Tax bill creates rare ‘opportunity’
Much has been said about the tax reform bill over the last couple of months, but few have noticed a provision that gives states a new tool to revitalize struggling communities.
Right now, more than 40 million Americans live in poverty, even though spending on poverty programs has increased by more than 260% since 1965. At the same time, American investors hold trillions of dollars in unrealized capital gains. The idea in this new provision is to create a simple mechanism and incentive for this money to flow into distressed local economies through development projects and business investments.
Here’s how it works: Any governor who wants to take advantage of the provision can designate 25% of a state’s distressed areas as Opportunity Zones. At the same time, investors can put their money in newly created Opportunity Funds. Managers of Opportunity Funds would then be able to invest in designated areas, and investors would receive tax-advantaged rates on their earnings. An important note: Tax benefits only come if investments remain in place for a minimum of five to 10 years — providing a steady foundation for growth.
In other words, rather than this money sitting on the sidelines, Opportunity Funds can help deploy capital where it’s needed most, driving job creation and wage growth in areas struggling with poverty. This would allow Wisconsinites investing in Opportunity Zones not only to get a return on their investment but also to play a part in revitalizing some of our most distressed areas. Instead of betting on some sterile stock or abstract commodity, Wisconsinites can take a chance on their neighbors and local communities.
It’s true that the Wisconsin Economic Development Corp. already offers tax credits to businesses that relocate to certain areas in the state, but this is limited to three cities. Opportunity Zones create a wider pool of investors, bringing more money that can be invested in more communities. And there’s no check written by taxpayers: It’s a market-based, federal incentive that gives investors a new reason to scout for opportunities in communities they might otherwise overlook.
While continued development in places such as Milwaukee and Madison helps make us more competitive nationally, we can’t neglect other areas where Wisconsinites are suffering from depressed wages, disappearing businesses and fewer opportunities to move up the economic ladder. Nearly 10% of Wisconsin’s population lives in one of these distressed communities. Opportunity Zones could not only tap into their unrealized potential but also encourage younger Wisconsinites (who are disproportionately moving to larger cities) to work and raise a family in the smaller cities that desperately need their energy and entrepreneurship.
The area I represent in northeast Wisconsin has many exciting development projects in cities such as Green Bay and Appleton. But it also has communities where the poverty rate can range from 18% to an alarming 27% (that’s more than double the rate for the state as a whole). Combined with a median household income that is hovering at $36,000 in one place, and a workforce participation rate that is just barely over 50% in another, these are a couple of the many distressed Wisconsin communities that could benefit from being designated an Opportunity Zone.
It’s rare to see bipartisan opportunities coming out of Washington D.C., these days, but this is one we should take full advantage of for the good of Wisconsin. After all, if there is one thing that should unite us, it’s helping to lift our fellow Wisconsinites out of poverty and giving them a shot at the American Dream.