I believe the way that the program works is you can defer taxes from your original capital gains (and the cost basis gets increased so your deferred taxes are less than you would pay otherwise), reinvest them in an "opportunity zone", and not pay capital gains on your investment on the opportunity zone, if you hold it long enough
e.g. Bob bought Apple stock for $50 a share back in the day, and sells it for $200/share. He defers his taxes until 2026. Instead of paying capital gains tax on $150/share, the cost basis is adjusted by 15% so in addition to benefiting from the time value of money, future Bob will only be taxed on $142.50 of capital gains. Bob can buy a house in an "opportunity zone" (from scrolling around the embedded map, there's plenty of million dollar+ houses in these areas. There's also lots of sports teams and stadiums in these areas, so maybe Bob buys an NFL team or a parking lot next to their stadium), rent it out for 10 years, sell it, and not have to pay any capital gains tax on the appreciation. Definitely not a bad deal for him!
Close - but Bob in your example also has to improve the basis of whatever he buys by 100% within a 30 month period. So that could be a major renovation of the house, building another unit on the property, scraping and rebuilding etc.
Unfortunately it's not as easy as parking money and riding off into the tax free sunset. As I mentioned down thread, we should hopefully have the first set of regs from Treasury even as soon as tomorrow which will clarify a lot of the loose ends as written in the initial legislation.
Some of what we're waiting to see is whether or not that basis improvement includes the land value or if you can split that out. If the home Bob purchases for $300k is on a lot worth $250k, does he have to spend the full $300k to improve it, or just $50k to improve the basis of the structure?
Lots of details to still work out but hopefully we'll know more shortly.
Isn't that kinda a value-neutral proposition for the area though? Yes, there's a nicer house or whatever now, but 100% of the value add goes to the person who is now going to sell the property and get their investment back with change. The area ends up with the same effective wealth, since they have to send money to the out of state investors to claim ownership over the renovated house or whatever.
(also that assumes the people ever sell it to someone in the area - if we're talking real estate, there's no reason for them to not just sit on it forever and turn it into a rental or Airbnb or whatever)
"Wealth grows wherever men exert energy," Arkad replied. "If a rich man builds him a new
palace, is the gold he pays out gone? No, the brickmaker has part of it and the laborer has part of it, and
the artist has part of it. And everyone who labors upon the house has part of it Yet when the palace is
completed, is it not worth all it cost? And is the ground upon which it stands not worth more because it
is there? And is the ground that adjoins it not worth more because it is there? Wealth grows in magic
ways. No man can prophesy the limit of it. Have not the Phoenicians built great cities on barren coasts
with the wealth that comes from their ships of commerce on the seas?"
The benefits are not purely monetary - raising the quality of an area due to investment that otherwise would never come in is an enormous benefit for people already living there.
That isn't too say throwing money at a bad neighborhood is guaranteed to succeed but it gives a far better shot than letting the area simmer in stagnation.
I don’t think most people living in these “opportunity zones” are going to be happy with people basically being tax incentivized to make housing more expensive in the area in which they live, thus making life harder for them.
If you improve a mansion to be a fancier mansion, you don't increase the supply of housing.
If you improve a small lot to be a duplex or an apartment complex, you increase the supply of housing.
The latter wouldn't raise the net price of housing, but would still be a worthwhile investment. It depends on what local policy is, namely if building new housing is illegal or not.
Making one house fancier definitely increases rents on neighboring properties. If I live in a rundown house in a nice neighborhood and fix it up, everyone else's house increases in value. Same goes for making 1 house really nice in a bad area.
It is complex and there are many "it depends". If they own a house and want to move [for some personal reason] they will be happy that they can get more for their house. If they have lived there for years and watched the neighborhood go downhill they may be happy that things are improving again. Of course the other side is if they are happy with cheap rent they will be unhappy if rent increases because there is now more demand.
OZs are the Wild West right now... There is no clear guidance on what is allowable and what is not. If you want to invest through this mechanism, it may be better to hold off or the IRS may come knocking on your door in a few years.
Buying real estate for personal use would seem like undermining the spirit of the OZ legislation. I don't think it will fly...
But isn't the IRS knocking in a few years better than the IRS knocking THIS year?
IANAL (or a CPA), but it seems like a good-faith attempt to invest in an OZ should not incur penalties later. Disclaimer: you are taking about the IRS, so logic/fairness may not apply.
Also: why would personal investment be against the spirit of the OZ legislation? It seems to focus on getting the property developed, not why it is developed.
> But isn't the IRS knocking in a few years better than the IRS knocking THIS year?
There's a 3rd option: How about the IRS knocking never? I say that in jest as I know you have a 1:3 chance in getting audited just through the normal course of business. I suppose it depends on your risk tolerance.
The current understanding is that you can continue investing so long as your money stays within a qualified opportunity fund. You have to make a substantial investment in the property or business, so simply buying land within an OZ won’t cut it. As a real estate developer, I can develop apartments, sell them upon stabilization, and redeploy that capital in another OZ investment.
> Is it just capital gains? Wondering if it applies to any other forms of active or passive income.
I would also like some information about this.
+1 for investing in distressed areas; self-nominated with intent or otherwise.
If it's capital gains only, -1 on requiring sale of capital assets in order to be sufficiently incentivized. (Because then the opportunity to tax-advantagedly invest in Opportunity Zones is denied to persons without assets to liquidate; i.e. unequal opportunity).
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.
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.
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.
> 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.
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.
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.
> 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.
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.
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.
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.
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.
Where you are making a mistake is riskier investment have a risk premium. Further, you can offset capital gains with losses, and with a highly diversified portfolio the expected returns will be positive over time.
So, it's going to be rational with a 0 or 50% capital gains rate with some portion of your portfolio. Further, increasing capital gains makes it harder to keep up with inflation thus pushing people to make riskier investments.
PS: Try modeling a portfolio of bonds with different yields and risk premiums vs different tax rates including inflation.
==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.==
Investors will seek alpha wherever they can get it. If there is a flight into "safer" investments, the market would adjust and the returns of those "safer" investments would fall. If investors want alpha returns, they will take risks. This is a fundamental truth of investing.
Are the incumbent's positions not reinforced in today's environment? There are 3,618 publicly traded companies today compared to 6,407 in 1987 [1]. Is that a sign of positive competition? Today's capital gains rate is the lowest since the Depression [2]. Yet, entrepreneurial activity is at generational lows [3].
"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.
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.
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.
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.
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.
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?
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")
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?
I disagree that governments necessarily must be inefficient, but yes this is an area with some nuance. I could see myself being in favor of an incentivized tax structure for OZs, along with a highly redistributional tax system for income, wealth and equity, but I don’t think too many of the people who argue for the power of markets to incentivize investment of OZs are also in favor of the redistibutional part ;)
Do you have much exposure to how government operates?
Where money is being thrown around by government, in general, there are laws in place to make sure that money doesn't flow into the bureaucrats pockets somehow. But to do that, they add layers and layers of checks and processes. The side effect is that they're not very fast.
And then there's the issue of not having attracted the hungriest talent on average, due to not offering very good salaries, because of the whole avoiding looking corrupt thing.
And then there's the whole personal motivation of private investors to profit, whereas government investors have no such motivation (if they're not corrupt). So there's just no very good motivation to do a great job.
There's a whole slew of reasons they don't make very good investors relative to private investors.
Not saying that private investors are perfect, they're obviously not, and of course there are going to be outliers. And some portions of government funding work pretty well (I think the NSF's model of getting scientist review panels is a great one).
Inconsequential compared to how much the US Government spends in a single day, and how much of that is wasteful. We can fund a new Juciero every day and not notice.
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.
>>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!
This is some extreme oversimplification of 1-human behavior and 2- how easy is it to teach people immediate need denial for long term benefit. No matter how many times you tell people the parable of the ant and the grasshopper, it's still just a story. It's not how the human mind works (generally).
On the inverse end, I could point out how every "self made man who didn't need help from nobody and just smarted his way to the top" was likely helped in countless circumstances that have nearly nothing to do with his direct actions. Humans are great at creating narratives, regardless of whether there is actual causality.
Socialism wants to save everyone from a biased, unfair, inequitable system, understanding that a herd is stronger than an individual and that spreading risk across the board means fewer catastrophic events for the individual. The goal is to lower the upper limit and raise the lower limit. It's not an attempt to pander to poor foolish baby people who can't do a finances for themselves, it's saying that there's no reason for a civil society to allow some to suffer debilitating hardships at the hands of a system they were forced into through circumstance alone while others reap unjust rewards. It's not perfect, but leaving "the free market (tm)" alone and not regulating leads to slavery and child labor and private paramilitaries protecting corporate kings as the past has shown.
Human behavior is quite simple - it's the magnitude of interactions that that make it appear more complex than it is.
I do agree that it is easier to be lazy and obtain instant gratification than delay it for great reward but it can be learned by anyone if the cushy safety net of socialism is removed. Everyone has something that motivates him to become greater than what he is now; it's just a matter of discovering what that is - often he has to find it himself. One-size-fits-all socialism destroys this freedom.
>every "self made man who didn't need help from nobody and just smarted his way to the top" was likely helped in countless circumstances that have nearly nothing to do with his direct actions
Correct: nothing happens in isolation. However, mindset greatly changes the likelihood of an outcome. Without being able to cultivate and learn outside of indoctrination institutions, the world would be static and soulless.
>The goal is to lower the upper limit and raise the lower limit.
This is the core: give those whom are lazy a cushy retirement and shackle people who dream big so they can no longer fly.
Slavery and child labor comes from power vacuums that are created by control freak communists/Marxists/socialists who keep things from changing and improving. The rest go along because change can be scary and we all want stability. A face of true evil is the deception that we all must be equal - we are not. We have borders, both conceptual and physical - doors on our homes and personal space that we want respected; yet socialism cries that borders are bad and we need to take care of everyone regardless of our own situation... and let's use other peoples' money to do it since we don't have any. Crabs in a bucket.
I know you mean well because I was in your shoes after the dot-com collapse. The difference is that I've seen the hypocrisy - there is no perfect system but socialism is a slow, agonizing death.
This is what taxes and governments are for in civilized countries. Not whatever the US is right now. A proto-fascist quasi-theocratic corporatist-oligarchist kleptocracy.
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.
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.
That's the slice of EPA west of the freeway. Yes, the Four Seasons is there, but it's legitimately an impoverished area compared to surroundings. Compare the run-down apartments on Woodland against the neighborhood in PA across the creek. Seems like a legitimate OZ.
I am I understanding this correctly... it sound like this was successfully exploited by businesses and poor cannot take advantage of the benefits?
if accurate I think this is a problem with many of the incentives that are provided, maybe providing the tax incentive would be better directed towards saying to take advantage of this opportunity you must provide something that the public can use?
My worry. As was mentioned in the article these billionaires have teams of lawyers / accountants working to ensure the money stays in their hands. What's keeping them from having those teams of lawyers concocting vapor-corps in these opportunity zones (or whatever the loophole is) which will make little to no positive (and maybe negative) impact on the opportunity zone while ensuring the billionaires keep the incentives regardless.
EDIT: Or worse yet there will be organizations whose sole purpose is to take in billionaires money, do as little work as possible, and generate enough paperwork to ensure the billionaires qualify for the tax incentives.
Probably massive amount of money to be made by a company that can systematize this whole process. They know the laws and the codes, they know what gets returns in some areas and not others. I predict cookie cutter improvements being dropped into these zones at some point as everyone figures out where works and what doesn't. It will be interesting to see how this plays out.
And this would be ... a spectacularly good outcome.
In order to do this, the company would have to develop a workable, repeatable model of how to economically improve an "opportunity zone". There's some evidence that this is a very hard problem, notably that social service agencies have been trying to do it for more than 100 years. But sure, if a company can find a solution, that would be great.
The danger is that the company would find a solution that somehow followed the letter of the law but not the spirit, like finding an investment with nominally high returns that doesn't actually improve the lives of the people living in the opportunity zones. That's definitely a danger, and possibly a likely outcome. But another possibility is that there are fairly straightforward ways to improve the lives of people in these zones that haven't happened because the people in them don't have the capital to do it. If that's the case, then incentivizing outsiders to put in that capital should be a good thing. I don't know what will happen, but it seems like it's worth a try.
It would be nice if the program was well managed, because good management could probably reduce and mitigate the negative gaming-the-system outcomes and promote the good ones. But I don't have a lot of confidence in Congress to do a good job with updates, so I hope the original bill was written well enough.
"Opportunity zone" doesn't mean what you think it means.
E.g., there are census tracts in Cambridge/Somerville with six figure median incomes that are categorized as "opportunity zones". There are also a lot of census tracts in that area with much lower median incomes hiding an incredible amount of future earning potential (e.g. Harvard and MIT students, and esp. doctors doing their residencies at top hospitals).
