Enriching the rich: Trump’s opportunity zones

Another tax break for the wealthy sold as an economy-boosting innovation that will help the poor. We deserve better.

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President Trump signs the Tax Cuts and Jobs Act, including Opportunity Zone provisions,            on Dec. 22, 2017

Stand in front of the vacant building at the corner of S.W. Pacific Hwy and Dartmouth St. in Tigard and you’ll be enveloped in activity.

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11688 Pacific Hwy, Tigard

The traffic is heavy and constant. Nearby businesses include Costco, a thriving Car Toys store, a bustling shopping center and numerous restaurants. It doesn’t look much like an under-invested, economically distressed area badly in need of economic development and job creation.

But the building on the corner, 11686 S.W. Pacific Hwy, is in one of Tigard’s three “opportunity zones.” All are tax-advantaged sites added to the tax code subsequent to President Trump signing the Tax Cuts and Jobs Act on December 22, 2017.

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Tigard’s Opportunity Zones (in dark blue)

The idea, proposed by Sen. Tim Scott (R-SC), was that high-poverty areas/distressed communities would get a leg up with new investments if they were eligible for generous preferential tax treatment. The program was originally proposed in the Investing in Opportunity Act, which Sen. Scott co-sponsored with Sen. Cory Booker (D-NJ) earlier in 2017. The program allowed investors to reduce and defer paying capital-gains taxes if they invested in a qualified opportunity zone fund which invested in an opportunity zone.

“The rich will not be gaining at all with this plan,” the president told reporters prior to a Sept. 2017 White House meeting with the bipartisan Congressional Problem Solvers Caucus.

Areas can qualify as opportunity zones if they have been nominated for that designation by the state and certified by the Secretary of the U.S. Treasury via the Internal Revenue Service.

Investors in a zone earn a 10% tax discount on their gains after five years, then a 15% discount after seven years. If they keep their opportunity fund shares for 10 years, they can sell them without paying any taxes on the money they made from that investment.

But investors have to act fast because to get the greatest potential tax break they need to leave their money in a fund by the end of this year. Under the law, they can defer paying taxes on their initial investment only until 2026. That’s motivating many investments in projects planned well before opportunity zones were designated.

“With Opportunity Zones, we’re drawing investment into neglected and underserved communities of America so that all Americans, regardless of ZIP code, have access to the American dream,” Trump said on Dec. 12, 2018.

But things got off on the wrong foot when real estate experts got hold of the law.  “…what we were greeted with, and I don’t think it’s unfair for me to say this, were eight pages of the most poorly written statute that I’ve come across in my time covering tax policy,” said Tony Nitti, a CPA, currently a Tax Partner with RubinBrown in Aspen, CO. and a Senior Contributor to Forbes.

It took almost a year after the Tax Cuts and Jobs Act became law before the IRS published a lengthy list of proposed regulations on Oct. 19, 2018.

Then the IRS had to address more questions with a second set of 44 pages of proposed regulations on May 1, 2019.

Another problem that has emerged is that not all of the country’s 8,764 certified opportunity zones encompass just under-invested, economically distressed areas badly in need of economic development and job creation. Some also include areas of relative affluence that would be ripe for investment even without the new tax break.

As Samantha Jacoby, a Senior Tax Legal Analyst at the Center on Budget and Policy Policies, a progressive think tank,  has warned, the opportunity zone law is “fundamentally flawed” and the “… tax benefits will flow to wealthy investors with no guarantee that the zones will help distressed communities.”

Even the Wall Street Journal recently  highlighted this problem, noting that, “a tax benefit intended to help poor areas is channeling money to places that are already relatively well-off.”

One such place in a Tigard opportunity zone is raw land at the corner of SW Dartmouth St & SW 72nd Ave.  The 1.69 acres of commercial land in an already prosperous and heavily developed area is being offered for sale for $3,300,000 by the Real Estate Investment Group.

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Because no structure is on the land to improve, it might seem like a speculator could buy this raw land, sit on it without adding anything and then sell the land after ten years tax-free.

