The NYT wrote a woefully imbalanced piece on Opportunity Zones.

September 3rd, 2019 at 9:30 am

A number of people (OK, four…but it’s early) have asked me to respond to the NYT piece from last Sunday on how the Opportunity Zone tax break is nothing but a boon to the rich. As I’ve written in a few opeds, I’ve been a cautious supporter of the program, though I’ve been careful to make the points that a) it’s too early to say much about outcomes, and b) while OZs have the potential to become a wasteful tax shelter mechanism, some early signs are hopeful. And, as the Times points out, some early signs are not.

The problem is, the piece was a list posing as an analysis. It just lists many examples of rich people getting the tax break through the program without a shred of evidence that poor people and places aren’t getting helped. That’s largely because, as noted, it’s simply too early to make this foundational assessment, which is why it’s too early to conclude that OZs are failing to have their intended effect.

In essence, the piece makes two points, neither of which should surprise anyone: rich people have capital gains, and rich investors are taking advantage of the OZ tax break. It then cherry picks a bunch of cases that look bad, where Opportunity Funds are supporting the building of luxury dwellings that would have been financed without the tax break.

Here’s a good example of what’s wrong with the article. In a typical example of why OZ’s don’t work, the Times writes:

Many others [taking advantage of the program] are lesser-known business executives who recently sold small companies or real estate and are looking for ways to avoid large tax bills.

Paul DeMoret, for example, recently sold his auto-industry software company in Oregon. He said he was using some of those capital gains to help finance a Courtyard by Marriott in Winston-Salem, N.C., and an apartment building in Tempe, Ariz., among other projects in opportunity zones. He is making the investments through a private equity firm, Virtua Partners.

This is not anywhere close to evidence of the article’s thesis that OZs are not having their intended impact. To the contrary, it’s showing the part two of the plan is working: investors are tapping the tax break to invest in the zones (part one was picking the zones; as I and others have argued, and the Times agrees, most—not all—of the zones were well chosen). Apparently, the reader is supposed to assume that building a hotel and an apartment building won’t help folks left behind. But without data on employment outcomes, which can’t possibly exist yet, there is no way of knowing this outcome. I could, based on the facts that hotels employ low-income workers who also often live in “apartment buildings” declare success! But that would make no more sense than declaring failure based on this anecdote.

Same with the line of argument that goes: X is a known, greedy jerk. X invests in OZs. Thus, OZs won’t help the poor. Again, not exactly the trenchant analysis we’re looking for from the paper of record. The point of the program is to incent patient capital investment in places that face historical disinvestment. There’s no requirement that the investors are good guys and gals.

And guess what? As Steve Glickman, one of the early designers of the program, points out in this Twitter thread, there are lots of great people—I mean serious non-jerks—who are investing in OZs. But you’ll learn almost nothing about them is this unbalanced piece.

I myself spoke to the authors of the piece for hours about such nuances, and earnestly gave what I believe was a balanced assessment of the program’s promise and risks. I’m perfectly willing to admit that my message—on-the-one-hand-this-on-the-other-hand-that—along with my strong assertion that it’s just too soon to tell, wasn’t definitive, sexy, or even that interesting. But it’s just irresponsible journalism to leave out informed voices (I was co-author, with Kevin Hassett, of the white paper that first introduced the idea) that don’t fit the authors’ slant.

A few other rants:

–The piece quotes someone as saying “Perhaps 95 percent of this is doing no good for people we care about.” There’s simply no possible way to know this, much less put a number on it. I don’t see how a supposed “fact” like that gets by an editor (and I hope the Times doesn’t think “perhaps” makes it okay to run false numbers). Ross Baird, who also has an excellent thread on the NYT piece, had the same reaction, and provides useful background on where the 95 percent comes from.

–A good chunk of what the piece bemoans is actually about building in mixed-income communities. Many of us view this as a potentially positive outcome of OZs. There’s solid social-science research showing the benefits to the poor, especially for young children, of growing up in such places relative to high poverty areas.

–Baird also drills down into just what early days these are re OZs: “The narrative that a “wave of developments” is happening is not yet true. Opportunity Zone funds across the country have raised less than 10% of their goals. It is a new market and most people are very cautious.” In fact, to my knowledge, no OZ project is up and running such that we can evaluate the outcomes on the variables about which I care most: jobs, poverty, incomes.

