A new program, the Opportunity Zone program, uses tax incentives to encourage investors to help revitalize low-income communities. However, an urban policy and politics professor at the University at Albany, State University of New York, Timothy Weaver, says that research on similar programs from the past suggests it doesn’t work to reduce poverty.
Eighteen states are already in the program, and New York, New Hampshire and Florida are among the latest states to nominate low-income neighborhoods for the new Opportunity Zone program. Weaver writes:
At the heart of the Opportunity Zone program is the simple idea that tax incentives for investors will transform declining areas into thriving economic hubs. This is based on the faulty notion that urban or rural deterioration results from excessive taxation undermining capital investment. Specifically, the program lets investors avoid the usual tax on capital gains by putting their profits into so-called opportunity funds, an incentive that lasts until 2026. At least 90 percent of the assets in such funds must be invested in designated low-income zones, which are based on statistical geographic subdivisions known as “census tracts.” Other incentives kick in if the investment is held for at least 10 years.
On the whole, scholars have reached the strikingly similar conclusion that the programs did not work, at least not as hoped. In their exhaustive study of 75 enterprise zones in 13 states, Alan Peters and Peter Fisher, professors of urban and regional planning, found that the tax incentives had “little or no positive impact” on economic growth.
In my own research on Philadelphia, I found that the effect of empowerment zones was negligible. The places inside the empowerment zone boundaries actually fared worse in terms of income and employment growth when compared with similar census tracts. They were only marginally better in terms of reducing poverty, which was still more than a third of the city’s households in 2007, over a decade into the program.
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