policy has been repeatedly touted as a success during the opening days of the Republican National Convention.

“Our goal is to rebuild homes, schools, businesses, and communities that need it the most,” Trump said in a Tuesday statement.

But critics questioned whether the executive order is the best use of federal resources to promote job growth.

“Being a zone is not necessarily well-targeted to need,” said Brett Theodos, a senior fellow at the Urban Institute who studies the incentives. “It’s not immediately obvious to me that this is the best prioritization mechanism.”

Right Approach?

While the tax law set parameters for what types of areas should be eligible for an opportunity zones designations, the selection process was left up to governors.

Well-developed areas, such as much of Portland, are among the more than 8,700 census tracts that made the cut.

“As we know, opportunity zones are varied,” said Samantha Jacoby, a senior tax legal analyst at the Center on Budget and Policy Priorities. “There are some that are truly distressed, some that are sort of in the middle, and some that are pretty high-income.”

There is interest in Congress to mandate reporting on the incentives’ effects on job creation and poverty reduction, but the amount of federal attention devoted to the zones could make it hard to measure the effectiveness of the policy, researchers said. Trump’s executive order follows dozens of federal agency actions to bolster opportunity zones.

“I definitely think there can be empirical, economic analyses of the policy,” said Rebecca Lester, an associate professor of accounting at the Stanford University Graduate School of Business. “But if it’s trying to figure out which specific parts of the policy—was it this new executive order, or something else driving it—it will be very difficult to understand that when you have so many different actions that have changed the policy over time.”

John Lettieri, CEO and president of the Economic Innovation Group, which helped develop the tax breaks, applauded the administration’s effort.

“I would hope that regardless of what happens in the election, that this would be the kind of policy that would become more normalized,” he said Tuesday.

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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