–My biggest concern about an imbalanced piece like this at this early point in the evolution of the program is its opportunity costs. Yes, we need to identify and stop wasteful projects, like some of those identified on the piece. But a more balanced take would have asked what else needs to be done to make sure the program has its intended effect. Most important, in this regard, is what Kenan Fikri of EIG notes in yet another useful thread reacting to the Times: “20 months have elapsed since passage; it’s time to get the data reporting regime in place.”

–The political framing of the piece is off. As Glickman notes: “Referring to this program as a Trump tax break is in itself disingenuous. The #OpportunityZones legislation was cosponsored by nearly 100 Members of Congress, proportionally divided between GOP & Dems, including several Dem candidates for President.” Sen. Booker (D-NJ) was the leading co-sponsor and is now pushing important legislation—again, bipartisan—to get the data we’ll need to make the evaluation that was lacking in the Times piece.

Let me, for the n_th time, be unequivocal about my own position, not because my view particularly matters, but because this is the view of other progressives who share my take. OZs pose promise and risk. At this point, one could write a piece featuring promising projects, as I recently did (while emphasizing the risks) as easily as the opposite tack taken by the Times. I’ve also been careful to cite the nuanced work by my CBPP colleagues who have legitimate concerns that Opportunity Funds could become wasteful tax shelters.

OZ advocates and close observers, including Glickman, EIG’s John Lettieri (cited in the NYT piece), Fikri, Baird, have been quick to point to developments that are counter to the intention of the law. The reason we do so is simple: we want this thing to work! I’ve been working in anti-poverty policy for over 30 years, and I have absolutely zero interest in a wasteful tax break for rich people. To the contrary, since Reagan, I’ve been one of the most outspoken critics of trickle-down tax cuts. But I and others with similar backgrounds (e.g., Bruce Katz) see potential in OZs.

Whether we realize that potential is the huge, outstanding question, currently unanswerable. The Times made a big mistake by assuming the answer is in and the program’s a flop. That’s wrong, and I and others will continue to do our best to make sure it stays wrong.

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4 comments in reply to "The NYT wrote a woefully imbalanced piece on Opportunity Zones."

  1. Joe Milam says:

    All good responses to the NYT piece. What has been left out of the conversation regarding the OZ legislation and consequences, intended or unintended, is how the fans/sponsors of the OZ legislation have overlooked existing tools to mobilize capital into these under funded ecosystems.

    The Qualified Small Business Stock incentives have been around for some time, yet were completely overlooked in the enthusiasm for this ‘new’ Fiscal Policy tool. Given the complications and concerns as to whether the OZ legislation will simply become a give away to RE investors, one would think that sponsors/fans of OZs would speak to ALL tools in the tool bag that can help mobilize more $’s for more companies in these under funded ecosystems – like the QSBS laws.

    While the QSBS tax laws are not well-known, and only benefit investors in startups, when presented with info on them to the central OZ sponsors/supporters, they seem to simply want to promote the OZs verses examine all tools to solve the underlying problem.

    This (possibly myopic) view/approach results in unintended consequences, as captured in the NYTimes piece.

  2. rick shapiro says:

    It is true that much of the piece is sloppily reasoned; but you fail to acknowledge one very important point: that lawyered-up rich people have always found ways to use directed tax breaks to shield totally unrelated income. Also that the tax break has already enriched the (surprise!) extended Trump family.

    Furthermore, it is clear that directed tax breaks distort investment, and move the economy as a whole away from Pareto optimization. Granted that too many economists allow Pareto optimization to blind them to morality; but using tax relief has proven to be an inefficient way to trickle benefits down to the disadvantaged.

  3. Bob Palmer says:

    I spent years toiling as an adviser in the taxation vineyard before the odor became too much for me. The tax code shot through with special favors and incentives to the well off, and more are added every year. The general principle of giving tax breaks to the already well off seems to be this: They are exceptional individuals, and it makes more sense to incentivize them to do wonderful things through tax breaks than it is for government to attempt wonderful things itself. We all know the government can’t do anything right. Ayn Rand must be smiling.

    But I could never resolve this conundrum: if the truly exceptional have to be incentivized to do a thing they would not otherwise do, then perhaps the thing itself isn’t what it seems.

  4. Stephen Malta says:

    The stage is set and is finalized. Proponents and skeptics alike, there are concerns that do have their merit. These concerns are all reasons to be all in on seeing good come from the situation with the new tools we have. John Lettieri has said it well, “the opportunity is what we make of it.”