Chairman Pascrell Opening Statement at Oversight Subcommittee Hearing on the Opportunity Zone Program and Who It Left Behind
(As prepared for delivery)
Good afternoon and welcome to the Oversight Subcommittee’s hearing on “The Opportunity Zone Program and Who It Left Behind.”
I welcome this chance for our Subcommittee to examine the opportunity zone program enacted in the 2017 Tax Cuts and Jobs Act.
Our tax code offers many incentives for economic growth, investment, and job creation in distressed communities. It does this by providing federal tax benefits to businesses and individuals located in these communities.
From enterprise zones to empowerment zones, the tax-writing committees have struggled for years to use the tax code to address pervasive poverty, with limited success.
Based on a proposal from Senators Tim Scott and Cory Booker, the 2017 tax law created a new place-based tax incentive program to encourage investment in certain low-income communities, called opportunity zones.
The opportunity zone program tries to take a different approach by focusing on the lack of capital investment in poor communities. The program provides generous capital gains tax relief for investments in zones chosen by State Governors.
I believe places like my hometown of Paterson, New Jersey – which does have census tracts designated as opportunity zones – is the type of city that the creators of the incentive had in mind.
The program started with some embarrassing hiccups. In fact, one zone designation was reportedly expanded to benefit friends of Donald Trump and Steve Mnuchin. I expressed my outrage about that one to the Treasury Secretary.
The opportunity zone program was also deliberately structured with few, if any, strings attached to obtain capital gains relief. Nor is there a cap on the amount of relief an investor can receive.
Traditional metrics of community benefit, such as job and new business creation or the addition of affordable housing units, are not required to qualify for the capital gains relief.
Without requiring such demonstrations, it is difficult to assess whether investments are going into the neediest communities. We cannot determine if the program is effective in producing positive economic change for residents and businesses in need.
We need such reporting requirements to know: Are opportunity zones yet another tax incentive making the rich even richer? Is this program crony capitalism on steroids with the government picking winners and losers?
Sadly, in my hometown, there is scant evidence that the opportunity zone program is providing much benefit. Nationwide, there is concern that the benefits are mostly flowing to those zones that already were ripe for development and could provide certain returns on investments.
Robust reporting requirements will improve accountability and transparency. I am eager to hear our witnesses’ views on how to do this.
This hearing is especially timely as we have just received a second report on the opportunity zone program from the Government Accountability Office.
Both GAO reports help us ascertain whether this program is operating as Congress intended. It does not appear to be helping the neediest communities. Questions remain about who this program is helping and who is it leaving behind? And concerns persist as to whether the IRS even can tell if the participants in the program are complying with the rules.
I want to welcome our expert witnesses today. All of them have valuable information and insights to share on the opportunity zone program. I am confident their testimony will help us evaluate its operation and determine what changes should be made to improve it.
But before proceeding, I yield five minutes to Mr. Kelly, our Ranking Member, for his opening remarks.