Trevor Dobbs, Staff Writer
While many believe that the tax plan passed by President Donald Trump was a giveaway to the rich, one thing that people often overlook in the tax plan is the provisions that it gives for areas experiencing economic distress. For those that don’t know, with Trump’s tax cuts and job’s act came a provision that allows investors to reinvest money into special areas called “opportunity zones.” Someone investing in such a zone would have three things. First, they would not have to pay any capital gains taxes on their investments that they hold for 10 years. Second, they can pay a discounted rate for holding an investment in an opportunity zone in shorter amounts of time such as five years. Lastly, if held for less than 10 years, they can get their capital gains taxes deferred.
The opportunity zones number in the thousands and are scattered across many areas in the United States from urban inner cities to poor rural areas. These areas are designated by the U.S. Department of Housing and Urban Development (HUD) with the help and cooperation of state and local governments. The communities designated as opportunity zones are the areas of a state with the highest poverty, most unemployment, and the with the most potential for growth.
The main goal behind these opportunity zones is to encourage investment into these communities, and to facilitate the private sector to want to operate in these communities. The problem that these communities face need this as a solution, since many of these opportunity zones are impoverished simply because of this lack of investment. The Trump administration states that this new initiative will help funnel money into the communities that need it most without having to cost taxpayers a single dime, since this proposal mobilizes the private sector resources.
The effect that this is likely to have is that the communities that are designated as opportunity zones will get pumped with the liquidity that the proposal wants; that is, when investors notice this opportunity to get zero capital gains rate, they will see these communities as a gold mine. Under normal circumstances these communities would not be any source of significant returns on an investment but taking away the taxes you have to pay reduces the cost and thus the potential investment risks associated with these areas. As money funnels into these locations, housing prices will rise for current residents and increase the wealth of homeowners in these areas.
The Trump administration and HUD Secretary Ben Carson recently did a review and announced the results of the “opportunity zones” provision in the Trump tax plan and there are many reasons to be excited about this new development. The administration claims that this provision in the tax plan is part of the reason that Hispanic Americans and African-Americans now have their lowest unemployment numbers in history, average wage growth in opportunity zones on average have risen more than 8 percent, and home prices in opportunity zones have seen about a 20 percent increase. Secretary Ben Carson expects another $100 billion to be invested in these zones “in a fairly short period of time.” While it is too early to make a complete judgement on how this program has fared, so far it is doing fantastic and better than any poverty program that we have ever had. I am excited to see how this will play out in the future as higher property values lead to better local education.