This is one of a series of interviews by Bloomberg Opinion columnists on how to solve the world’s most pressing policy challenges. It has been edited for length and clarity.
Alexis Leondis: You spent 30 years as a reporter, editor and columnist at the Wall Street Journal and now serve as senior fellow and director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. In your new book, “Only the Rich Can Play: How Washington Works in the New Gilded Age,” you focus on a tax break, passed by Congress in 2017, that lets wealthy Americans defer or cut their capital gains tax bills by investing in what are supposed to be economically disadvantaged areas, or opportunity zones. What made you want to tell the story?
David Wessel, senior fellow, Brookings Institution and author, “Only the Rich Can Play: How Washington Works in the New Gilded Age”: One of my colleagues at Brookings, Adam Looney, is a public finance economist who had been in the Treasury Department during the Obama administration. He’s always looking at tax bills as they come through Congress and pointing out things with more outrage than you usually get from economists. When he mentioned this to me, I thought it was more likely to be like a Brookings policy brief kind of thing. But then he dropped that this began with Sean Parker of Napster and Facebook fame. That’s what got me interested.
Then I heard about this opportunity zone expo in the spring of 2019 at the Mandalay Bay Resort and Casino complex in Las Vegas. I went to the conference and it was what a modern-day gold rush looks like. And there were so many interesting people and they were so willing to talk about what they were doing. That’s what really made me think, “Wow, this is a great story.” And of course, there had been and continue to be some good investigative reporting on this, including from people at Bloomberg, so I knew there might be something interesting there.
AL: Sean Parker, the brainchild behind opportunity zones, was able to get this tax break included in the 2017 tax overhaul. He spent about $10 million in lobbying in just a few years. Is this the new way tax benefits get doled out in Washington or was this a one-off?
DW: If you have money and clout, you can organize a campaign to get something done in Congress, even at time when Congress seems to be gridlocked. Parker hired a couple of people, like Steve Glickman, who had been in the Obama White House; and John Lettieri, who worked for the Organization for International Investment. The first was a Democrat, the second a Republican. They were young, 30-something Washington operatives who had both been on the Senate staff. They understood how Washington works and they were very skillful at laying the groundwork for this. They spent a couple of years building the case that geographic inequality, not just income inequality, is a big problem. They were smart enough to sell this with talking points and headlines that sound like motherhood and apple pie. Who could be against giving people who are rich an incentive to put money into communities that are starved for capital?
The problem is that most of the people who signed onto the talking points didn’t pay attention to the details—which in my view, led most of the money to go to help rich people save on their capital gains taxes and not enough to benefit residents.
AL: You highlight how most of the opportunity zone money seems to have gone to places that were already gentrifying, and some even went to areas that truly didn't seem to need it, like in Portland, OR. Even worse, some investors got tax breaks for projects they would have invested in anyway. Meanwhile, zones in places like Baltimore have barely seen any investment. What went wrong and who's responsible?
DW: What went wrong is that the proponents were allergic to any kind of rules and oversight by the Treasury Department. So the selection of zones was largely delegated to the governors who didn’t have much time to make their decisions. Many of them didn't have a clue what they were doing. Some of them chose wisely, some chose foolishly, some were corrupt. They also decided to have a lot of zones, which meant that it was hard to target places that really needed the money.
The Trump Treasury Department didn’t use the leeway they had to tighten up the rules and make the program more effective. One can only guess if the Obama or Biden Treasury had been administering this, maybe some of the rules would have been different. But, to be clear, the law didn’t require the Treasury to do very much.