Tax-free money flowing into those areas isn't going to help poor folk. It's going to fund the development of $3k/month luxury apartment buildings for housing young professionals who are priced out of buying anything, because billionaires are buying everything site-unseen in cash at $50k above asking. Don't believe me? Go on apartments.com and check out the rents/amenities of buildings that already exist in these "opportunity" zones.
And to be clear, I'm not super opposed to gentrification. However, I don't see any good reason why building luxury apartment buildings in some of the hottest rental markets in the country should be a tax-free activity.
If these were downtrodden areas starving for a cash infusion, this give-away of tax dollars might make more sense (although IMO is likely to do more harm than good). But you can be pretty damn sure that a sizable chunk of this money is going to flow into census tracts where not even a six figure salary can get you anywhere close to a down payment.
And even in areas that are legitimately run down, an influx of tax-free money competing with locals for housing stock is a good way to torpedo the sort of sustainable local wealth accumulation that happens when normal folk who live in the neighborhood are able to buy housing and storefronts.
So I'm very concerned for every area that is categorized as an opportunity zone, and pretty peeved that building luxury apartment buildings in fucking Cambridge is going to be a tax-free activity.
e: And I just looked around my home town in the midwest. There are big corn fields marked as opportunity zones, even though they're kind of out of the way and there are many other areas that would make a lot more sense to redevelop and where a capital infusion could actually create new opportunities. I happen to know the current owner of those tracts is a long-time supporter/donor to the current governor of that state. Unsurprisingly, turns out governors choose these "opportunity zones".
So, yeah, that's what this is: kickbacks to state-level political donors provided in the form of tax subsidies for billionaires (or at least millionaires).
I don't think that such results qualify as unintended consequences. I somehow ended up attending a meeting at Treasury on some existing tax credit program. Other than me, everyone attending seemed to be some sort of insider and nearly everyone seemed to know each other.
So, to my way of thinking, an unintended consequence would be some no-name schmuck being the one to systematize and beat the known quantities at the game. (IMHO)
The devil is in the details. What's the definition of an "opportunity zone", for instance?
We already have a similar program for EB-5 visas; the definition of economically challenged area is often an up-and-coming area gerrymandered to include just enough poor people.
Looking at New York, I see the area around the Navy Yard, Long Island City, Bushwick, Astoria, and Flushing - all areas that are already undergoing huge amounts of real estate development and are hardly "struggling."
I'm worried that this has good intentions but will have unintended effects; it's entirely possible that turning on a fire hose of money would just wash the existing residents away. While on paper that would improve the income level and whatnot of a census tract, you really just shuffled people around the metro area, most likely to a place with worse access to jobs and stores and whatnot. It's important that we increase housing at a macro level, but we also don't want to strand people by suburbanizing poverty.
Opportunity zones are state-selected census tracts. I am more curious about the required "opportunity fund". I have not seen a good definition for that yet.
Israel had (maybe still has?) what was called “angel
taxing” which said investment in a startup (for some definition of startup) is optionally marked to zero at the point of investment, which means that if you had any gains, you could net them against this investment.
This is the opposite of deferring capital gain taxes - it is pulling capital losses forward. If the startup folds, the marking down is justified. If it is successful, the capital gains when eventually selling it reflect the zero base; so overall, taxes stay the same except it incentivizes capital investments immediately after capital gains.
A good chunk of Olympic National Park seems to be an opportunity zone. Can anyone fill me in on what an 'investment' there might entail? IIRC, commercial activities are usually heavily restricted in national parks.
Doesn't look like the park itself is an OZ. OTOH, the OZ west of the park seems to be reservation land, which likely brings its own set of problems when it comes to investing.
So in the midst of an investment boom we are engineering ways not only to reduce tax on gains, but to ensure the gains will be reinvested. Yet at the same time this provides no value if people pull out their investments in a down-market. Sounds like A bubble-policy.
Pioneer Square is not a hot location; all of the tech action is happening to the north in SLU and a bit into the downtown retail core. Pioneer Square is a dump and sketchy as hell.
There are a ton of tech companies in Pioneer Square. Geekwire has this 5 year out of date map, https://www.geekwire.com/2013/pioneer-square-tech-map-techie... but just walking through there, Pioneer Square is tech city during the day. From trendy bars to expensive boutique clothing stores. Other startups, such as Real Self, have come into being since that (ancient) list was made.
There are multiple co-working spaces within blocks of each other, The Pioneer Collective, Galvanize, Impact Hub, and at least 2 accelerators that I know of are based near Pioneer Square.
I'm skeptical as we've seen with folks like the Kushners plenty of folks will build some fancy high end / highly profitable development "near" places that could use some improvement.... but they don't really help anyone in those zones.
Who decides what is an OZ or not? I honestly would be surprised if the person(s) who gets to decide what is or isn't an OZ now and in the future hasn't already been bribed by an interested investor.
Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately judged. It is not reasonable to state that one group of people can take advantage of tax code incentives and other groups cannnot.
Middle class folks who are using the mortgage deduction generally use it exactly as intended. They don't have an army of accountants on retainer to figure out how to game the tax code and accomplish things that weren't really intended.
The example that always sticks in my head- maybe this isn't true, but I've heard there are strategies of buying failing companies for pennies, shuttering them, and then writing off their losses on your own taxes. You incurred no risk, you lost no money, and now you pay no taxes. Whether it's actually intended to happen that way, it doesn't seem right, and ordinary people can't do it.
Anyway, I'm not an accountant, but the upset over the tax exploits of the wealthy revolve around the concern that they are managing to exercise the tax code in a way that was never intended to pay less than they were meant to owe. Middle class folks don't wind up in the crosshairs because they generally file very ordinary returns, following both the letter as well as the spirit.
> The example that always sticks in my head- maybe this isn't true, but I've heard there are strategies of buying failing companies for pennies, shuttering them, and then writing off their losses on your own taxes. You incurred no risk, you lost no money, and now you pay no taxes. Whether it's actually intended to happen that way, it doesn't seem right, and ordinary people can't do it.
That's the problem with most of these situations -- people don't understand what's really happening.
Suppose you have a company that started off with $25 million thinking it would turn it into fifty million, but really it turned it into five million. Then the company is still worth $5 million dollars, right? Except that it has a $20M tax loss, which is worth something. When other people have profits they're paying a 35% tax rate on, the tax loss has a market value of $7M, so the company is actually worth $12M.
Which means that's what richie rich who wants to use the tax loss has to pay for it, since the seller can shop the tax loss to the highest bidder and get close to the full value for it. The money isn't going to the rich guy, it's going to the guy with the tax loss.
Which means it's a rule that helps the little guy. If you take a risk and fail, it allows you to at least recover as much of your investment as the big guy with diversified investments would have had as a tax deduction -- i.e. it prevents creating a disadvantage when the little guy takes a risk vs. the big guy. And if you have creditors, the buyer has to make them whole in order to take the tax loss, which makes them more likely to lend to you to begin with.
But people see the result that rich people are getting a tax deduction and clamor to get rid of the rule.
If it actually worked how you describe, it wouldn't happen. As the market value approaches the expected benefit, there becomes no point.
I gather it's a strong buyer's market, in which case this isn't really the saviour of the little guy.
Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
> If it actually worked how you describe, it wouldn't happen. As the market value approaches the expected benefit, there becomes no point.
If you pay $6.9M for $7M in lower taxes, you make $100,000 for free and the little guy recovers $6.9M. Then one of the other million companies with net profit realizes they can net $90,000 by offering $6.91M. This is not what a buyer's market looks like.
Obviously no one is going to offer exactly $7M because they have to cover the transaction costs etc., but that's not even profit -- if they offer $6.95M because they have $40,000 in transaction costs, they're only making $10,000, but they still do it because they're still making $10,000. Until someone else is willing to make $5000.
It's a seller's market because there are more companies with net profits than net losses.
> Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
This one of the many reasons why graduated tax rates are inefficient as compared with something like flat rate + UBI (which can be equally progressive but doesn't have this problem), because it works that way for everything. The same thing applies to losses incurred directly by the big guy. Or if you create a deduction for green cars, someone paying a 35% marginal rate gets more from buying the same car than someone paying 15%.
But that doesn't apply to corporations anyway. Corporate tax rates largely aren't based on income. If they were, splitting an operation into multiple corporate entities would lower the tax rate and then everybody would do that.
> But people see the result that rich people are getting a tax deduction and clamor to get rid of the rule.
The big problem is that people see and remember companies like Toys R US and Guitar Center that would be JUST FINE if companies like Bain capital hadn't loaded them with debt to pile in tax writeoffs.
> The big problem is that people see and remember companies like Toys R US and Guitar Center that would be JUST FINE if companies like Bain capital hadn't loaded them with debt to pile in tax writeoffs.
Except that their strategy had nothing to do with tax write offs.
In theory what they were doing is borrowing money to buy an ailing company and turn it around, and as long as they succeeded they could have serviced the debt.
What they actually did was fail to turn the company around while charging it hundreds of millions in consulting fees, until it finally collapsed.
The way things were set up, if they succeeded in turning the company around, they would get the profit in excess of the interest. If they failed, they still get all their consulting fees and the lenders are stuck trying to recover their loan principal in bankruptcy.
That situation creates terrible incentives. Either they can be lazy and just collect consulting fees for doing nothing, or they can take big risks with house money and cash in if it pays off or walk away if it doesn't. The people who lent them the money were nuts. They would have been better off buying the company for themselves.
It was an obscure part of the tax code that was never intended to be a tax-deferred saving vehicle until some guy named Ted Benna figured it out. He even suggested it to other clients and they said "no, the IRS will never buy it".
So is your argument that anyone using a 401k is a "greedy tax cheat"?
> They don't have an army of accountants on retainer to figure out how to game the tax code and accomplish things that weren't really intended.
Even that doesn’t sound that bad to me. All of those people have a job, are being paid and are also paying taxes.
Also that sounds like a tax code bug and not a rich people problem. The government is allowed to collect exactly the minimum required by law and nothing more.
>>Also that sounds like a tax code bug and not a rich people problem. The government is allowed to collect exactly the minimum required by law and nothing more.
Not to be "that guy" but who do you think is writing the tax code, if not rich people and the government officials they help fund? Of course it's a rich people problem, or rather a rich people solution.
That strategy works in some countries, not in others. Not sure about the US. In certain countries a profitable company can acquire a company with carry forward tax losses, and by merging both you can offset profits from the profitable company with the losses of the unprofitable one.
Not exactly extreme tax avoidance I'd say. This is quite a well known mechanism.
i'm also curious. unless i'm not understanding something, your tax writeoff could not exceed your cost basis on the purchase of the business, making the maneuver a net loss.
Tech startup A is capitalised with $1m. Burns through $1m, left with $0 in the bank, now has a million dollars in carry forward tax losses. That means you can make a million dollars without paying taxes. At a 21% corporate tax rate, that's $210,000 in taxes you'd pay on a $1m profit if you didn't have the carry forward loss.
How much are the shares of that shell worth if you can use the tax losses to offset profits of a different, profitable business? Somewhere between $0 and $210,000.
it looks like in your example you end up with $1mm, since you didn't have to pay tax on the profits of company B. but if you had just kept the original million and paid tax on B's profits, you would have ~1.8mm? or are you implying that you can buy company A for less than the market cap in the first place?
Yes, the owners of company A can sell their shares to profitable company B for an amount between $0 and $210,000. Obviously you wouldn't burn a million to create tax losses.
Remember: this company has $0 in the bank. It's essentially the same as a newly incorporated company, but with tax losses. There would generally be a discount on the value of the tax loss due to historical liability risks of the previous operating business.
The things written above are highly simplified though, and might not give a completely accurate reflection of the situation. There are likely some anti avoidance rules in place to stop this behavior. But this again depends on the country.
"There are some catches here. To use the NOLs (net operating losses), Sirius can't undergo a full change in control for three years. So Malone has to bide his time with his 40% for three years before scarfing up the rest of the company."
This is one such anti avoidance mechanism.
By being smart about taxes, he essentially got that business for free.
> Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately jumped on. It can't be ok for one group of people to take advantage of tax incentives and not others.
I don't like tax credits and deductions at all. I think all of these things are an additional burden on the lazy and the stupid (like me). Using taxes to encourage the public to do something or not do something doesn't even make sense for the political party that keeps harping about making taxes simpler.
Personally, I think all businesses should pay taxes on total revenue. I don't give two ships if you had a revenue of $2B and expenses of $5B. You owe taxes on that $2B. If your business model is low margin, that's your problem. No credits. No deductions. No deferrals.
The current policy isn't based on fairness or logic. It is simply based on who can get their way and by how much.
Taxing businesses on total revenue would prohibit entire classes of businesses, for example stock brokerages, bond market makers, ebay, and amazon's 3rd party marketplace. And did you know that grocery stores are low margin?
