How can a formerly failing freshman in a South Carolina high school ultimately build a path to prosperity for millions of poor people nationwide? Through the U.S. tax code, of course.
Born into poverty in North Charleston, South Carolina, and raised by a single mother, Tim Scott struggled economically and educationally early in life, like many of the 39 million low-income Americans facing a poverty threshold of $25,750 per year for a family of four. Ultimately, Scott found a mentor, graduated high school and college, built a business and subsequently served on the city council and in the state legislature, and became the only African-American to become both a U.S. Representative and Senator.
In late 2017, Sen. Scott (R-South Carolina) co-sponsored with Sen. Cory Booker (D-New Jersey) an innovative addition to the Tax Cuts and Jobs Act, whereby 8,700 low-income census tracts called Opportunity Zones could benefit investors with unrealized capital gains to sell existing investments and re-invest those gains in new ventures, business expansions and real estate in high-poverty areas. (An interactive map of all OZs can be found online at https://eig.org/opportunityzones.)
According to the U.S. Department of Housing and Urban Development, “low income” census tracts have “at least 50% of households with an income less than 60% of the Area Median Gross Income (AMGI).” Some OZs are in higher-population counties (such as Bronx County in New York, with 25% of residents, or Milwaukee, Wisconsin county — 10% of residents). Some OZs are in rural counties with less than 3,000 people (like Baca County in Colorado, with 57% of residents, or 72% of residents in Modoc County, California). All of Puerto Rico qualifies, including three major counties of San Juan, Bayamon and Carolina, totaling more than 700,000 people, with median income of $19,775.
However, with Opportunity Zones chosen by governors, some OZs may not be as needy. While Loving County in Texas has an OZ, its 82 people have the highest income per capita in Texas. Downtown Houston neighborhoods have also qualified as OZs in Harris County, Texas.
Sources: U.S. Census, HIP Investor
More than $2 trillion in unrealized gains sit on the ledgers of investors and corporations, according to the Economic Innovation Group, based in Washington, D.C., and partly funded by investor Sean Parker of Napster and Facebook fame. Investing directly in 8,700 Opportunity Zones (or 1 in 8 U.S. Census tracts) for 10 years or more would eliminate any federal taxes due on those gains – and potentially reduce poverty via job creation and income growth related to those investments.