AL: Are opportunity zones ultimately a case of good intentions gone awry or do you think they really are just more of a money-making scam?

DW: I think that opportunity zones can be used for the stated purpose and I have examples in the book, such as a small developer in Baltimore who got some opportunity zone money and a whole lot of other tax breaks to renovate some bombed-out townhouses in Baltimore.  But the bottom line, based on the reporting I’ve done and the very limited amount of data we have, is that the program has done more to cut taxes for rich people than to improve the lives of people in neighborhoods that really need help.

AL: Do you think this kind of setup can work—giving tax breaks to spur private investment, as opposed to government funding—if the right guardrails are in place? Or will there always be exploitation?

DW: Unlike previous tax-based policies, there’s no requirement here that you even pretend that you’re doing something for people in the neighborhood. There’s no incentive to hire people in the neighborhood, for instance. I think one thing [the program’s architects] believed is that any money in an opportunity zone is good, but I don’t think that’s true. Secondly, they underestimated the cleverness and aggressiveness of the people who work for rich people to help them cut their taxes—tax lawyers, accountants, wealth managers, all that. These people found ways to stretch the law in ways that I don’t think Sean Parker envisioned.

AL: What kind of reforms to the opportunity zone program are most essential now? Should the whole thing just be scrapped?

DW: So one answer would be, this is nuts. It’s an indirect way to get money to poor neighborhoods. We have to set up all this plumbing in order to give rich people incentives to put money in poor neighborhoods? It’s really hard to do it the right way. So one alternative is to say, maybe we should just raise their taxes and put the money in directly. There’s that view.

I don’t think opportunity zones will be repealed, partly because it’s hard to repeal something once it’s in place and partly because it does have some support from both Democrats and Republicans. What the government can do is require better reporting. Fifty-six percent of all the census tracts in America were eligible for opportunity zones, but only 25% got chosen. So it’s a natural thing for an economist to look at things like places that could have been picked but weren’t and to compare what happened there. But that requires data to compare the two zones. The reporting should allow us to see what’s going on with investments and census tracts…we ought to be able to see where the money’s going and for what.

We didn’t pick the zones very well. We could grandfather everybody who’s already put money into a zone, but we really ought to narrow the number of zones. And we could say you can’t use it for sin businesses or other things, like the luxury student housing rental in college towns that qualified only because the college kids show up as poor. 

I talk in the book about self-storage facilities qualifying for this tax break, which is ridiculous. They don’t pay anybody. I found one in Dillon, South Carolina. I asked the guy, “How many people do you employ?” And he said, “None, because it’s all automated.”

AL: President Biden hasn't mentioned opportunity zones in his tax proposals so far. Do you think he’ll reform the program or just give up on it?