Hell, if you average them over the economic cycle, airlines and car production are low margin.
i'm curious, what do you think would actually happen if we taxed corporate revenue instead of profits?
the effect of a particular tax can be pretty hard to figure out. just because the tax is levied against a certain company or individual doesn't necessarily mean they actually bear the burden of that tax; depending on the situation, they may be able to pass off the burden to someone else entirely. in general though, you can think of taxes as discouraging a particular activity/transaction.
if you directly slap a tax on revenue, you are basically putting the brakes on all economic activity. low margin businesses are probably hit harder than higher margin businesses, but keep in mind that the profitability of the average business varies a lot by industry, so you run the risk of putting entire sectors underwater. unless they are able to pass the tax on to their customers, a grocery store is going to be hit a lot harder by this tax than a semiconductor company, and people are going to be less likely to invest in them. taxing corporate profit is somewhat perverse in the same way, since it serves to discourage efficient allocation of capital, but it does have the nice side effect that it increases the incentivize for companies to spend more tax free dollars on things like employee benefits and wages.
in my opinion, we should probably not tax corporations at all. ultimately all corporate revenue turns into either income for employees or capital gains for investors, so just tax these (progressively) and hike the rates. while we're at it, let's also eliminate as many personal tax credits and deductions as possible.
> in my opinion, we should probably not tax corporations at all. ultimately all corporate revenue turns into either income for employees or capital gains for investors, so just tax these (progressively) and hike the rates.
This sounds reasonable to me As long as the money doesn’t disappear to another country.
I have a (horrible) solution for that as well. Make the board criminally liable for the actions of employees, contractors, or other agents where such actions are a condition to the employment or contract.
Tax rates will probably need to go down and this is obviously just a thought experiment because no change is possible as we are too comfortable being hypocrites.
There is a much simpler solution for the vertical integration problem. If you buy something from another company which has already paid tax on it, you don't have to pay tax on it a second time. The resulting tax is called VAT.
It looks like there is an opportunity to reduce the taxes owned on the initial capital gain as well as avoid all taxes on the additional capital gain if held long enough.
Because nobody got rich by spending on the poor. It's the lie at the heart of every trickle-down scheme and corrupt charity: that all we need to do is give wealthy people a little bit more, and we'll all somehow benefit from it.
Absent a vocal minority, wealthy people spend their money in ways that make them more money or get them more political power. They don't build communities, they build dynasties.
From an introductory pdf [1]: "A qualified Opportunity Fund is a privately managed investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (the vehicle must hold at least 90 percent of its assets in such property)".
Okay, so here's my prediction: a series of shell corporations will be constructed so that the investors are essentially moving their money around on their own plate. Those funds will then look for the most efficient way to produce a return on that investment, which will probably consist of purchasing real estate, pumping up its value (increasing housing costs in the region), and then dumping it at the end of the 10-year term so that the investors can get out without any tax liability. The affected communities will end up with artificial housing cost inflation followed by a slump that will leave them in just as bad of shape as they are now, at best.
It's raw, seething cynicism, yes, but it also closely matches something that's already happening right now. Communities across the country are seeing artificially high commercial rents coupled with empty storefronts in heavily-trafficked areas because real estate owners have discovered that they can make a little extra money by keeping some of the spaces empty and using them as tax deductions, instead of lowering the rent to market rate and putting a small business in there. [2]
The easiest would be to invest in assets that don't (or only moderately) go up in value, but that you can (in the end) liquidate at cost. Then you get the tax benefit without the risk.
The PDF I linked describes O-Funds with 7% annual appreciation.
They won't all hit that, but the goal will be to get the O-Funds to match similar low-risk long-term investment vehicles and then get out tax-free, and the businesses managing the funds will be under enormous pressure from the investors to make that happen.
The thing that concerns me about this is that there isn't much reason to expect the area's interests are aligned with investors' interests.
Investors build something that allows the local economy to bring money into the area - e. g. A factory of something like that with well paying jobs where workers get to keep a good chunk of their value add and a lot of the profits stay in the local economy? Great! Win win.
Investors build something that provides a bit of short term benefit but then leeches money out of the area forever after - e. g. An apartment building, low wage retail, toll roads, etc? Well it'll be great for the investor who now has a new tax free passive income steam on top of the hard assets they built (the road, apartment building, or whatever that they can later sell - again tax free - if they want). Sucks for the city though. Sure it might have been necessary, but the local economy was basically just forced to take out a loan that it will never repay - sending money to already wealth investors in perpetuity for housing or transportation or a place to buy shit.
In either case, and probably more the latter than the former, the already-hilariously-wealthy investor gets to earn fistfulls of money tax free. But only one of those situations really helps out the local economy itself. And in either case I don't see how removing a 10% or so tax on profits and deferring taxes on investment is going to massively change how or whether projects pencil out.
So yeah, in an era where the wealthy already have way too much money and don't need help hiding more of it, and they might not even be helping anyone but themselves, and they're basically doing something they probably would/should have done anyway, and they get to feel good and claim good pr for basically just making gobs of money that they don't need, yeah, I'm not feeling super proud for them or this program.
What would make me happy? Well, if they paid their damn taxes, that'd be a start. Even better if the rates actually have them paying their fair share instead of basically nothing, as is the case with capital gains tax rates today.
I'd also be happy if they spent their money lobbying for common good things - like climate change prevention, universal health care, free college, etc - instead of looser regulations and tax breaks. Some places and people do this, most don't, and some actively and vociferously work against the public good (kochs, bp, etc).
Really though I'll probably only really be happy when we don't have the obscene rates of poverty and semi poverty in the us, and we fix the floundering public infrastructure and services paired with deep government deficits. Obscene wealth is only such if its accrued in the context of millions of people living paycheck to paycheck at best, or being actively in the red month after month more typically. Likewise, it's only really selfish to try and lower your taxes if the common space is currently just ridiculously under funded - the rest of us generally pay our fair share or something like it, but a small minority of people jump through miles hoops and work tirelessly to massage the rules so they get to keep the disgusting level of wealth they accrued on the back of society entirely to themselves.
Fix those things, and they can do whatever they want with their mountains of cash - I'll probably stop caring.
> Q. What is a Qualified Opportunity Fund
A. Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.
> Q. How does a taxpayer become certified as a Qualified Opportunity Fund?
A. To become a Qualified Opportunity Fund, an eligible taxpayer self certifies. (Thus, no approval or action by the IRS is required.) To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018) and attaches that form to the taxpayer’s federal income tax return for the taxable year. (The return must be filed timely, taking extensions into account.)
> The fund must hold at least 90 percent of its assets in Qualified Opportunity Zone Property
The benefit is for investing capital gains into OZ's, not necessarily from selling assets that are in existing OZ's. So if you had a gain on your house (beyond the homeowner exclusion) you could potentially invest the remainder of that gain into an OZ project and get those benefits.
There are all sorts of stipulations you need to follow to qualify however - not all of which are fully in place yet from Treasury. We should be getting the first version of the regs as soon as tomorrow (imminent we've heard from folks in DC) and then we'll know more. Things like having to improve the basis of whatever you invest in by 100% within a 30 month period exist, so you can't just buy something in an OZ and park it, you have to actually do some improvement to what you purchase.
You have to make a 100% investment above your acquisition cost, so you probably cannot benefit unless you can sell it to an housing investor who could do that.
Using the map in the article I was intrigued to discover that my home isn't in an 'opportunity zone' but if it were located 30 feet to the right it would be. That may explain why my neighborhood has been infested with signage for cash-up-front house sales (which I have been systematically removing).
If someone were to directly buy a distressed property in one of these zones using money from capital gains, and fix it up (and even live there for 5-10 years), would they realize the same tax benefit as investing in a "fund"?
The Opportunity Zone program is designed to provide tax incentives to investors who fund businesses in underserved communities.
Investors are able to defer paying taxes on capital gains that are invested in Qualified Opportunity Funds that in turn are invested in distressed communities designated as Opportunity Zones by the governor of each state. Up to 25 percent of the low-income census tracts in each state can be designated as Opportunity Zones.
"Incentivizing greed" is literally how capitalism works. Or rather, it's knowing that greed will exist regardless, and then incentivizing the channeling of that greed toward better outcomes for society.
You know, we should just drop the other shoe and reduce all taxes on rich people to zero. It's what they pay anyway. It would save us the money of pretending to tax them.
They definitely don't pay 0. They actually pay a significant portion of all taxes collected. You won't pay as much in your entire lifetime as the annual bills for some of these people.
I find it strange to see such animosity against "the rich" on an forum dedicated to startups from a company that has helped created billions in market cap and mint several new billionaires in the process.
>I find it strange to see such animosity against "the rich" on an forum dedicated to startups from a company that has helped created billions in market cap and mint several new billionaires in the process.
There is a huge difference between someone becoming so wealthy that they and the next 5 generations of their heirs don't need to do any real work for the rest of their lives, and someone figuring out a way to create a sustainable organization that provides real value to lots of people.
It is more than reasonable to want to encourage society to favor the latter over the former.
How do you think people become wealthy in the first place? It's almost always connected to providing value to lots of people.
These ranks change all the time as wealth is created and lost. Very few stay rich through generations, but even then it's always invested in something, like businesses that benefit others.
These same wealthy people are the LPs that fund the VCs that fund the SV startups. It's a cycle.
> It's almost always connected to providing value to lots of people.
Actually, accumulated wealth to that extent is almost always connected to anti-competitive practices and monopolizing a space to such an extent that people have no other choice then to do business with you.
I can think of far more examples of very successful companies that got that way by offering something people wanted than companies who used anti-competitive tactics to push a sub-standard product.
All corporations trend toward monopoly as it provides the greatest efficiency and value to all involved, until it crests the peak of innovation and starts falling into decay. It makes no difference if you want to focus on businesses instead of family names. It's just another cycle of rise and fall that you can easily see by looking at the Fortune 500.
Are you suggesting that there be some perfect steady state of companies that are neither too big nor too small and nobody can ever gain or lose in life?
> How do you think people become wealthy in the first place? It's almost always connected to providing value to lots of people.
I find that hard to believe, honestly. It seems like the biggest gains are to be made in rent-seeking, milking your customers, monopolising and forming cartels and just outright fraud.
You don't have to believe, let's look at facts. Do you have any examples of what you're describing? Meanwhile in our lifetimes we've seen Amazon, Facebook, Twitter, Stripe, Atlassian, Uber, Airbnb, and dozens more create massive value, and that's just in the software/tech industry.
Amazon didn't pay their workers a living wage for a long time, having them subsidised with taxpayer money and used their position to be be able to sell at a loss to destroy competition. Plus their dubious tax arangements.
Facebook is Facebook. I find their business model, their dark patterns, and their lies to people and politicians to be an example of what I'm talking about.
Uber basically skirted the laws of every city they operated in as if they had immunity. Not to mention all the other scandals the compan has been involved in or responsible for.
As for the other companies I don't know enough of their inner workings over the years, but I'm not convinced they are squeaky clean at all.
You seem to skip straight to the end without realizing these companies did not even exist a few decades ago. They grew to their size because they provide value.
I've already said previously that companies tend toward monopolies and that's when problems begin, but that's on govt antitrust to handle properly. Whether it does is another issue, but it doesn't erase the fact that people have gone from 0 to B by creating companies from nothing and making a large impact of society.
The government is the people. Just like corporations at that size are far more than a single person. To reiterate for the 3rd time, all things eventually become too big and need to be managed, but that has nothing to do with value creation leading to wealth generation. I've yet to see a comment on how that's invalid beyond emotional complaints.
>> How does the adage go? "Behind every great fortune lies a great crime."
And there we go. Not sure how that's rational or productive. I guess you'll be first to tell every startup that exits successfully that they're now criminals for what they've done.
> but it doesn't erase the fact that people have gone from 0 to B by creating companies from nothing and making a large impact of society.
That doesn't invalidate anything I said and it doesn't support what you were saying very well at all.
Hitmen, heroin dealers and elephant poachers provide value to some people as well, but to say we should encourage those things simply because they provided 'value' is sociopathic.
Those things you mentioned are illegal. Nobody is saying you should do illegal things. But wealth generation is tied to value creation, and your stance seems to be that all wealth generation is from criminal means when that's clearly not true in the slightest. What else is there to say here?
You're just struggling to comprehend what I'm saying because in your free-market fundamentalist world view, companies are benign entities of wealth creation and nothing more.
I believe many of the things these companies do should be illegal. Many of them already are, they are just not fined/punished appropriately for them. It just becomes absorbed as a cost of doing business.
Lot of what Google, Amazon, Facebook Uber, Microsoft, Intel etc. have done to stay on top has been illegal but the fines pathetic. Other stuff should have bene illegal and people are slowly coming round to the fact. They all even colluded on keeping wages low, remember?
