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Opportunity zones are one of the Trump innovations that have largely gone under the radar. A massive capital gains tax break to force cash into struggling areas.
Now over a year since the law was changed, I took a look for our weekend paper recently.
Now over a year since the law was changed, I took a look for our weekend paper recently.
The idea is simple. Identify areas with low investment (usually 1 in 5 living below poverty line). Treasury approves. 8,700+ created to date.
Then offer a tax break so appealing that private funds are convinced to back development projects there they otherwise wouldn’t.
Then offer a tax break so appealing that private funds are convinced to back development projects there they otherwise wouldn’t.
Here’s how it is meant to work (in theory).
The benefits are twofold for investors - tax owed on current capital gains is deferred (or reduced) if put back into the zones.
And any profit on new investments in those areas is capital gains tax free after a decade. That’s massive.
The benefits are twofold for investors - tax owed on current capital gains is deferred (or reduced) if put back into the zones.
And any profit on new investments in those areas is capital gains tax free after a decade. That’s massive.
Went to New Britain in Connecticut to see how it’s working.
It used to be a manufacturing powerhouse, nicknamed ‘Hardware City’. The wire coat hanger was invented there.
The city’s motto (in Latin) is “Industry fills the hive and enjoys the honey”.
It used to be a manufacturing powerhouse, nicknamed ‘Hardware City’. The wire coat hanger was invented there.
The city’s motto (in Latin) is “Industry fills the hive and enjoys the honey”.
But it’s factories have largely gone. Population is down 12% on 1970s. Shuttered buildings and scrubland where manufacturing used to take place sit in the old city centre.
But the city now has three opportunity zones.
Its mayor Erin Stewart (the youngest Republican female mayor in US at 31) credits them with a surge of investment interest.
Its mayor Erin Stewart (the youngest Republican female mayor in US at 31) credits them with a surge of investment interest.
Stewart: “People are approaching us – who never would have before – to say, ‘what do you have for shovel-ready projects, what do you have as potential development sites?’”
An NFL star recently called to say he wanted to put his millions back in the city of his birth.
An NFL star recently called to say he wanted to put his millions back in the city of his birth.
Signs are Wall Street is preparing to pile cash into the zones across America. $18bn already raised for funds targeting opportunity zones.
US Treasury forecasts at least $100bn of investment that would never otherwise have gone into the areas.
US Treasury forecasts at least $100bn of investment that would never otherwise have gone into the areas.
Kevin Hassett, chairman of the White House council of economic adviser, credited Trump’s business background with helping the policy become reality.
Asked to explain, he gave an anacdote about pens.
Asked to explain, he gave an anacdote about pens.
One big fear is that major developers will game the system, pouring capital gains in for the tax break while investing in projects they would have backed anyway.
That could yet happen - it’s early days. But Hassett insists signs are that is not the case.
That could yet happen - it’s early days. But Hassett insists signs are that is not the case.
The proof will be in the pudding. Regulations spelling out exactly how tax breaks work are yet to come.
But in New Britain there’s cautious optimism. Mayor Stewart: “Seeing one of these blighted properties developed in each opportunity zone – that is success to me right now”
But in New Britain there’s cautious optimism. Mayor Stewart: “Seeing one of these blighted properties developed in each opportunity zone – that is success to me right now”
Full story over here if you want to read a bit more: telegraph.co.uk/news/2019/03/2…
