'Opportunity Zones' a giveaway to wealthy investors
In the years to come, Oregonians will be on the hook for big giveaways to wealthy investors, unless we act now.
These tax subsidies go by the name "Opportunity Zones," even though they do the exact opposite of their name: they undermine opportunity for the vast majority of Oregonians.
Whether Oregonians end up subsidizing wealthy investors through "Opportunity Zones" depends on whether the Oregon Legislature puts a stop to this tax scheme.
"Opportunity Zones" are one of the many flawed provisions in the Trump tax scheme passed a couple of years ago. Because Oregon automatically connects to parts of the federal tax code, we are on track to give out our own state-version of this tax subsidy — even though the Oregon Legislature never voted for it.
"Opportunity Zones" are a set of tax cuts for capital gains income — the profits from selling investments in things such as stocks, businesses and real estate.
To benefit, investors shift previously earned capital gains into "Opportunity Funds" that then invest in real estate projects or businesses located within areas designated as "Opportunity Zones."
Depending on how long investors keep their investment in the fund, they can shrink the tax bill they would otherwise owe on their previous gains, as well as pay zero taxes on the new capital gains from the "Opportunity Zone" investment.
This scheme is rife for abuse. Though the purported goal is to help impoverished areas, stories from elsewhere in the country have exposed cases of the rich and powerful helping themselves.
As ProPublica noted, "numerous reports have highlighted ways in which politically connected individuals have landed Opportunity Zone designations for areas in which they have a financial stake, sometimes at the expense of poorer areas."
Putting aside the opportunity for corruption, there are at least four good reasons why "Opportunity Zones" are bad for the vast majority of Oregonians.
First, these tax breaks subsidize investments that would happen anyway, using taxpayer dollars to juice already profitable deals. That is especially true in Portland, Oregon's biggest destination for investment. The state designated some of Portland's already booming downtown as an "Opportunity Zone."
One investment that Oregonians could be subsidizing is a new Ritz-Carlton hotel and condominium. The condos in this luxury building reportedly have the highest asking price anywhere in the city.
Second, "Opportunity Zones" exacerbate income inequality, which already stands at record levels. Capital gains income is highly concentrated at the top.
The richest one-tenth of 1 percent of Oregonians together collect nearly the same amount of capital gains income as the bottom 99 percent of Oregonians. Thus, at a time when a large majority of Americans believe that the rich should pay more in taxes, "Opportunity Zones" give a tax subsidy not just to the rich, but the ultra-rich.
Third, "Opportunity Zones" undermine the services that truly promote opportunity. Taxpayer dollars that could fund schools, job training programs and other essential services will instead go to wealthy investors profiting from "Opportunity Zones." Wealthy Oregonians will get a tax break not just for their investments in Oregon, but anywhere in the country.
In other words, public dollars that could be used to put more teachers in classrooms will instead subsidize investments happening in another state.
How much revenue will Oregon lose to "Opportunity Zones" is unclear and hard to predict. That alone ought to alarm lawmakers.
Finally, while "Opportunity Zones" are billed as a way of revitalizing depressed areas, there is no requirement that these investments benefit low-income residents. Worse, they could accelerate gentrification.
That's the process where wealthier residents move into a previously low-income neighborhood, pushing up rents and, eventually, pushing out long-term residents — often people of color.
With so many red lights flashing around "Opportunity Zones," Oregon lawmakers must act responsibly by enacting House Bill 4010 during the 2020 legislative session. This bill disconnects Oregon from the federal "Opportunity Zones," while directing state analysts to study the program and recommend what, if any, parts of Oregon's connection to "Opportunity Zones" to salvage.
The decision on HB 4010 will be a true test of whose interest lawmakers prioritize — wealthy investors or the vast majority of Oregonians.
Daniel Hauser is a policy analyst with Oregon Center for Public Policy; Juan Carlos Ordóñez is communications director of the nonprofit
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