[adamhooper]

What irks me about this article is its sole narrative on billionaires helping billionaires. Nowhere in the regs does it say that somebody with a $100 gain couldn't invest that into a project.

Granted there are other regulatory issues that will limit a lot of this activity to accredited investors (via Reg D private placements), but OZ regs have nothing to do with a persons net worth or income.

As other posters have commented, the benefits are three fold - deferring your gain until the end of 2026, a 10% step up in basis on the gain if you hold for 5 years, an additional 5% step up if you hold for a full 7 years, and an exemption on tax for the appreciation of the assets you've invested in if you hold them for 10 years.

Here's a link to an ebook we just put out if anybody has interest in reading how it will work in the real estate space - https://www.realcrowd.com/blog/2018/10/the-real-estate-inves...

[KerrickStaley]

When you have more money or capital assets, more of your income comes from capital gains and less comes from the labor you do. So decreasing taxes on capital gains disproportionately benefits people who are already wealthy.

[miscreanity]

Any tax decrease "disproportionately" benefits the wealthy because they have more.

A 1% decrease on $50,000 income is going to be less than the same percentage decrease on $500,000.

Of course, you could argue that "progressive" tax take care of that, but it only serves to drive away a portion of high meet with individuals to the point where tax revenue generally doesn't change much anyway while it can actually increase the overall burden on lower income earners.

Better solution: goodbye income tax.

Much like open source software where individual usage is free, only consumption/sales and corporate taxation has any legitimacy now.

Businesses need a commerce-positive, safe environment for such activity. In order to attract that, no income tax is an excellent incentive. Businesses, which are fictitious entities, support the services needed to entice localized growth; as population grows, so does business activity and revenue, thus tax revenue for services as well.

Of course, any system is prone to corruption filling the power vacuum so eventually it would fail. However, so long as individuals are as unencumbered as possible, people can opt out rather than continue to be abused.

Additionally, taxes serve as a psychological leash and intellectual substitute. Financial/investment education is virtually non-existent in the US and it's generally misguided or even wrong in some instances. If individuals are coddled and promised to be taken care of, they become unprepared for difficult situations.

Let a dog be a dog and let a person be a person, not a slave.

[dragonwriter]

> Any tax decrease "disproportionately" benefits the wealthy because they have more.

Untrue; consider, e.g., the adoption of EITC if it didn't already exist. It's a pre tax decrease, but wouldn't benefit the wealthy (in first order effects) at all.

Or abolishing payroll tax and transferring equivalent amounts into the various trust funds out of general revenue, a pre tax decrease that would slightly benefit the wealthy (because Medicare tax), but disproportionately benefit those whose income was primarily from labor, which isn't the wealthy.

[justin66]

Or more simply, a reduction in the amount paid in the first few tax brackets. That is a tax decrease that would benefit everyone but proportionally benefit more those to whom the upper tax margins are irrelevant.

[miscreanity]

So complicate the tax issue which increases costs elsewhere and contribute to government managed funds that prove inept? Taking funds from a farmer growing crops successfully and giving them to the one nextdoor who still hasn't been able to get a seed to sprout is a textbook definition of idiocy, not to mention theft.

None of that changes the fact that tax breaks will be greater in absolute numbers for wealthier individuals than for those earning less. Play games to fudge numbers so all is not equal as much as you want - those with resources avoid participating in socialistic wealth redistribution.

No income tax is far simpler. Do you know what the cost for enforcement of individual income tax is? Hint: think astronomical.

Go after about 140 million individuals vs working with approximately 28 million businesses? Do you think business or individuals are more professional? Who had the bright idea to create such a logistical nightmare?

You can keep working with an insane system if you want but people with resources do what people without resources would eventually do in the face of direct taxation, whether financially or physically - leave.

[pmyteh]

> No income tax is far simpler. Do you know what the cost for enforcement of individual income tax is? Hint: think astronomical.

I do know what the cost of enforcement of individual income tax is, at least in a sane system with effective witholding and most people not submitting stupid tax returns every year: about 1.25% of money raised (https://publications.parliament.uk/pa/cm201012/cmselect/cmtr..., table 7).