But it’s not so simple. An owner must conduct a trade or businessand just holding raw land is not a trade or business. So the purchaser of raw land will also need to invest in substantial improvements on the property, though the owner would not be bound to as specific an amount of improvements..

It would also be quite a stretch to call 11646 S.W. Pacific Hwy, a 29,978 sq. ft. site with a vacant 11,260 sq. ft. building that’s for sale at the corner of S.W. Pacific Highway and Dartmouth St., “economically distressed.”

Marketing material for the site has highlighted that average household income was $71,601 within one mile and $89,792 within three miles in 2015. The material also points out that the site is in the middle of a bustling commercial area that includes retailers such as Costco, PetSmart. A Walmart Supercenter, WinCo Foods and Fred Meyer.

Some readers may remember when the building on the site was occupied by Magnolia Hi-Fi.  The building was constructed in 1996 and NTN Pacific, LLC bought the site from Toyama Hawaii Corp. for $3,100,000 on Jan. 7, 2004 It’s now being offered for lease or sale through Norris & Stevens, Inc.

The buyer of this property won’t automatically qualify for the opportunity zone tax benefits. Since the goal of the program is to improve distressed communities, substantial improvements will have to be made to the property within 30 months.

To be precise, the new owner will have to spend on improvements an amount at least equal to the purchase price of the building. If 60% ($1.5 million) of a $2.5 million purchase price is allocated to the building’s value and 40% ($1 million) to the land’s value, the purchaser will have to invest an additional $1.5 million on substantial improvements, such as redeveloping the building and building out spaces for incoming tenants.

One of Tigard’s stated objectives in creating opportunity zones was to spur the development of more affordable housing.  Tigard is considered a rent-burdened city with over 28 percent of residents spending over 50 percent of their income on rent/mortgages.

But it would be a mistake to assume new housing being built in Tigard’s opportunity zones will address this problem. For example, The 72nd, a 38-unit apartment building that’s under construction on S.W. 72ndAve. will be far from affordable housing.

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The 72nd apartment complex under construction in a Tigard opportunity zone.

A 517 sq. ft. one-bathroom studio at The 72nd will start at $1263 a month; a 690 sq. ft. one-bedroom one-bathroom apartment at $1534 a month. And rents go as high as $1,776 a month for a one-bedroom one-bathroom apartment.

And then there’s the impact of the opportunity zone tax breaks on federal and state tax collections.

The new tax breaks will cost an estimated $1.6 billion in lost federal revenue over ten years, according to Congress’ Joint Committee on Taxation.

At the state level, all the tax breaks lower individuals’ and corporations’ “gross income,” as the Internal Revenue Code defines it. If states piggyback on that definition, as most do, the breaks will automatically flow through to state individual and corporate income taxes unless the state proactively “decouples” its law from the opportunity zone provisions. Without decoupling, states will miss out on collecting revenue needed to fund other priorities needed for healthy economy.

As the Oregon Center for Public Policy, a left-leaning think tank, put it, “Someone will have to pay for the subsidies going to the wealthy investors profiting from Opportunity Zones, and that someone will be schools and essential services.”

So it’s not cynicism to see the opportunity zone program as yet another misguided giveaway. As Caesar proclaims in David Staller’s adaptation of “Caesar and Cleopatra,”  “The power of accurate observation is commonly called cynicism by those who have not got it.”.

Welcome to opportunity zones — tax shelters for wealthy investors and real estate developers who can put their money to work in areas the least in need of assistance, reducing state and federal tax revenues and increasing already excessive federal deficits.

Another well-intentioned program gone awry.

 

 

And you still think Joe Biden has all his marbles?

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Question at the Sept. 12 Democratic debate:

“Mr. Vice President, I want to come to you and talk to you about inequality in schools and race. In a conversation about how to deal with segregation in schools back in 1975, you told a reporter, ‘I don’t feel responsible for the sins of my father and grandfather, I feel responsible for what the situation is today, for the sins of my own generation, and I’ll be damned if I feel responsible to pay for what happened 300 years ago..’ You said that some 40 years ago. But as you stand here tonight, what responsibility do you think that Americans need to take to repair the legacy of slavery in our country?”