Of course you can expand out beyond tech as well. Enron fraud, HSBC drug-money laundering, DeBeers atificially limiting the supply of diamonds, Nestle claiming water is not a human right and fucking over Africans with their milk formula. I could honestly sit here all day and reel off instances legal violation after ethical violation after outright greed and exploitation from companies all over the world.
But it's too late now. Even making these things illegal now doesn't strip the companies of the wealth they accrued beforehand. They are entrenched, because the system encourages this with pitiful consequences.
I'm not naive enough to belive legal == moral and illegal == immoral. A lot of laws are lobbied by the entrenched to cement their own positions.
There's strong animosity against the rich because some of us grew up seeing our families destroyed chasing the american dream while others grew rich off their misfortune.
That and the constant attempts at reverting certain policies or actions that would make my QoL demonstrably worse.
In what way? There are billions lifted out of poverty across the planet over the last few decades. Every objective measure shows improvement. What are your counter examples?
In the US, socioeconomic mobility is way down, housing prices are up, insurance prices are up and wages have not kept up with inflation. We're lagging far behind some of our far-less-rich counterparts.
These are all facts solidly backed up through studies over the years.
In the US: meaning around 4% of the world's population who are all in the 1% of global wealth. If you're going to talk about an entire generation, then I found it disingenuous to scope it down to a tiny minority of the people in the world.
Mobility might have decreased in this country relatively (although without considering the cause) but absolute quality of life has increased with iphones in every pocket, on-demand services for everything imaginable, and white collar tech jobs paying mid-6-figures in one of the strongest currencies.
I have to again bring up the fact that this is on YC forums which have witnessed many people from many countries start with nothing but a few comments and build incredibly successful companies. Compared to the wars, depressions and struggle of prior generations, folks today are at a height of comfort and opportunity never seen before.
It's funny that you immediately jump to an assumption that I am not doing well.
The reality is that I'm doing fine in my career and managed to escape poverty for many reasons I've illustrated in the past. However what I saw and what I was trying to explain is that I saw my parents destroy their body (and in one case, lose their life) trying to improve their situation in a country that hardly gave a shit. I recall vividly the troubles my family had after my mother had a stroke because insurance companies decided that a stroke was a pre-existing condition despite her being in otherwise good condition.
Maybe you should stop making assumptions about people based on our animosity towards people that have actively made our lives worse in the past.
The other part of that is doing something about it. No action, no success.
Of course, by the time you figure it out you'll realize that most wealthy people are not the evil sleaze we expect them to be and you'll take the same actions they do to protect yourself against destructive governments and financial regulations. It's sad that the perspective of those with scarcity mentality regarding wealth are often their own worst enemies.
> They definitely don't pay 0. They actually pay a significant portion of all taxes collected. You won't pay as much in your entire lifetime as the annual bills for some of these people
Because they have more money than I will probably make in my entire lifetime.
They are supposed to pay most of the taxes. They own most of the wealth.
How did I know it was Detroit before I even clicked?
Fact is, both gentrification and decay suck. I like to use the analogy of strip-mining a landscape, desert-ifying it, and then when the rain comes ... instead of a life sustaining event, it's a flood that removes it.
False dichotomy. Most of the complaints about gentrification are coming from lower middle class families getting pushed out of their home in a cute little neighborhood because taxes are too high.
getting pushed out of the neighborhood you grew up in because of the rising rents sounds pretty sad. getting pushed out of your family home because it got so valuable that you can't pay the property tax on it doesn't really sound as tragic. in fact, i hope that happens to every house i ever own.
"My tax bill went from $8K per year to $32K per year, poor me!" doesn't buy much sympathy when your house went from $200,000 to $800,000 over the same time period.
Actually the reverse happened in Detroit. Your houses value dropped 80% but your property taxes didn't drop.
Imagine you're retired and over 65 so you no longer owe property taxes. But you don't know it, the tax bills keep coming and you lose your house. It is still happening in Detroit.
You've lost your job in the 2008 recession (in Detroit with 35% unemployment it was a depression) so you don't have to pay your property taxes until you go back to work. But you don't know, the bills keep coming and you lose your house. It is still happening in Detroit.
You're a lucky one, you kept your job and are still able to pay your now inflated property taxes. But neighbors on both sides of you lost their houses and they're empty. An arsonist sets fire to both of them and the resulting blaze burns your house down. Yes, it's still happening in Detroit.
Sure they're sitting on a lot of wealth, but it's not an investment if you're living in it, because there's no income.
Also, having to move out of an area because you can't afford the taxes on your house says to me that the taxes are out of proportion (or should be reduced for primary residence), or the house values are crazy.
That's a typical attitude for someone who makes enough money to live where they are living. Sure, why not, you can just upgrade houses.
But, how much money would it take for you to quit your job and leave your home, family, and friends behind? Because that's what it amounts too. Few people are able to sell their newly expensive place and find a cheaper or equal option that doesn't require completely uprooting.
> Most of the complaints about gentrification are coming from lower middle class families getting pushed out of their home in a cute little neighborhood because taxes are too high.
Maybe that's true somewhere (I doubt it, for reasons already articulated in sibling comments), b ut certainly not in CA, because Prop 13.
Depends on your definiton of bad, I suppose. Care to state what you think is bad? You linked to google maps, from which I can draw a million conclusions, none of them worth devoting effort to responding to without clarification.
Taking the question in good faith, here a few examples drawn from the example above.
* The neighborhood is mostly burnt down, derelict, or razed: think of the important stories in your life and where they took place, and imagine those places transformed, not into a high-end sushi bar, but cracked sidewalks and rubble.
* A generation of home owners probably lost the majority of their wealth
* The city lost tax revenue and struggles to provide basic services like streetlights or the enforcement of law.
This was not the lack of gentrification. This is the effects of unemployment. If a high end sushi bar would “revive” the neighborhood, it would only be because the residents were forced out. So what’s the point? I’d rather care about the people in the neighborhood (...which does involve maintenance) than how the neighborhood makes people feel. People live there. This lazy attitude towards justifying gentrification is disgusting. It’s a hard problem that deserves thought, and this is just classism.
HN, your viewpoint is clear. Try visiting oakland! It’s getting more photogenic every day.
Yea, I’m not buying that you need to kick people out of their houses to improve the economy (whatever that means to you...). Employment and gentrification are linked and cause each other.
Please, stay away from the terrible cities! Would you go so far as to call them shitholes?
I'm not tracking the argument you're making. Between the frequent revisions of your comments, I've gathered that HN users are bad for not visiting Oakland, but once you discover that we've been there, now you want us to stay away? I thought I was preferring gentrification to decay, but now I'm personally kicking people out of their houses?
Life is hard and unfair. I get it. But if you make choices based on a short-sighted compassion for the disadvantaged that entirely neglects long-term consequences, you will make life harder and more unfair. Exhibit A: CA's Prop 13.
> Nobody is walking up to a door and dragging poor old grandma out.
What exactly do you think happens when an apartment complex gets purchased by a buyer whose plans are to redevelop (either remodel or demolish and rebuild) it for a more upscale market.
> Nobody is entitled to live in a certain community for a certain price.
Whether entitled or not, people are in fact harmed by being forcibly displaced from their home.
What happens in our markets up here (MA and NH) is the new building owner inherits the leases of the existing tenants and must fulfill the obligations of those leases. I assume the laws are similar in CA.
Once the building owner and tenant both fulfill that which they’ve agreed to, they can mutually choose to extend renew or not. If the building owner wants to redevelop, they need to wait for leases to run their term or they need to buy out of the lease with each tenant.
When they do that, they’ve fulfilled their end of the bargain. If a tenant wants more than that, they can negotiate (and pay for) lease renewal options. Most residential tenants do not (most commercial tenants do), but should then not be surprised when they don’t have that ironclad option to extend the lease that they didn’t choose to buy.
Then people need to adjust their living styles. "Forced" is the wrong term here. Either you can afford your apartment or not. Nobody deserves cheap rent.
Yes, that's exactly a downward distribution of pain.
> "Forced" is the wrong term here.
As they are compelled by the actions of others, it is exactly the right word.
> Nobody deserves cheap rent.
That certainly includes the wealthier beneficiaries (the new residents, not the even wealthier investors) of government-subsidized gentrification, who are, after all, getting exaxtly what the poorer losers in that process are losing.
If nobody deserves it, taxpayers shouldn't be paying to transfer it from the poor to the wealthy.
When you significantly edit your comments after the conversation has moved on, it's really helpful to include the edits below the original post so that others can view the actual conversation.
They are only "forced" if you believe they were originally entitled to live there at a certain price.
Which, in a market economy, they were most certainly not.
The moral argument around gentrification is a weak one. Gentrification has been happening since cities existed. At some point we need to accept that people should make sound financial decisions.
I'm just saying the moving of people throughout cities and neighborhoods is a very natural thing. Someone no longer being able to afford things in their neighborhood is not inherently a bad thing. Responsibly adults should be able to manage their finances, move, and adjust. That's life.
> They are only "forced" if you believe they were originally entitled to live there at a certain price.
No, they are forced independently of that.
Whether you view that as categorically wrong may be impacted on views of entitlement, but most of the suggestions I've seen about it being wrong are utilitarian, not categorical, and are thus not dependent on any system of entitlement.
Do you think the burned out, half-missing roof house adds beneficial je ne sais quoi to the neighborhood? Which of those houses would you like to have a next-door neighbor? Which of those houses would have the greatest positive effect on your willingness to move there, raise a family there, and invest there?
Some places were overbuilt, and it would probably be better to tear down the remaining structures, clean it up and designate the block as a park. The wrong approach to development can make things substantially worse for people who live in marginal neighborhoods.
The gross majority of opportunity zones are not at risk of gentrification from opportunity zone investment. Most opportunity zone census tracts sorely need an incentive for new investment.
Sounds like what is going to happen to me is some "opportunity zones" are going to increase in value, and its going to lead to a runaway feedback effect where all this opportunity zone investment is going to be plowed into a few rapidly price increasing zones for maximum return and nowhere else.
End result is going to be an entire neighborhood of 3 million dollar condos nobody lives in (but prices have skyrocketed due to the huge influx of money), a huge tax free payoff for millionaires, and next to zero real societal value created.
The benefit of investing in an opportunity zone is not that great. It’s an incentive, but a rather modest one, for a specific group of people with ‘captive gains,’ and these investments will tend to be rather risky by nature of being in OZs. I have trouble fathoming a runaway investment situation (?). If, in 10 years, OZ policy has dramatically changed the state of a substantial portion of low income census tracts... is that a bad thing?
I live on the edge of one and real estate around here has tripled over the last decade already. I have lost a lot of friends and neighbors to endlessly rising rents over the last 5 years. Something tells me the hot money isn't going to fund the construction of homeless shelters or enough housing to seriously push down rents.
The fact that that the original residents are displaced to a place without those benefits and bear the cost of relocation, while the people that enjoy he benefits are people who could have afforded to get as good, or nearly so, conditions in existing places with them, anyway.
Gentrification is a magnifying downward redistribution of misery, where the new residents get a small gain in exchange for the old residents (particularly renters) getting a big loss.
Yes, property owners—who tend to be more wealthy than renters to start with—may see benefits. That kind of reinforces the point, rather than contradicting it.
I believe the way that the program works is you can defer taxes from your original capital gains (and the cost basis gets increased so your deferred taxes are less than you would pay otherwise), reinvest them in an "opportunity zone", and not pay capital gains on your investment on the opportunity zone, if you hold it long enough
e.g. Bob bought Apple stock for $50 a share back in the day, and sells it for $200/share. He defers his taxes until 2026. Instead of paying capital gains tax on $150/share, the cost basis is adjusted by 15% so in addition to benefiting from the time value of money, future Bob will only be taxed on $142.50 of capital gains. Bob can buy a house in an "opportunity zone" (from scrolling around the embedded map, there's plenty of million dollar+ houses in these areas. There's also lots of sports teams and stadiums in these areas, so maybe Bob buys an NFL team or a parking lot next to their stadium), rent it out for 10 years, sell it, and not have to pay any capital gains tax on the appreciation. Definitely not a bad deal for him!
Close - but Bob in your example also has to improve the basis of whatever he buys by 100% within a 30 month period. So that could be a major renovation of the house, building another unit on the property, scraping and rebuilding etc.
Unfortunately it's not as easy as parking money and riding off into the tax free sunset. As I mentioned down thread, we should hopefully have the first set of regs from Treasury even as soon as tomorrow which will clarify a lot of the loose ends as written in the initial legislation.
Some of what we're waiting to see is whether or not that basis improvement includes the land value or if you can split that out. If the home Bob purchases for $300k is on a lot worth $250k, does he have to spend the full $300k to improve it, or just $50k to improve the basis of the structure?
Lots of details to still work out but hopefully we'll know more shortly.
