The Trump tax law hasn’t done much for average Americans, but it is poised to make some of the wealthiest Americans richer via a laughably under-regulated program called Opportunity Zones, which lets investors stave off paying capital gains taxes for a decade or longer if they invest in low-income communities.
In concept, the idea could be a boon for struggling towns and neighborhoods. In practice, it’s delivered developers the promise of huge tax reductions for investments they would have made anyway.
The core of the problem is an unacceptably vague law and Treasury Department regulations that fail to smartly define which communities are in deepest need and fail to demand that opportunity zone investments actually benefit low-income Americans.
Little wonder, developers have proven far likelier to use this broad benefit to build low-risk luxury apartment buildings that yield higher returns on their investment than the health centers or infrastructure or affordable housing communities need most.
Here in New York, to date, much Opportunity Zone investment is flowing to communities where development was happening already, places like Gowanus and Williamsburg that are rapidly gentrifying but are, at present, technically impoverished and therefore meet the program’s requirements.
Budget analysts estimate Opportunity Zones will cost the feds $2 billion a year in lost tax revenue. Because New York State and New York City provide incentives that align with federal tax laws, the state and city stand to forego $63 million and $31 million a year, respectively.
Just because the federal program places virtually no limits on the type of investments eligible for the break doesn’t mean the Empire State had to follow that lead; it did. The state should amend its tax law to require Opportunity Zone investors to meet higher standards in exchange for getting city and state tax benefits.
Faced with a deeply flawed federal tax scheme, New York must try to make lemonade.