DW: During the 2020 campaign, he said he was going to reform them. I think what happened is a couple things. The administration pretty overwhelmed right now and it wasn’t a high priority. I think they just decided this is too messy—Congress created it, let Congress fix it. The way Washington works, we could wake up one day and discover it’s been slipped into some other bill.
AL: Back to that 2019 Las Vegas expo. Most of the attendees you followed up with said the projects they had been working on or thinking about had fizzled out. What happened? Is it Covid, or something more?
DW: Covid definitely had an effect. It changed where opportunity zones and all real estate money is going—if I were rich, I’m not sure I’d put money in an office building in downtown New York or Boston or Chicago or Washington. Second, there was a lot of hype and interest, but a lot of people were going to conferences just to learn about it. I went to three conferences and some of the people I met there had been to two or three conferences as well. I didn’t go to the fourth and fifth and I suspect they didn’t either. And then I think it was oversold, both in terms of the social benefits and the tax benefits, so some of the hype wore off.
AL: You talk about how opportunity zone investors aren’t doing anything wrong. They’re playing by the rules, so blame the game, not them. That’s true throughout the tax code—you can argue that wealthy people and corporations are lawfully exploiting the tax code. With Congressional Democrats about to enact sweeping tax changes, what should the opportunity zone situation teach them about the need to change the game?
DW: One thing is, well-meaning rich people like Sean Parker have some good ideas and we should listen to them. But we shouldn’t let them be architects of the policy text. Secondly, we need to build in some mechanism so when we try something new, we have an automatic mechanism to fix it, rather than just letting it fester. And third, it’s just really hard to use the tax code to achieve social ends when what you’re trying to do is influence [the behavior of] rich people. This idea that we can somehow create some amazing tax code and rich people, like mice in a laboratory, will just find their way to the place we want them to go—that’s naive and the world doesn’t work that way. They’re too good at finding ways to get the tax break without achieving the desired end.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.