Isn't that kinda a value-neutral proposition for the area though? Yes, there's a nicer house or whatever now, but 100% of the value add goes to the person who is now going to sell the property and get their investment back with change. The area ends up with the same effective wealth, since they have to send money to the out of state investors to claim ownership over the renovated house or whatever.
(also that assumes the people ever sell it to someone in the area - if we're talking real estate, there's no reason for them to not just sit on it forever and turn it into a rental or Airbnb or whatever)
"Wealth grows wherever men exert energy," Arkad replied. "If a rich man builds him a new palace, is the gold he pays out gone? No, the brickmaker has part of it and the laborer has part of it, and the artist has part of it. And everyone who labors upon the house has part of it Yet when the palace is completed, is it not worth all it cost? And is the ground upon which it stands not worth more because it is there? And is the ground that adjoins it not worth more because it is there? Wealth grows in magic ways. No man can prophesy the limit of it. Have not the Phoenicians built great cities on barren coasts with the wealth that comes from their ships of commerce on the seas?"
-- The Richest Man in Babylon
The benefits are not purely monetary - raising the quality of an area due to investment that otherwise would never come in is an enormous benefit for people already living there.
That isn't too say throwing money at a bad neighborhood is guaranteed to succeed but it gives a far better shot than letting the area simmer in stagnation.
I don’t think most people living in these “opportunity zones” are going to be happy with people basically being tax incentivized to make housing more expensive in the area in which they live, thus making life harder for them.
If you improve a mansion to be a fancier mansion, you don't increase the supply of housing.
If you improve a small lot to be a duplex or an apartment complex, you increase the supply of housing.
The latter wouldn't raise the net price of housing, but would still be a worthwhile investment. It depends on what local policy is, namely if building new housing is illegal or not.
Making one house fancier definitely increases rents on neighboring properties. If I live in a rundown house in a nice neighborhood and fix it up, everyone else's house increases in value. Same goes for making 1 house really nice in a bad area.
It is complex and there are many "it depends". If they own a house and want to move [for some personal reason] they will be happy that they can get more for their house. If they have lived there for years and watched the neighborhood go downhill they may be happy that things are improving again. Of course the other side is if they are happy with cheap rent they will be unhappy if rent increases because there is now more demand.
AFAICT this is basically incentivizing gentrification.
all of the above.
No, because it ends up increasing property values for existing owners.
Increases the tax base.
OZs are the Wild West right now... There is no clear guidance on what is allowable and what is not. If you want to invest through this mechanism, it may be better to hold off or the IRS may come knocking on your door in a few years.
Buying real estate for personal use would seem like undermining the spirit of the OZ legislation. I don't think it will fly...
But isn't the IRS knocking in a few years better than the IRS knocking THIS year?
IANAL (or a CPA), but it seems like a good-faith attempt to invest in an OZ should not incur penalties later. Disclaimer: you are taking about the IRS, so logic/fairness may not apply.
Also: why would personal investment be against the spirit of the OZ legislation? It seems to focus on getting the property developed, not why it is developed.
> But isn't the IRS knocking in a few years better than the IRS knocking THIS year?
There's a 3rd option: How about the IRS knocking never? I say that in jest as I know you have a 1:3 chance in getting audited just through the normal course of business. I suppose it depends on your risk tolerance.
> But isn't the IRS knocking in a few years better than the IRS knocking THIS year?
This depends on the penalties that the Service/Treasury aims to collect and their ability to tie-up and/or seize one's assets.
Yes its more akin to a 1031 exchange, but opened up so that non-real estate capital gains are eligible.
Is it just capital gains? Wondering if it applies to any other forms of active or passive income.
How are profits from these investments treated?
Can you "swap til you drop" like with a 1031 exchange?
The current understanding is that you can continue investing so long as your money stays within a qualified opportunity fund. You have to make a substantial investment in the property or business, so simply buying land within an OZ won’t cut it. As a real estate developer, I can develop apartments, sell them upon stabilization, and redeploy that capital in another OZ investment.
> Is it just capital gains? Wondering if it applies to any other forms of active or passive income.
I would also like some information about this.
+1 for investing in distressed areas; self-nominated with intent or otherwise.
If it's capital gains only, -1 on requiring sale of capital assets in order to be sufficiently incentivized. (Because then the opportunity to tax-advantagedly invest in Opportunity Zones is denied to persons without assets to liquidate; i.e. unequal opportunity).
Q: "Why don't I get the same tax-advantage for investing in a/my opportunity zone community?"
A [AFAIU]: "Because you don't have capital gains; only regular income" (~="Because you're not an accredited investor")
weird the UK VCT's EIS and SIS are open to anyone with the cash
Here's how it works with a few examples: https://ofn.org/sites/default/files/resources/PDFs/Opportuni...
This sounds like a surefire way to astronomically increase inequality, right?
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...
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.
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.
> 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.
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.
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.
> 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.
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.
But it also discourages investment if you taxed as income you just buy safer t bills etc instead of the next Microsoft or google
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.
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.
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.
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.
Where you are making a mistake is riskier investment have a risk premium. Further, you can offset capital gains with losses, and with a highly diversified portfolio the expected returns will be positive over time.
So, it's going to be rational with a 0 or 50% capital gains rate with some portion of your portfolio. Further, increasing capital gains makes it harder to keep up with inflation thus pushing people to make riskier investments.
PS: Try modeling a portfolio of bonds with different yields and risk premiums vs different tax rates including inflation.
==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.==
Investors will seek alpha wherever they can get it. If there is a flight into "safer" investments, the market would adjust and the returns of those "safer" investments would fall. If investors want alpha returns, they will take risks. This is a fundamental truth of investing.
Are the incumbent's positions not reinforced in today's environment? There are 3,618 publicly traded companies today compared to 6,407 in 1987 [1]. Is that a sign of positive competition? Today's capital gains rate is the lowest since the Depression [2]. Yet, entrepreneurial activity is at generational lows [3].
[1] https://www.bloomberg.com/view/articles/2018-04-09/where-hav...
[2] https://www.cbpp.org/sites/default/files/thumbnails/image/ca...
[3] https://money.cnn.com/2016/09/08/news/economy/us-startups-ne...
"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.
"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!)
This was, indeed, the inspiration for my comment. It’s cogent and persuasive encapsulation of current free market thought.
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.
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...
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.
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.
>> assuming
Are there actual numbers somewhere?
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.
Does nobody gain at all from the investments in an opportunity zone? Are those benefits just ignored?
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.
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?
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")
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?
I disagree that governments necessarily must be inefficient, but yes this is an area with some nuance. I could see myself being in favor of an incentivized tax structure for OZs, along with a highly redistributional tax system for income, wealth and equity, but I don’t think too many of the people who argue for the power of markets to incentivize investment of OZs are also in favor of the redistibutional part ;)
Do you have much exposure to how government operates?
Where money is being thrown around by government, in general, there are laws in place to make sure that money doesn't flow into the bureaucrats pockets somehow. But to do that, they add layers and layers of checks and processes. The side effect is that they're not very fast.
And then there's the issue of not having attracted the hungriest talent on average, due to not offering very good salaries, because of the whole avoiding looking corrupt thing.
And then there's the whole personal motivation of private investors to profit, whereas government investors have no such motivation (if they're not corrupt). So there's just no very good motivation to do a great job.
There's a whole slew of reasons they don't make very good investors relative to private investors.
How much did the US Government throw into Juicero?
Not saying that private investors are perfect, they're obviously not, and of course there are going to be outliers. And some portions of government funding work pretty well (I think the NSF's model of getting scientist review panels is a great one).
Inconsequential compared to how much the US Government spends in a single day, and how much of that is wasteful. We can fund a new Juciero every day and not notice.
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.
>>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!
This is some extreme oversimplification of 1-human behavior and 2- how easy is it to teach people immediate need denial for long term benefit. No matter how many times you tell people the parable of the ant and the grasshopper, it's still just a story. It's not how the human mind works (generally).
On the inverse end, I could point out how every "self made man who didn't need help from nobody and just smarted his way to the top" was likely helped in countless circumstances that have nearly nothing to do with his direct actions. Humans are great at creating narratives, regardless of whether there is actual causality.
Socialism wants to save everyone from a biased, unfair, inequitable system, understanding that a herd is stronger than an individual and that spreading risk across the board means fewer catastrophic events for the individual. The goal is to lower the upper limit and raise the lower limit. It's not an attempt to pander to poor foolish baby people who can't do a finances for themselves, it's saying that there's no reason for a civil society to allow some to suffer debilitating hardships at the hands of a system they were forced into through circumstance alone while others reap unjust rewards. It's not perfect, but leaving "the free market (tm)" alone and not regulating leads to slavery and child labor and private paramilitaries protecting corporate kings as the past has shown.
Human behavior is quite simple - it's the magnitude of interactions that that make it appear more complex than it is.
I do agree that it is easier to be lazy and obtain instant gratification than delay it for great reward but it can be learned by anyone if the cushy safety net of socialism is removed. Everyone has something that motivates him to become greater than what he is now; it's just a matter of discovering what that is - often he has to find it himself. One-size-fits-all socialism destroys this freedom.
>every "self made man who didn't need help from nobody and just smarted his way to the top" was likely helped in countless circumstances that have nearly nothing to do with his direct actions
Correct: nothing happens in isolation. However, mindset greatly changes the likelihood of an outcome. Without being able to cultivate and learn outside of indoctrination institutions, the world would be static and soulless.
>The goal is to lower the upper limit and raise the lower limit.
This is the core: give those whom are lazy a cushy retirement and shackle people who dream big so they can no longer fly.
Slavery and child labor comes from power vacuums that are created by control freak communists/Marxists/socialists who keep things from changing and improving. The rest go along because change can be scary and we all want stability. A face of true evil is the deception that we all must be equal - we are not. We have borders, both conceptual and physical - doors on our homes and personal space that we want respected; yet socialism cries that borders are bad and we need to take care of everyone regardless of our own situation... and let's use other peoples' money to do it since we don't have any. Crabs in a bucket.
I know you mean well because I was in your shoes after the dot-com collapse. The difference is that I've seen the hypocrisy - there is no perfect system but socialism is a slow, agonizing death.
I'm not even able to begin to start with this one, so I'll just go with "Sure, you've convinced me of something"
A thief can go to his grave thinking he's a victim. Being coddled into a lie is the saddest thing that can happen to a nation's people.
>> The goal is to lower the upper limit
No thanks. Any society that does that is not free or fair, it is hell.
You don't need socialism, that's a crazy stretch. All that's needed is proper guardrails and regulation to ensure safety and prosperity.
This is what taxes and governments are for in civilized countries. Not whatever the US is right now. A proto-fascist quasi-theocratic corporatist-oligarchist kleptocracy.
Please don't post political or national flamewar comments to HN. We're trying for better than that here, regardless of how low the odds are.
https://news.ycombinator.com/newsguidelines.html
What if some blue collar worker has his 401k or pension plan invested in a company that is taking advantage of the tax break?
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.
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.
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...
The long term capital gains tax rate for married people with less than $19,000 in income is zero.
How much long term investment can you realistically do when your income is less than $19,000?
The point is that low income people do not need a capital gains tax optimization strategy, because the tax is already 0.
I believe it’s 0% up to $77k for married filing jointly.
Not only that, but this poor person has to use capital gains for this ...
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.
Looks like a big chunk of Menlo Park/Palo Alto is a designated OZ: https://www.policymap.com/maps?i=9964345&btd=6&period=2018&l...
Including heartbreaking scenes of crushing poverty like this: https://www.google.com.au/maps/place/DLA+Piper/@37.4595117,-...
That's the slice of EPA west of the freeway. Yes, the Four Seasons is there, but it's legitimately an impoverished area compared to surroundings. Compare the run-down apartments on Woodland against the neighborhood in PA across the creek. Seems like a legitimate OZ.
Can confirm
I am I understanding this correctly... it sound like this was successfully exploited by businesses and poor cannot take advantage of the benefits?
if accurate I think this is a problem with many of the incentives that are provided, maybe providing the tax incentive would be better directed towards saying to take advantage of this opportunity you must provide something that the public can use?
My worry. As was mentioned in the article these billionaires have teams of lawyers / accountants working to ensure the money stays in their hands. What's keeping them from having those teams of lawyers concocting vapor-corps in these opportunity zones (or whatever the loophole is) which will make little to no positive (and maybe negative) impact on the opportunity zone while ensuring the billionaires keep the incentives regardless.
EDIT: Or worse yet there will be organizations whose sole purpose is to take in billionaires money, do as little work as possible, and generate enough paperwork to ensure the billionaires qualify for the tax incentives.
I think you are referring to non profit organizations
Probably massive amount of money to be made by a company that can systematize this whole process. They know the laws and the codes, they know what gets returns in some areas and not others. I predict cookie cutter improvements being dropped into these zones at some point as everyone figures out where works and what doesn't. It will be interesting to see how this plays out.
And this would be ... a spectacularly good outcome.
