On November 16, 2021, David Wessel presented this testimony to the U.S. House Committee on Ways and Means' Subcommittee on Oversight, as part of their hearing, "The Opportunity Zone program and who it left behind."
Director - The Hutchins Center on Fiscal and Monetary Policy
Senior Fellow - Economic Studies
Chairman Pascrell, ranking member Kelly, thank you for inviting me to this hearing on Opportunity Zones.
I am a senior fellow and director of the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution. The views I express here are strictly my own and should not be attributed to the Brookings Institution, its donors, or other scholars. I joined Brookings in 2014 after 30 years as an economic-policy reporter, editor, and columnist at The Wall Street Journal. Relevant for this hearing, I am the author of Only the Rich Can Play, which was published in October.1 The book reprises the history of place-based policies such as Jack Kemp’s Enterprise Zones and Bill Clinton’s Empowerment Zones and New Markets Tax Credit and traces the origins of the Opportunity Zone legislation to Sean Parker of Napster and Facebook fame and the think tank he funded to propel it into law, the Economic Innovation Group. It then looks at what happened after the law was passed – in governor’s offices and at the Treasury – and, at this admittedly early stage, what I found in two years of reporting in Opportunity Zones across the country from Portland, Oregon, to Baltimore.
To summarize my observations: The problem that Opportunity Zones were supposed to address is a significant one: the large and widening gap between communities that are prospering and those that are being left behind. This is particularly worrisome since Americans are increasingly less likely to move than they once were.2 Proponents of Opportunity Zones see this capital-gains tax break as a solution to geographic inequality. Providing people with money an incentive to put it into capital-starved poor communities sounds good. Without question, there are places where OZs are working as the proponents promised, including downtown Erie, Pennsylvania, which John Persinger will discuss today, and SoLa Impact, which is using OZ money for affordable housing in South LA. But there are 8,764 OZs, and nothing in law or regulation requires OZ investors to put their money into those census tracts that really need the money or into projects that will benefit the people who live in the zones. The available evidence and my reporting suggest that the bulk of the money is going to real estate projects that would have been done otherwise or projects that will not do much to improve the lives of the low-income residents of the zones. Proponents and drafters of the Opportunity Zone legislation were so determined to make the tax break attractive to wealthy investors and so allergic to oversight from Washington — which they argued limited the effectiveness of other place-based policies — that they avoided the guardrails and oversight that might have directed more money to places and people most in need of private investment. They also underestimated the cleverness and aggressiveness of the huge industry of accountants, lawyers, wealth advisers and real estate fund managers who find every possible way to exploit the tax code to save their clients’ money. I fear that when we finally get all the data, we will learn that Opportunity Zones did more to cut taxes for the wealthy than to improve the lives of people who live in the zones.
Read the full testimony here.
- David Wessel, Only the Rich Can Play: How Washington Works in the New Gilded Age,” Public Affairs, 2021.
- William H. Frey, “For the first time on record, fewer than 10% of Americans moved in a year,” Brookings Institution, November 22, 2019. https://www.brookings.edu/blog/the-avenue/2019/11/22/for-the-first-time-on-record-fewer-than-10-of-americans-moved-in-a-year/