And the simpler you make the system the cheaper it is (this is NOT flat rates - calculating graduated taxes on income is basically free) - you can see this from the "National Insurance Contributions" line on the same table, which is an effectively zero-complexity additional income tax which costs a third of a percentage point of money raised.

So not astronomical. Really quite efficient.

[miscreanity]

They're actually getting even better at it - 1.12% in 2009-10!

I like how you've pointed out the amount relative how much theft^H^H^H^H^H "tax" revenue is brought in rather than the absolute amount of:

£3,673,797,000

That's pretty astronomical to me. I'm sure you'll find other ways to break it down and try to refute but it still doesn't change the waste of time taxation incurs.

My stance will not change from the perspective that income tax is more destructive to low-income earners than it is to the wealthy, and that it drives away wealth.

Let's just settle this as "we won't agree" since I have more productive things to spend my time on than arguing over what shouldn't exist in the first place. Pray for Brexit or go down with socialist Europe.

[C1sc0cat]

But it also discourages investment if you taxed as income you just buy safer t bills etc instead of the next Microsoft or google

[Retric]

That's ridiculous. If you buy T-bills today your don't even keep up with inflation. Rich people need to make long term investments to stay rich, they can't take money out of the system or inflation eats it.

Further, paying capital gains at say 50% on 10% returns for 20 years is better than paying 0% capital gains on 6% returns for 20 years.

[C1sc0cat]

Ok maybe instead of etc I should have said t bills, bonds, bond proxies ie safer investments that are taxed as income.

When capital gains are taxed as income the whole chunks of the monetary system go away.

[moorhosj]

Let's ignore the fact that If people rush into these other assets like you claim, it would impact their price and return profile. The key question is which chunks of the monetary system "go away." Are those chunks a net benefit for society in the first place or simply a tax deferment/avoidance vehicle for the rich?

Take the recent corporate tax cut, which made companies flush with cash. Companies could invest that in 4 main buckets: pay down debt, invest in growth (r&d or acquisitions), pay out bonuses to workers or buy back stock/declare dividends.

Let's say the company has 1,000 employees and gets $1 million in new cash flow from the tax cut. They have little debt and no direct acquisition targets so they are now deciding between giving all employees a $1,000 bonus or buying back $1 million worth of stock.

Since bonuses are taxes at regular income rate and dividends/capital gains are taxed at 15%, the tax efficient way to put that money to use is through buybacks or dividends. The people making the decision are likely executives with high salaries (income tax rates) and large stock portfolios. They will only pay 15% tax on those dividends compared to the bonus option where they would likely pay at the highest income bracket.

Who gets the short end of this dynamic? Workers who helped create that revenue, but can't afford to buy enough stock to get $1,000 of benefits. The tax code has disincentived the company from rewarding its employees in favor of rewarding its investors. Again, people who are already wealthy tend to be the investors rather than those who typically labor for their income.

[C1sc0cat]

If there is no tax incentive the investing in new start up companies eg (fever tree in the UK)

Then rational investors will avoid risker share investments in new companies it will reinforce the position of incumbents who will be forced to pay out more in dividends and become bond proxies.

[tanderson92]

"Poor people are just as free to avoid taxes on their long-term investments in illiquid capital-intensive projects as millionaires and billionaires" is not a take I expected to see, but thank you HN for proving me wrong.

[mendelk]

"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread." - Anatole France

(Note, this is not to express an opinion on the GP!)

[tanderson92]

This was, indeed, the inspiration for my comment. It’s cogent and persuasive encapsulation of current free market thought.

[charlesdm]

People cry tax avoidance, but I'm assuming these will MOSTLY be areas where no one and their mother would want to reasonably invest. Areas with little hope for the people there to establish themselves in a good life.

If this moves some money into these underdeveloped areas, after a 10 year stock market bull run, then great. Most of the investments will go to zero, but the ones that don't might have a good impact for the people living there.

[wefarrell]

I live 2 blocks from one of these areas and used to live in one. I was immediately able to find a 400 sq foot studio for $3,250 per month inside one:

https://streeteasy.com/building/235-adams-street-brooklyn/14...