In order to do this, the company would have to develop a workable, repeatable model of how to economically improve an "opportunity zone". There's some evidence that this is a very hard problem, notably that social service agencies have been trying to do it for more than 100 years. But sure, if a company can find a solution, that would be great.
The danger is that the company would find a solution that somehow followed the letter of the law but not the spirit, like finding an investment with nominally high returns that doesn't actually improve the lives of the people living in the opportunity zones. That's definitely a danger, and possibly a likely outcome. But another possibility is that there are fairly straightforward ways to improve the lives of people in these zones that haven't happened because the people in them don't have the capital to do it. If that's the case, then incentivizing outsiders to put in that capital should be a good thing. I don't know what will happen, but it seems like it's worth a try.
It would be nice if the program was well managed, because good management could probably reduce and mitigate the negative gaming-the-system outcomes and promote the good ones. But I don't have a lot of confidence in Congress to do a good job with updates, so I hope the original bill was written well enough.
"Opportunity zone" doesn't mean what you think it means.
E.g., there are census tracts in Cambridge/Somerville with six figure median incomes that are categorized as "opportunity zones". There are also a lot of census tracts in that area with much lower median incomes hiding an incredible amount of future earning potential (e.g. Harvard and MIT students, and esp. doctors doing their residencies at top hospitals).
Tax-free money flowing into those areas isn't going to help poor folk. It's going to fund the development of $3k/month luxury apartment buildings for housing young professionals who are priced out of buying anything, because billionaires are buying everything site-unseen in cash at $50k above asking. Don't believe me? Go on apartments.com and check out the rents/amenities of buildings that already exist in these "opportunity" zones.
And to be clear, I'm not super opposed to gentrification. However, I don't see any good reason why building luxury apartment buildings in some of the hottest rental markets in the country should be a tax-free activity.
If these were downtrodden areas starving for a cash infusion, this give-away of tax dollars might make more sense (although IMO is likely to do more harm than good). But you can be pretty damn sure that a sizable chunk of this money is going to flow into census tracts where not even a six figure salary can get you anywhere close to a down payment.
And even in areas that are legitimately run down, an influx of tax-free money competing with locals for housing stock is a good way to torpedo the sort of sustainable local wealth accumulation that happens when normal folk who live in the neighborhood are able to buy housing and storefronts.
So I'm very concerned for every area that is categorized as an opportunity zone, and pretty peeved that building luxury apartment buildings in fucking Cambridge is going to be a tax-free activity.
e: And I just looked around my home town in the midwest. There are big corn fields marked as opportunity zones, even though they're kind of out of the way and there are many other areas that would make a lot more sense to redevelop and where a capital infusion could actually create new opportunities. I happen to know the current owner of those tracts is a long-time supporter/donor to the current governor of that state. Unsurprisingly, turns out governors choose these "opportunity zones".
So, yeah, that's what this is: kickbacks to state-level political donors provided in the form of tax subsidies for billionaires (or at least millionaires).
I never said it wasn't a good thing!
Very true!
That's certainly possible, and unintended consequences are always a risk when trying to manipulate behavior via the tax code.
I don't think that such results qualify as unintended consequences. I somehow ended up attending a meeting at Treasury on some existing tax credit program. Other than me, everyone attending seemed to be some sort of insider and nearly everyone seemed to know each other.
So, to my way of thinking, an unintended consequence would be some no-name schmuck being the one to systematize and beat the known quantities at the game. (IMHO)
https://fundrise.com/opportunity-fund
The devil is in the details. What's the definition of an "opportunity zone", for instance?
We already have a similar program for EB-5 visas; the definition of economically challenged area is often an up-and-coming area gerrymandered to include just enough poor people.
Source with rather clickbaity introduction: https://www.citylab.com/equity/2017/05/kushner-companies-rea...
Here's a map showing all the OZ's: https://www.policymap.com/maps?i=9964345&btd=6&period=2018&l...
Anything purple on there is designated an OZ.
Looking at New York, I see the area around the Navy Yard, Long Island City, Bushwick, Astoria, and Flushing - all areas that are already undergoing huge amounts of real estate development and are hardly "struggling."
I'm worried that this has good intentions but will have unintended effects; it's entirely possible that turning on a fire hose of money would just wash the existing residents away. While on paper that would improve the income level and whatnot of a census tract, you really just shuffled people around the metro area, most likely to a place with worse access to jobs and stores and whatnot. It's important that we increase housing at a macro level, but we also don't want to strand people by suburbanizing poverty.
Opportunity zones are state-selected census tracts. I am more curious about the required "opportunity fund". I have not seen a good definition for that yet.
Israel had (maybe still has?) what was called “angel taxing” which said investment in a startup (for some definition of startup) is optionally marked to zero at the point of investment, which means that if you had any gains, you could net them against this investment.
This is the opposite of deferring capital gain taxes - it is pulling capital losses forward. If the startup folds, the marking down is justified. If it is successful, the capital gains when eventually selling it reflect the zero base; so overall, taxes stay the same except it incentivizes capital investments immediately after capital gains.
A good chunk of Olympic National Park seems to be an opportunity zone. Can anyone fill me in on what an 'investment' there might entail? IIRC, commercial activities are usually heavily restricted in national parks.
Doesn't look like the park itself is an OZ. OTOH, the OZ west of the park seems to be reservation land, which likely brings its own set of problems when it comes to investing.
[edit] source: https://www.policymap.com/maps?i=9964345&btd=6&period=2018&l...
So in the midst of an investment boom we are engineering ways not only to reduce tax on gains, but to ensure the gains will be reinvested. Yet at the same time this provides no value if people pull out their investments in a down-market. Sounds like A bubble-policy.
Well if they pull out there will be some commercial / residential property assets going cheap.
That's why investing via closed end property funds is much better individual properties are very illiquid .
I am wondering why Pioneer Square, one of the hottest locations in Seattle, has been classified as an OZ.
Aside from the crippling poverty outside the doorsteps of all the tech company offices that is. ...
Pioneer Square is not a hot location; all of the tech action is happening to the north in SLU and a bit into the downtown retail core. Pioneer Square is a dump and sketchy as hell.
There are a ton of tech companies in Pioneer Square. Geekwire has this 5 year out of date map, https://www.geekwire.com/2013/pioneer-square-tech-map-techie... but just walking through there, Pioneer Square is tech city during the day. From trendy bars to expensive boutique clothing stores. Other startups, such as Real Self, have come into being since that (ancient) list was made.
There are multiple co-working spaces within blocks of each other, The Pioneer Collective, Galvanize, Impact Hub, and at least 2 accelerators that I know of are based near Pioneer Square.
I'm skeptical as we've seen with folks like the Kushners plenty of folks will build some fancy high end / highly profitable development "near" places that could use some improvement.... but they don't really help anyone in those zones.
Who decides what is an OZ or not? I honestly would be surprised if the person(s) who gets to decide what is or isn't an OZ now and in the future hasn't already been bribed by an interested investor.
State governors selected the zones over the last year.
> write off on their taxes.
Thankfully the poster got it right but the headline from the article itself is very misleading. Deferring taxes != writing off investments.
Also, why does the headline writer take shots at billionaires for putting money to work in economically challenged areas?
I swear some of these people will never be satisfied with the way rich spend their money.
Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately judged. It is not reasonable to state that one group of people can take advantage of tax code incentives and other groups cannnot.
Middle class folks who are using the mortgage deduction generally use it exactly as intended. They don't have an army of accountants on retainer to figure out how to game the tax code and accomplish things that weren't really intended.
The example that always sticks in my head- maybe this isn't true, but I've heard there are strategies of buying failing companies for pennies, shuttering them, and then writing off their losses on your own taxes. You incurred no risk, you lost no money, and now you pay no taxes. Whether it's actually intended to happen that way, it doesn't seem right, and ordinary people can't do it.
Anyway, I'm not an accountant, but the upset over the tax exploits of the wealthy revolve around the concern that they are managing to exercise the tax code in a way that was never intended to pay less than they were meant to owe. Middle class folks don't wind up in the crosshairs because they generally file very ordinary returns, following both the letter as well as the spirit.
> The example that always sticks in my head- maybe this isn't true, but I've heard there are strategies of buying failing companies for pennies, shuttering them, and then writing off their losses on your own taxes. You incurred no risk, you lost no money, and now you pay no taxes. Whether it's actually intended to happen that way, it doesn't seem right, and ordinary people can't do it.
That's the problem with most of these situations -- people don't understand what's really happening.
Suppose you have a company that started off with $25 million thinking it would turn it into fifty million, but really it turned it into five million. Then the company is still worth $5 million dollars, right? Except that it has a $20M tax loss, which is worth something. When other people have profits they're paying a 35% tax rate on, the tax loss has a market value of $7M, so the company is actually worth $12M.
Which means that's what richie rich who wants to use the tax loss has to pay for it, since the seller can shop the tax loss to the highest bidder and get close to the full value for it. The money isn't going to the rich guy, it's going to the guy with the tax loss.
Which means it's a rule that helps the little guy. If you take a risk and fail, it allows you to at least recover as much of your investment as the big guy with diversified investments would have had as a tax deduction -- i.e. it prevents creating a disadvantage when the little guy takes a risk vs. the big guy. And if you have creditors, the buyer has to make them whole in order to take the tax loss, which makes them more likely to lend to you to begin with.
But people see the result that rich people are getting a tax deduction and clamor to get rid of the rule.
If it actually worked how you describe, it wouldn't happen. As the market value approaches the expected benefit, there becomes no point.
I gather it's a strong buyer's market, in which case this isn't really the saviour of the little guy.
Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
> If it actually worked how you describe, it wouldn't happen. As the market value approaches the expected benefit, there becomes no point.
If you pay $6.9M for $7M in lower taxes, you make $100,000 for free and the little guy recovers $6.9M. Then one of the other million companies with net profit realizes they can net $90,000 by offering $6.91M. This is not what a buyer's market looks like.
Obviously no one is going to offer exactly $7M because they have to cover the transaction costs etc., but that's not even profit -- if they offer $6.95M because they have $40,000 in transaction costs, they're only making $10,000, but they still do it because they're still making $10,000. Until someone else is willing to make $5000.
It's a seller's market because there are more companies with net profits than net losses.
> Also worth considering, if these loss deductions always find their way to the guy with the highest marginal tax rate- is that really working as intended?
This one of the many reasons why graduated tax rates are inefficient as compared with something like flat rate + UBI (which can be equally progressive but doesn't have this problem), because it works that way for everything. The same thing applies to losses incurred directly by the big guy. Or if you create a deduction for green cars, someone paying a 35% marginal rate gets more from buying the same car than someone paying 15%.
But that doesn't apply to corporations anyway. Corporate tax rates largely aren't based on income. If they were, splitting an operation into multiple corporate entities would lower the tax rate and then everybody would do that.
> But people see the result that rich people are getting a tax deduction and clamor to get rid of the rule.
The big problem is that people see and remember companies like Toys R US and Guitar Center that would be JUST FINE if companies like Bain capital hadn't loaded them with debt to pile in tax writeoffs.
> The big problem is that people see and remember companies like Toys R US and Guitar Center that would be JUST FINE if companies like Bain capital hadn't loaded them with debt to pile in tax writeoffs.
Except that their strategy had nothing to do with tax write offs.
In theory what they were doing is borrowing money to buy an ailing company and turn it around, and as long as they succeeded they could have serviced the debt.
What they actually did was fail to turn the company around while charging it hundreds of millions in consulting fees, until it finally collapsed.
The way things were set up, if they succeeded in turning the company around, they would get the profit in excess of the interest. If they failed, they still get all their consulting fees and the lenders are stuck trying to recover their loan principal in bankruptcy.
That situation creates terrible incentives. Either they can be lazy and just collect consulting fees for doing nothing, or they can take big risks with house money and cash in if it pays off or walk away if it doesn't. The people who lent them the money were nuts. They would have been better off buying the company for themselves.
You need to read up the history of the 401k.[1]
It was an obscure part of the tax code that was never intended to be a tax-deferred saving vehicle until some guy named Ted Benna figured it out. He even suggested it to other clients and they said "no, the IRS will never buy it".
So is your argument that anyone using a 401k is a "greedy tax cheat"?
[1]https://learnvest.com/article/your-401k-when-it-was-invented...
Nearly forty years ago that was the case. Today it's expressly intended to be used that way, the gov't even heavily promotes it.
> They don't have an army of accountants on retainer to figure out how to game the tax code and accomplish things that weren't really intended.
Even that doesn’t sound that bad to me. All of those people have a job, are being paid and are also paying taxes.
Also that sounds like a tax code bug and not a rich people problem. The government is allowed to collect exactly the minimum required by law and nothing more.
>>Also that sounds like a tax code bug and not a rich people problem. The government is allowed to collect exactly the minimum required by law and nothing more.