Biden’s response:

“Well, they have to deal with the — look, there’s institutional segregation in this country. And from the time I got involved, I started dealing with that. Red-lining banks, making sure that we are in a position where — look, you talk about education. I propose that what we take is those very poor schools, the Title I schools, triple the amount of money we spend from 15 to $45 billion a year. Give every single teacher a raise, the equal raise to getting out — the $60,000 level.

Number two, make sure that we bring in to help the teachers deal with the problems that come from home. The problems that come from home, we need — we have one school psychologist for every 1,500 kids in America today. It’s crazy.

The teachers are — I’m married to a teacher. My deceased wife is a teacher. They have every problem coming to them. We have — make sure that every single child does, in fact, have 3-, 4-, and 5-year-olds go to school. School. Not daycare. School. We bring social workers into homes and parents to help them deal with how to raise their children.

It’s not want they don’t want to help. They don’t — they don’t know quite what to do. Play the radio, make sure the television — excuse me, make sure you have the record player on at night, the — the — make sure that kids hear words. A kid coming from a very poor school — a very poor background will hear 4 million words fewer spoken by the time they get there.”

Moderator

“Thank you, Mr. Vice President.”

 

Oregon’s new K-12 instructional mandates will erode quality education

Oregon’s already underfunded and overwhelmed K-12 teachers are getting ready to deal with the addition of  more labor-intensive, complicated and questionable  instructional mandates imposed on them by politicians.

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It began with the passage of legislation in the last session requiring all Oregon school districts to teach about the Holocaust and genocide beginning with the 2020-2021 school year.

Claire Sarnowski, a freshman at Lake Oswego’s Lakeridge High School, came up with the idea of mandating Holocaust instruction after hearing Holocaust survivor Alter Wiener tell his story. Sarnowski approached state Sen. Rob Wagner, who agreed to introduce a bill.

It all sounded so simple and straightforward at the outset, but the final legislation was a classic example of mission creep.

The legislation went far beyond mandating that students be taught about the Holocaust and genocide. Employing the coercive power of government, teachers are going to be required to address a slew of  social justice topics: the immorality of mass violence; respect for cultural diversity; the obligation to combat wrongdoing through resistance, including protest; and the value of restorative justice.

Do we really need teachers encouraging a hodgepodge of demands from children, resistance to authority and protest by K-12 students rather than learning and dialog, particularly when adults are using students as part of a cynical political strategy?

Tom Nichols, author of The Death of Expertise, wrote in The Atlantic  that too often faculty and administrators are engaged in “a shameless dereliction of duty” when they embrace student activism.

“Student activism can be an important part of education, but it is in the nature of students, especially among the young, to take moral differences to their natural extreme, because it is often their first excursion into the territory of an examined and conscious belief system, ” Nichols wrote. “Faculty (and administrators), both as interlocutors and mentors, should pull students back from the precipice of moral purity and work with them to acquire the skills and values that not only imbue tolerance, but provide for the rational discussion of opposing, and even hateful, views.”

Oregon teachers probably aren’t too enthused about another little – known new classroom instruction mandate either.

Starting this year, Oregon schools are required to teach tribal history and the Native American experience in class.

Senate Bill (SB) 13, enacted in the 2017 legislative session, called upon the Oregon Department of Education (ODE) to develop a statewide curriculum relating to the Native American experience in Oregon, including tribal history, tribal sovereignty, culture, treaty rights, government, socioeconomic experiences, and current events.

“When Governor Brown proposed SB 13 during the 2017 legislative session and subsequently signed it into law, it was because she deeply values the preservation of tribal cultural integrity and believes that honoring the history of Oregon’s tribal communities is critically important to our state as a whole, and to future generations of students,” said Colt Gill, Deputy Superintendent of Public Instruction.

The legislation stated that the required curriculum must be:

(a) For students in kindergarten through grade 12;  (b) Related to the Native American experience in Oregon, including tribal history, sovereignty issues, culture, treaty rights, government, socioeconomic experiences and current events; and (c) Historically accurate, culturally relevant, community-based, contemporary and developmentally appropriate.”

