David M. Rubin
TIM SCOTT'S WET KISS TO THE WEALTHY (PART 1)
When Senator Tim Scott goes before voters next November, he won't have many legislative accomplishments to sell.
For a while it looked as if he might craft a bi-partisan bill to reform police procedures, but that effort crashed and burned when Scott refused to offer any meaningful concessions to Democrats, even after they made significant concessions to him. As a result, nothing.
If you read his newsletters and watch his media appearances, it is clear what other "signature" accomplishment he will tout: his Opportunity Zone (OZ) legislation. Scott often boasts that his OZ program has stimulated enormous investment in impoverished communities and made a real difference in the lives of struggling Americans who have little access to the capital markets.
But like so much of what Scott says, that is hot air, the same hot air that floated the Wizard of Oz to the Emerald City. Like most of Scott's supposed achievements, there is no "there, there" in his OZs, just as there was no Wizard in Oz.
While actual improvements in Opportunity Zones are very thin on the ground, including in South Carolina, this legislation has definitely accomplished one thing: It has provided a legal avenue for the wealthy to shield capital gains from IRS taxation. That was Scott's goal, and he has achieved it, though it's not what he brags about.
Scott is once again masquerading as the champion of the poor while catering to the needs of the rich. He has behaved similarly in protecting the profits of the drug industry at the expense of those who cannot afford prescription drugs. (See my previous post at this website on Scott and Big Pharma.) His modus operandi is to pose as the champion of the poor while handing out goodies to the rich.
So let's pull back the curtain, take off the emerald glasses, and see what's really going on with Scott's Opportunity Zones.
The history of this legislation begins with President Donald Trump's praise for the right-wing extremists behind the Charlottesville riot in August of 2017. Scott, to his credit, criticized Trump for saying there were "very fine people on both sides" of that riot, an obvious racist absurdity.
According to journalist David Wessel, who has written extensively about Opportunity Zones, Trump called Scott to the Oval Office and asked him what he could do to atone for this racist remark. Scott asked for Opportunity Zone legislation as payment; he got it in Trump's signature 2017 Tax Cuts and Jobs Act. It was slipped into this massive tax bill without debate or media fanfare. But Scott has been riding it hard ever since.
The OZ legislation permits investors with capital gains to defer paying taxes on those gains if they invest them in opportunity zones across the country. Governors were invited to designate struggling census tracts in their states and territories for inclusion in the program.
The wealthy were (and are) encouraged to invest their capital gains in one or more of these Zones. There are some 8,764 from which to choose. They could invest in almost anything---hotels, businesses, farms, warehouses, hospitals, apartment buildings, and more. (Wessel notes that tanning salons, golf courses, liquor stores and some other ventures are off limits.)
The average poverty rate in these OZ's is 27.7 percent. The residents are 57 percent minority. They are not well educated. The average family income in the Zones is $47,000, which is nearly $27,000 below the national average.
Census Tract 107 in Summerville (surrounding the downtown area) is an OZ, as are two others in Dorchester County (in Ridgeville and St. George). South Carolina as a whole has 135.
For the wealthy the deal is a sweet one. An investor with capital gains can defer paying taxes on those capital gains until 2026 by investing them in an OZ. If the investment is held for five years, the IRS will forgive ten percent of the tax due. If the investment is held for seven years, the IRS will forgive 15 percent. And if the investment is held ten years or more, BINGO! The investor will pay NO capital gains tax on the investment.
One wag has joked that the only better way to shield capital gains from Uncle Sam is to die, since unrealized capital gains can be passed along tax free to heirs. Thanks to Scott, OZs are a way for an investor to keep living and get the tax break.
Scott claims publicly that $79 billion has been invested already in OZs, without ever discussing how much tax money this has cost the Treasury (and you and me). A Government Accounting Office report estimates only $29 billion has been invested.
In fact, we have no idea how much money has been invested so far in this tax loophole. That's because there are no reporting requirements in the legislation and no limits on total investment. Reporting requirements were stripped out of the legislation. As a result, there is no government agency, such as the IRS, keeping track of this program.
Scott can say anything he wants about its size and success without fear of contradiction, and he does. He talks about it all the time. It demonstrates, he thinks, that he is on the side of the poor. But behind the screen, OZs please his wealthy donors, who loathe capital gains taxes.
So that leaves a key question: Does this legislation work to improve conditions in the census tracts in which the money is invested? That is the subject of my next blog post. But here's a hint: Are you kidding?