Not to be "that guy" but who do you think is writing the tax code, if not rich people and the government officials they help fund? Of course it's a rich people problem, or rather a rich people solution.
That strategy works in some countries, not in others. Not sure about the US. In certain countries a profitable company can acquire a company with carry forward tax losses, and by merging both you can offset profits from the profitable company with the losses of the unprofitable one.
Not exactly extreme tax avoidance I'd say. This is quite a well known mechanism.
Do you have any more info on the “buying failing businesses” strategy?
A
i'm also curious. unless i'm not understanding something, your tax writeoff could not exceed your cost basis on the purchase of the business, making the maneuver a net loss.
Tech startup A is capitalised with $1m. Burns through $1m, left with $0 in the bank, now has a million dollars in carry forward tax losses. That means you can make a million dollars without paying taxes. At a 21% corporate tax rate, that's $210,000 in taxes you'd pay on a $1m profit if you didn't have the carry forward loss.
How much are the shares of that shell worth if you can use the tax losses to offset profits of a different, profitable business? Somewhere between $0 and $210,000.
sure, but aren't you still out the original $1mm?
it looks like in your example you end up with $1mm, since you didn't have to pay tax on the profits of company B. but if you had just kept the original million and paid tax on B's profits, you would have ~1.8mm? or are you implying that you can buy company A for less than the market cap in the first place?
Yes, the owners of company A can sell their shares to profitable company B for an amount between $0 and $210,000. Obviously you wouldn't burn a million to create tax losses.
Remember: this company has $0 in the bank. It's essentially the same as a newly incorporated company, but with tax losses. There would generally be a discount on the value of the tax loss due to historical liability risks of the previous operating business.
The things written above are highly simplified though, and might not give a completely accurate reflection of the situation. There are likely some anti avoidance rules in place to stop this behavior. But this again depends on the country.
Billionaire John Malone (who hates taxes) talks a bit about tax in this business talk at a university: https://youtu.be/v5QfCLeloEg?t=2174.
Also this: https://www.businessinsider.com/what-liberty-really-loves-ab...
"There are some catches here. To use the NOLs (net operating losses), Sirius can't undergo a full change in control for three years. So Malone has to bide his time with his 40% for three years before scarfing up the rest of the company."
This is one such anti avoidance mechanism.
By being smart about taxes, he essentially got that business for free.
ah okay, thanks for the lesson.
The person who buys the failed business is not the same person who put in the original $1M.
Those tax breaks all sound like they benefit the middle class, even though they do mostly benefit the upper middle class.
But are you surprised that people are more willing to accept tax breaks on the middle class over the rich?
> Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately jumped on. It can't be ok for one group of people to take advantage of tax incentives and not others.
I don't like tax credits and deductions at all. I think all of these things are an additional burden on the lazy and the stupid (like me). Using taxes to encourage the public to do something or not do something doesn't even make sense for the political party that keeps harping about making taxes simpler.
Personally, I think all businesses should pay taxes on total revenue. I don't give two ships if you had a revenue of $2B and expenses of $5B. You owe taxes on that $2B. If your business model is low margin, that's your problem. No credits. No deductions. No deferrals.
The current policy isn't based on fairness or logic. It is simply based on who can get their way and by how much.
Taxing businesses on total revenue would prohibit entire classes of businesses, for example stock brokerages, bond market makers, ebay, and amazon's 3rd party marketplace. And did you know that grocery stores are low margin?
Hell, if you average them over the economic cycle, airlines and car production are low margin.
i'm curious, what do you think would actually happen if we taxed corporate revenue instead of profits?
the effect of a particular tax can be pretty hard to figure out. just because the tax is levied against a certain company or individual doesn't necessarily mean they actually bear the burden of that tax; depending on the situation, they may be able to pass off the burden to someone else entirely. in general though, you can think of taxes as discouraging a particular activity/transaction.
if you directly slap a tax on revenue, you are basically putting the brakes on all economic activity. low margin businesses are probably hit harder than higher margin businesses, but keep in mind that the profitability of the average business varies a lot by industry, so you run the risk of putting entire sectors underwater. unless they are able to pass the tax on to their customers, a grocery store is going to be hit a lot harder by this tax than a semiconductor company, and people are going to be less likely to invest in them. taxing corporate profit is somewhat perverse in the same way, since it serves to discourage efficient allocation of capital, but it does have the nice side effect that it increases the incentivize for companies to spend more tax free dollars on things like employee benefits and wages.
in my opinion, we should probably not tax corporations at all. ultimately all corporate revenue turns into either income for employees or capital gains for investors, so just tax these (progressively) and hike the rates. while we're at it, let's also eliminate as many personal tax credits and deductions as possible.
> in my opinion, we should probably not tax corporations at all. ultimately all corporate revenue turns into either income for employees or capital gains for investors, so just tax these (progressively) and hike the rates.
This sounds reasonable to me As long as the money doesn’t disappear to another country.
Do you think all businesses should be vertically integrated?
I have a (horrible) solution for that as well. Make the board criminally liable for the actions of employees, contractors, or other agents where such actions are a condition to the employment or contract.
Tax rates will probably need to go down and this is obviously just a thought experiment because no change is possible as we are too comfortable being hypocrites.
There is a much simpler solution for the vertical integration problem. If you buy something from another company which has already paid tax on it, you don't have to pay tax on it a second time. The resulting tax is called VAT.
It looks like there is an opportunity to reduce the taxes owned on the initial capital gain as well as avoid all taxes on the additional capital gain if held long enough.
Because nobody got rich by spending on the poor. It's the lie at the heart of every trickle-down scheme and corrupt charity: that all we need to do is give wealthy people a little bit more, and we'll all somehow benefit from it.
Absent a vocal minority, wealthy people spend their money in ways that make them more money or get them more political power. They don't build communities, they build dynasties.
From an introductory pdf [1]: "A qualified Opportunity Fund is a privately managed investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (the vehicle must hold at least 90 percent of its assets in such property)".
Okay, so here's my prediction: a series of shell corporations will be constructed so that the investors are essentially moving their money around on their own plate. Those funds will then look for the most efficient way to produce a return on that investment, which will probably consist of purchasing real estate, pumping up its value (increasing housing costs in the region), and then dumping it at the end of the 10-year term so that the investors can get out without any tax liability. The affected communities will end up with artificial housing cost inflation followed by a slump that will leave them in just as bad of shape as they are now, at best.
It's raw, seething cynicism, yes, but it also closely matches something that's already happening right now. Communities across the country are seeing artificially high commercial rents coupled with empty storefronts in heavily-trafficked areas because real estate owners have discovered that they can make a little extra money by keeping some of the spaces empty and using them as tax deductions, instead of lowering the rent to market rate and putting a small business in there. [2]
[1]: https://eig.org/wp-content/uploads/2018/02/Opportunity-Zones...
[2]: https://www.dnainfo.com/chicago/20161006/jefferson-park/vaca..., for one example.
The easiest would be to invest in assets that don't (or only moderately) go up in value, but that you can (in the end) liquidate at cost. Then you get the tax benefit without the risk.
The PDF I linked describes O-Funds with 7% annual appreciation.
They won't all hit that, but the goal will be to get the O-Funds to match similar low-risk long-term investment vehicles and then get out tax-free, and the businesses managing the funds will be under enormous pressure from the investors to make that happen.
The thing that concerns me about this is that there isn't much reason to expect the area's interests are aligned with investors' interests.
Investors build something that allows the local economy to bring money into the area - e. g. A factory of something like that with well paying jobs where workers get to keep a good chunk of their value add and a lot of the profits stay in the local economy? Great! Win win.
Investors build something that provides a bit of short term benefit but then leeches money out of the area forever after - e. g. An apartment building, low wage retail, toll roads, etc? Well it'll be great for the investor who now has a new tax free passive income steam on top of the hard assets they built (the road, apartment building, or whatever that they can later sell - again tax free - if they want). Sucks for the city though. Sure it might have been necessary, but the local economy was basically just forced to take out a loan that it will never repay - sending money to already wealth investors in perpetuity for housing or transportation or a place to buy shit.
In either case, and probably more the latter than the former, the already-hilariously-wealthy investor gets to earn fistfulls of money tax free. But only one of those situations really helps out the local economy itself. And in either case I don't see how removing a 10% or so tax on profits and deferring taxes on investment is going to massively change how or whether projects pencil out.
So yeah, in an era where the wealthy already have way too much money and don't need help hiding more of it, and they might not even be helping anyone but themselves, and they're basically doing something they probably would/should have done anyway, and they get to feel good and claim good pr for basically just making gobs of money that they don't need, yeah, I'm not feeling super proud for them or this program.
What would make me happy? Well, if they paid their damn taxes, that'd be a start. Even better if the rates actually have them paying their fair share instead of basically nothing, as is the case with capital gains tax rates today.
I'd also be happy if they spent their money lobbying for common good things - like climate change prevention, universal health care, free college, etc - instead of looser regulations and tax breaks. Some places and people do this, most don't, and some actively and vociferously work against the public good (kochs, bp, etc).
Really though I'll probably only really be happy when we don't have the obscene rates of poverty and semi poverty in the us, and we fix the floundering public infrastructure and services paired with deep government deficits. Obscene wealth is only such if its accrued in the context of millions of people living paycheck to paycheck at best, or being actively in the red month after month more typically. Likewise, it's only really selfish to try and lower your taxes if the common space is currently just ridiculously under funded - the rest of us generally pay our fair share or something like it, but a small minority of people jump through miles hoops and work tirelessly to massage the rules so they get to keep the disgusting level of wealth they accrued on the back of society entirely to themselves.
Fix those things, and they can do whatever they want with their mountains of cash - I'll probably stop caring.
>I swear some of these people will never be satisfied with the way rich spend their money.
Some people will never be satisfied with the fact that there are rich people in the first place.
This sentiment is as old as civilization
> Q. What is a Qualified Opportunity Fund A. Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.
> Q. How does a taxpayer become certified as a Qualified Opportunity Fund? A. To become a Qualified Opportunity Fund, an eligible taxpayer self certifies. (Thus, no approval or action by the IRS is required.) To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018) and attaches that form to the taxpayer’s federal income tax return for the taxable year. (The return must be filed timely, taking extensions into account.)
> The fund must hold at least 90 percent of its assets in Qualified Opportunity Zone Property
https://www.irs.gov/newsroom/opportunity-zones-frequently-as...
Also see the code here: https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapte...
Alright, a house I own (and am currently failing to sell) is in an opportunity zone. Hypothetically, is there a way I could benefit from this?
The benefit is for investing capital gains into OZ's, not necessarily from selling assets that are in existing OZ's. So if you had a gain on your house (beyond the homeowner exclusion) you could potentially invest the remainder of that gain into an OZ project and get those benefits.
There are all sorts of stipulations you need to follow to qualify however - not all of which are fully in place yet from Treasury. We should be getting the first version of the regs as soon as tomorrow (imminent we've heard from folks in DC) and then we'll know more. Things like having to improve the basis of whatever you invest in by 100% within a 30 month period exist, so you can't just buy something in an OZ and park it, you have to actually do some improvement to what you purchase.
Not really, your own personal residence is exempt for capital gains (250k single, 500k married).
You have to make a 100% investment above your acquisition cost, so you probably cannot benefit unless you can sell it to an housing investor who could do that.
Rent it out while you wait for the area to improve. Or hold it and wait.
Or, if local zoning doesn't block it, see if you can rent it out as commercial.
So what happens if you make a monitory investment in a startup in an Opportunity Zone that then moves? This may not be in your control.
Using the map in the article I was intrigued to discover that my home isn't in an 'opportunity zone' but if it were located 30 feet to the right it would be. That may explain why my neighborhood has been infested with signage for cash-up-front house sales (which I have been systematically removing).
If someone were to directly buy a distressed property in one of these zones using money from capital gains, and fix it up (and even live there for 5-10 years), would they realize the same tax benefit as investing in a "fund"?
TLDR;
The Opportunity Zone program is designed to provide tax incentives to investors who fund businesses in underserved communities.
Investors are able to defer paying taxes on capital gains that are invested in Qualified Opportunity Funds that in turn are invested in distressed communities designated as Opportunity Zones by the governor of each state. Up to 25 percent of the low-income census tracts in each state can be designated as Opportunity Zones.
Census tracts? The ones that are almost nine years out of date or the up to date ones will have in a couple of years?
This article is great at defining off the bat what the heck an opportunity zone is. /s
Does anyone else think it's categorically wrong for a government to incentivize greed?
"Incentivizing greed" is literally how capitalism works. Or rather, it's knowing that greed will exist regardless, and then incentivizing the channeling of that greed toward better outcomes for society.
Silicon Valley Community Foundation (SVCF) lets donors realize tax benefits now and transfer funds promised later. It has an endowment of around $14 Billion. https://en.wikipedia.org/wiki/Silicon_Valley_Community_Found...