[njarboe]

Not saying that things aren't really expensive but this place has a "days on market" of 1529 and is 20% bigger at 473 sq ft.

[thrmsforbfast]

If you look at the map, you'll notice areas with white hot housing and rental markets (2k+ rents, 600k+ floors of houses). See my other comment for a concrete example.

Even worse, the zones are chosen by governors and the rules for selecting them are extremely lax.

I know enough about the local politics of where I grew up to know that at least one of the OZs makes literally no sense and is 100% a kickback to a major gubernatorial donor.

[heavenlyblue]

>> assuming

Are there actual numbers somewhere?

[thrmsforbfast]

There's a map in the article.

some of the zones are legitimate opportunities. A lot of them -- and the ones most likely to attract investment -- make it patently clear that this is a low-risk give-away.

[manigandham]

Does nobody gain at all from the investments in an opportunity zone? Are those benefits just ignored?

[tanderson92]

You won't find me arguing against the need for more investment in opportunity zones, or the social benefits of doing so. We don't need a redistributional giveaway to rich people to do so, of course.

[manigandham]

Who else is going to do the investing then? The point of any investment is a return, and who would expect or choose a return from these areas compared to many other opportunities?

[tanderson92]

The government investing the money would be nice. Apparently they have a lot of money to invest, they just redistributed $2T to primarily rich people through the TCJA.

(I'm a socialist in part because of the market's inability to effect change, such as investment in OZs, which doesn't have a sufficient monetary reward but has significant societal reward. Some people call this a "market failure")

[manigandham]

Yes, that's the only other option isn't it?

But why is that better? Why have a massive inefficient government spend a vast sum of money when instead it can just defer some tax collection, letting these investors take the risk and optimize for success?

[miscreanity]

Imagine if you weren't allowed to use a calculator without a $5,000 license and six months of training. Sounds absurd? Welcome to the financial world, where outsiders are frowned upon.

The market is highly regulated in large part due to the notion that "manipulation" occurs (spoiler: it does, but manipulation always fails on its own eventually and the crash is typically made worse by regulators). Restrictions are made on who can invest, when and how much to the point where it's not a surprise that average wage earners avoid doing so - most of the worthwhile options are only for millionaires or higher. No wonder so many think the markets don't work - they can scarcely be considered markets!

Allow people to be educated and learn how to handle their finances rather than being protected from all danger to the point of being locked out, and you'll have informed individuals capable of handling their own affairs. Let Johnny touch the stove to see that it's hot and he'll learn right quick!

Socialism just wants to save everyone from themselves without looking in the mirror and realizing how dysfunctional it is itself. Forced collectives self destruct; voluntary cooperation survives and thrives, but it takes effort and time instead of a quick fix.

[refurb]

What if some blue collar worker has his 401k or pension plan invested in a company that is taking advantage of the tax break?

[gcb0]

his gains will still be much less than if the company paid more taxes.

also it is irrelevant, as every single listed company will benefit from it, making no stock differentiation in price.

[tanderson92]

The article is about a tax break for people, not companies, so this should not affect any investment decision that companies make.

And, of course, the 401k/pension plan, or company that the 401k/plan owns, could easily invest in the OZ if they so desired, if it made financial sense separately from the individual tax break.

[refurb]

It's not just limited to individuals, company can invest and get the tax break as well.[1]

[1]https://www.barrons.com/articles/opportunity-zone-funds-to-d...

[WalterBright]

The long term capital gains tax rate for married people with less than $19,000 in income is zero.

[lexs]

How much long term investment can you realistically do when your income is less than $19,000?

[WalterBright]

The point is that low income people do not need a capital gains tax optimization strategy, because the tax is already 0.

[ryanwaggoner]

I believe it’s 0% up to $77k for married filing jointly.

[dwiel]

Not only that, but this poor person has to use capital gains for this ...

[tanderson92]

Filling out and finding ways to minimize taxes due to 1040 Schedule Ds, that regular feature of tax season that people making $50k/yr or less know and love.