Included as part of the Tax Cuts and Jobs Act, signed into law by President Donald Trump in December, was an important new initiative called the Investing in Opportunity Act.
The IIOA was a bipartisan initiative, sponsored by Republican Tim Scott and Democrat Cory Booker in the Senate, and Republican Pat Tiberi and Democrat Ron Kind in the House. It provides a major new platform for directing capital for business development into America's poorest communities.
This alone refutes claims from the political left that this tax bill was just for the wealthy.
The concept was started in 2015 with the appearance of the Economic Innovation Group in Washington, D.C. It's a new initiative of a group of high-tech entrepreneurs -- leaders from companies like Facebook and Napster -- to do nonpartisan work developing ideas to restore a dynamic American economy and bring vitality to the many parts of the country that are falling behind.
The first major paper produced was co-authored by two economists -- Jared Bernstein, a Democrat, and Kevin Hassett, then of the American Enterprise Institute and now chairman of Trump's Council of Economic Advisors.
The paper, titled "Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas," laid the groundwork for the Investing in Opportunity Act.
Bernstein and Hassett wove together several key points.
First, large parts of the country -- the most distressed communities -- are not participating in the economic recovery. Poverty rates, unemployment, income levels in these communities are far out of line with national averages.
The Economic Innovation Group has surveyed 26,000 ZIP codes nationwide, rating them according their state of economic well-being, and has published a Distressed Community Index. The conclusion -- 52.3 million Americans, 1 in 6, live in economically distressed communities.
Second, Bernstein and Hassett surveyed the various programs over the years designed to bolster business investment in these communities and discussed why these programs have been disappointing.
And third, they pointed out what appears to be an exciting opportunity. With the stock market surging since the beginning of the economic recovery in 2009, investors are holding around $2.3 trillion in unrealized capital gains. Often, appreciated securities are not sold because of the capital gains taxes due when the sale is made.
Bernstein and Hassett's idea, which is now part of the IIOA, is to allow investors to defer and receive reductions in the tax liabilities on this $2.3 trillion if the funds are invested in Opportunity Zones -- census tracts containing these most distressed communities.
Governors have until March 22 to designate up to 25 percent of the most economically distressed census tracts in their state as Opportunity Zones. Opportunity Zone Funds will be established as the entities through which the investments are made in these distressed communities.
Final details of the IIOA will be worked out as the Treasury Department writes the rules defining how it all will work. But those whose lives are rooted in these distressed communities should see this as an exciting opportunity and get involved to make the most of it.
Many churches operate nonprofit community development corporations whose purpose is developing businesses. Those operating these CDCs should be on top of emerging details of this program to see how they can attract investors into their communities.
Furthermore, appreciated capital is not limited to the stock market. It's also in real estate. Specifically, community leaders should apply pressure on absentee landlords whose abandoned properties in these communities are places of blight and crime. This could be a golden opportunity for these properties to be sold and the capital now tied up in blight can be redirected to productive economic development.
Kudos to the Economic Innovation Group for pioneering this idea and to Sens.Scott and Booker and Reps. Tiberi and Kind for getting it in the tax bill.