Sounds admirable, but like the Holocaust legislation, it’s a classic example of mission creep.

First, the curriculum won’t be a limited add-on to current lesson plans. Instead, it will roll out as an extensive, complex set of 45 lessons in five subject areas, including English, social studies, math and science, for fourth, eighth and 10th grade classrooms.

It’s also a new responsibility for the Oregon Department of Education, which has never before been responsible for creating curriculum, and one more subject matter mandate imposed on already overloaded Oregon teachers.

Furthermore, it has the potential to become a tool for indoctrinating students in progressive social justice trends du jour.

According to OPB, The South Umpqua School District, which serves 1,500 students from Myrtle Creek, Tri-City and Canyonville, is already planning multiple days of teacher training sessions that will “expand beyond the tribal history and culture lessons to delve into racially sensitive topics, such as cultural appropriation, implicit bias and microaggressions.”

The basic idea of cultural appropriation is that a particular group, nationality or ethnicity who developed a practice should be the only ones allowed to practice it. Others insult the originating group if they practice it as well.

Too many Oregon adults have already disrupted lives by screaming cultural appropriation. This is not what we should want Oregon children to embrace.

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Two white women were forced to close down their Portland pop-up burrito shop, Kook’s Burritos, in  2017 after being accused of cultural; appropriation.

“…the worst aspect of cultural appropriation is that it is inconsistent with the cultural development and enrichment that a free society promotes,” wrote Mike Rappaport in Law & Liberty. “In a free society, people from different cultures bring their practices to the wider society and they are followed by others in that society, making possible a richer and improved culture.”

Author Cathy Young made a similar point in the Washington Post, arguing that cultural appropriation protests ignore history, chill artistic expression and hurt diversity.  “Appropriation is not a crime,” she wrote.  “It’s a way to breathe new life into culture. Peoples have borrowed, adopted, taken, infiltrated and reinvented from time immemorial.”

Filling the heads of Oregon children with the frightening specter that they are burdened with implicit bias would be unwise, too.

Implicit, or unconscious, bias is the idea that the assumptions, stereotypes, and unintentional actions we make towards others are based on identity labels like race, religion, age, gender, sexual orientation, or ability. Because our implicit associations are stored in our subconscious, we may act on our biases without even realizing it.

The problem is that the implicit bias concept is of questionable validity, based on unproven suppositions and oversold as a solution to diversity issues. But buying into the concept of implicit bias is easy because it feels open-minded and progressive.

However, “almost everything about implicit bias is controversial in scientific circles,” Lee Jussim, a professor of social psychology at Rutgers University, wrote in Psychology Today. “It is not clear what most implicit methods actually measure; their ability to predict discrimination is modest at best, their reliability is low; early claims about their power and immutability have proven unjustified.”

Research suggests that implicit bias training can raise awareness, but there’s not much evidence it actually changes behavior. As John Amaechi, a psychologist and organizational consultant, puts it, the implicit bias concept has become “a ‘get-out-of-jail-free’ card for too many.” Implicit bias training, he says, is too often a “simply a way that organizations can achieve a level of plausible deniability” that they are addressing diversity issues.

And then there are microaggressions, well-intentioned comments or minor slights a speaker may not perceive as negative.

Several years ago, University of California President Janet Napolitano went so far as to tell faculty that saying “America is the land of opportunity” or “Everyone can succeed in this society, if they work hard enough” or even  “America is a melting pot” were microaggressions. That’s because they delivered an inaccurate message that the playing field is even or that people of color are lazy and/or incompetent and need to work harder.

Teaching Oregon children about the horrors of microaggressions will turn them into perpetual victims hypersensitive to casual remarks. In other words, into carbon copies of a lot of today’s misguided college students.

What might be better would be to require that students spend 9/11 every year watching the videos recorded on that terrible day in New York City. Hours of it, the scenes on the street, the footage inside the buildings, and the aftermath. Then, a discussion about the heroism of the average American and the fact we have enemies who want to destroy us.