Meanwhile the annual deficit is greater than $1T, for which the government will cut services for the average person (except Military of course).
What a ponzi country!!
You know, we should just drop the other shoe and reduce all taxes on rich people to zero. It's what they pay anyway. It would save us the money of pretending to tax them.
They definitely don't pay 0. They actually pay a significant portion of all taxes collected. You won't pay as much in your entire lifetime as the annual bills for some of these people.
I find it strange to see such animosity against "the rich" on an forum dedicated to startups from a company that has helped created billions in market cap and mint several new billionaires in the process.
>I find it strange to see such animosity against "the rich" on an forum dedicated to startups from a company that has helped created billions in market cap and mint several new billionaires in the process.
There is a huge difference between someone becoming so wealthy that they and the next 5 generations of their heirs don't need to do any real work for the rest of their lives, and someone figuring out a way to create a sustainable organization that provides real value to lots of people.
It is more than reasonable to want to encourage society to favor the latter over the former.
How do you think people become wealthy in the first place? It's almost always connected to providing value to lots of people.
These ranks change all the time as wealth is created and lost. Very few stay rich through generations, but even then it's always invested in something, like businesses that benefit others.
These same wealthy people are the LPs that fund the VCs that fund the SV startups. It's a cycle.
> It's almost always connected to providing value to lots of people.
Actually, accumulated wealth to that extent is almost always connected to anti-competitive practices and monopolizing a space to such an extent that people have no other choice then to do business with you.
I can think of far more examples of very successful companies that got that way by offering something people wanted than companies who used anti-competitive tactics to push a sub-standard product.
All corporations trend toward monopoly as it provides the greatest efficiency and value to all involved, until it crests the peak of innovation and starts falling into decay. It makes no difference if you want to focus on businesses instead of family names. It's just another cycle of rise and fall that you can easily see by looking at the Fortune 500.
Some of us aren't resigned to the idea that it has to be that way though.
What way? That things are in a constant cycle?
Are you suggesting that there be some perfect steady state of companies that are neither too big nor too small and nobody can ever gain or lose in life?
> How do you think people become wealthy in the first place? It's almost always connected to providing value to lots of people.
I find that hard to believe, honestly. It seems like the biggest gains are to be made in rent-seeking, milking your customers, monopolising and forming cartels and just outright fraud.
You don't have to believe, let's look at facts. Do you have any examples of what you're describing? Meanwhile in our lifetimes we've seen Amazon, Facebook, Twitter, Stripe, Atlassian, Uber, Airbnb, and dozens more create massive value, and that's just in the software/tech industry.
Amazon didn't pay their workers a living wage for a long time, having them subsidised with taxpayer money and used their position to be be able to sell at a loss to destroy competition. Plus their dubious tax arangements.
Facebook is Facebook. I find their business model, their dark patterns, and their lies to people and politicians to be an example of what I'm talking about.
Uber basically skirted the laws of every city they operated in as if they had immunity. Not to mention all the other scandals the compan has been involved in or responsible for.
As for the other companies I don't know enough of their inner workings over the years, but I'm not convinced they are squeaky clean at all.
You seem to skip straight to the end without realizing these companies did not even exist a few decades ago. They grew to their size because they provide value.
I've already said previously that companies tend toward monopolies and that's when problems begin, but that's on govt antitrust to handle properly. Whether it does is another issue, but it doesn't erase the fact that people have gone from 0 to B by creating companies from nothing and making a large impact of society.
>but that's on govt antitrust to handle properly
It always seems to be someone else's problem when it comes to wealth adhering to the codified norms of a society.
>it doesn't erase the fact that people have gone from 0 to B by creating companies from nothing and making a large impact of society
How does the adage go? "Behind every great fortune lies a great crime."
The government is the people. Just like corporations at that size are far more than a single person. To reiterate for the 3rd time, all things eventually become too big and need to be managed, but that has nothing to do with value creation leading to wealth generation. I've yet to see a comment on how that's invalid beyond emotional complaints.
>> How does the adage go? "Behind every great fortune lies a great crime."
And there we go. Not sure how that's rational or productive. I guess you'll be first to tell every startup that exits successfully that they're now criminals for what they've done.
> I guess you'll be first to tell every startup that exits successfully that they're now criminals for what they've done.
Now you're just being ridiculous and I'm guessing you know it.
> but it doesn't erase the fact that people have gone from 0 to B by creating companies from nothing and making a large impact of society.
That doesn't invalidate anything I said and it doesn't support what you were saying very well at all.
Hitmen, heroin dealers and elephant poachers provide value to some people as well, but to say we should encourage those things simply because they provided 'value' is sociopathic.
I think you lost track of your own thread.
Those things you mentioned are illegal. Nobody is saying you should do illegal things. But wealth generation is tied to value creation, and your stance seems to be that all wealth generation is from criminal means when that's clearly not true in the slightest. What else is there to say here?
> I think you lost track of your own thread.
No, I didn't.
You're just struggling to comprehend what I'm saying because in your free-market fundamentalist world view, companies are benign entities of wealth creation and nothing more.
I believe many of the things these companies do should be illegal. Many of them already are, they are just not fined/punished appropriately for them. It just becomes absorbed as a cost of doing business.
Lot of what Google, Amazon, Facebook Uber, Microsoft, Intel etc. have done to stay on top has been illegal but the fines pathetic. Other stuff should have bene illegal and people are slowly coming round to the fact. They all even colluded on keeping wages low, remember?
Of course you can expand out beyond tech as well. Enron fraud, HSBC drug-money laundering, DeBeers atificially limiting the supply of diamonds, Nestle claiming water is not a human right and fucking over Africans with their milk formula. I could honestly sit here all day and reel off instances legal violation after ethical violation after outright greed and exploitation from companies all over the world.
But it's too late now. Even making these things illegal now doesn't strip the companies of the wealth they accrued beforehand. They are entrenched, because the system encourages this with pitiful consequences.
I'm not naive enough to belive legal == moral and illegal == immoral. A lot of laws are lobbied by the entrenched to cement their own positions.
There's strong animosity against the rich because some of us grew up seeing our families destroyed chasing the american dream while others grew rich off their misfortune.
That and the constant attempts at reverting certain policies or actions that would make my QoL demonstrably worse.
Really? Are you worse off then your parents?
This generation is, by and large, yes.
In what way? There are billions lifted out of poverty across the planet over the last few decades. Every objective measure shows improvement. What are your counter examples?
In the US, socioeconomic mobility is way down, housing prices are up, insurance prices are up and wages have not kept up with inflation. We're lagging far behind some of our far-less-rich counterparts.
These are all facts solidly backed up through studies over the years.
In the US: meaning around 4% of the world's population who are all in the 1% of global wealth. If you're going to talk about an entire generation, then I found it disingenuous to scope it down to a tiny minority of the people in the world.
Mobility might have decreased in this country relatively (although without considering the cause) but absolute quality of life has increased with iphones in every pocket, on-demand services for everything imaginable, and white collar tech jobs paying mid-6-figures in one of the strongest currencies.
I have to again bring up the fact that this is on YC forums which have witnessed many people from many countries start with nothing but a few comments and build incredibly successful companies. Compared to the wars, depressions and struggle of prior generations, folks today are at a height of comfort and opportunity never seen before.
Is it more beneficial for yourself to blame others or figure out how to improve your situation?
If you're not content to remain a crab in a bucket, it might be a good idea to meet some successful and/or wealthy people and learn from them.
It's funny that you immediately jump to an assumption that I am not doing well.
The reality is that I'm doing fine in my career and managed to escape poverty for many reasons I've illustrated in the past. However what I saw and what I was trying to explain is that I saw my parents destroy their body (and in one case, lose their life) trying to improve their situation in a country that hardly gave a shit. I recall vividly the troubles my family had after my mother had a stroke because insurance companies decided that a stroke was a pre-existing condition despite her being in otherwise good condition.
Maybe you should stop making assumptions about people based on our animosity towards people that have actively made our lives worse in the past.
Without context you'll always get assumptions. Part of discourse is establishing clarity.
Of course a toxic environment makes life harder.
Glad you're doing well.
> Is it more beneficial for yourself to blame others or figure out how to improve your situation?
Part of improving your situation is observing where the unfairness in the system lies and addressing it accordingly.
Legally preferably.
The other part of that is doing something about it. No action, no success.
Of course, by the time you figure it out you'll realize that most wealthy people are not the evil sleaze we expect them to be and you'll take the same actions they do to protect yourself against destructive governments and financial regulations. It's sad that the perspective of those with scarcity mentality regarding wealth are often their own worst enemies.
> They definitely don't pay 0. They actually pay a significant portion of all taxes collected. You won't pay as much in your entire lifetime as the annual bills for some of these people
Because they have more money than I will probably make in my entire lifetime.
They are supposed to pay most of the taxes. They own most of the wealth.
It's pretty fucking straight forward.
Yes, that's what I said, in response to a comment that said they pay 0. Who are you arguing with?
They most certainly don't pay zero. The top 1% (income over 1.827M) pay an average rate of 34%.[1]
[1]https://itep.org/wp-content/uploads/taxday2017.pdf
Yes, let’s gentrify faster.
If you think gentrification is bad, you should see the alternatives. They are real. https://goo.gl/maps/veQSXmD7Z5G2
How did I know it was Detroit before I even clicked?
Fact is, both gentrification and decay suck. I like to use the analogy of strip-mining a landscape, desert-ifying it, and then when the rain comes ... instead of a life sustaining event, it's a flood that removes it.
Why is that analogy relevant?
False dichotomy. Most of the complaints about gentrification are coming from lower middle class families getting pushed out of their home in a cute little neighborhood because taxes are too high.
getting pushed out of the neighborhood you grew up in because of the rising rents sounds pretty sad. getting pushed out of your family home because it got so valuable that you can't pay the property tax on it doesn't really sound as tragic. in fact, i hope that happens to every house i ever own.
Exactly.
"My tax bill went from $8K per year to $32K per year, poor me!" doesn't buy much sympathy when your house went from $200,000 to $800,000 over the same time period.
Actually the reverse happened in Detroit. Your houses value dropped 80% but your property taxes didn't drop.
Imagine you're retired and over 65 so you no longer owe property taxes. But you don't know it, the tax bills keep coming and you lose your house. It is still happening in Detroit.
You've lost your job in the 2008 recession (in Detroit with 35% unemployment it was a depression) so you don't have to pay your property taxes until you go back to work. But you don't know, the bills keep coming and you lose your house. It is still happening in Detroit.
You're a lucky one, you kept your job and are still able to pay your now inflated property taxes. But neighbors on both sides of you lost their houses and they're empty. An arsonist sets fire to both of them and the resulting blaze burns your house down. Yes, it's still happening in Detroit.
Sure they're sitting on a lot of wealth, but it's not an investment if you're living in it, because there's no income. Also, having to move out of an area because you can't afford the taxes on your house says to me that the taxes are out of proportion (or should be reduced for primary residence), or the house values are crazy.
Get a reverse mortgage? Why should we give tax breaks to people who won the housing lottery?
Well they’re living in the house, that’s why.
Doesn’t mean they can access the equity.
But we wouldn’t want them to have to pay interest now would we? They should be able to pocket that huge financial win for themselves.
Depends if your retired with a fixed income it does and your income wont always increase at the same rate.
Limiting property tax increases to RPI + one or two percent would be fairer to the lower income housholds
That's a typical attitude for someone who makes enough money to live where they are living. Sure, why not, you can just upgrade houses.
But, how much money would it take for you to quit your job and leave your home, family, and friends behind? Because that's what it amounts too. Few people are able to sell their newly expensive place and find a cheaper or equal option that doesn't require completely uprooting.
Some people like where they live more than they like money.
> Most of the complaints about gentrification are coming from lower middle class families getting pushed out of their home in a cute little neighborhood because taxes are too high.
Maybe that's true somewhere (I doubt it, for reasons already articulated in sibling comments), b ut certainly not in CA, because Prop 13.
I only mentioned taxes. But there are a lot of other living expenses that go up due to gentrification.
Depends on your definiton of bad, I suppose. Care to state what you think is bad? You linked to google maps, from which I can draw a million conclusions, none of them worth devoting effort to responding to without clarification.
Taking the question in good faith, here a few examples drawn from the example above.
* The neighborhood is mostly burnt down, derelict, or razed: think of the important stories in your life and where they took place, and imagine those places transformed, not into a high-end sushi bar, but cracked sidewalks and rubble.
* A generation of home owners probably lost the majority of their wealth
* The city lost tax revenue and struggles to provide basic services like streetlights or the enforcement of law.
This was not the lack of gentrification. This is the effects of unemployment. If a high end sushi bar would “revive” the neighborhood, it would only be because the residents were forced out. So what’s the point? I’d rather care about the people in the neighborhood (...which does involve maintenance) than how the neighborhood makes people feel. People live there. This lazy attitude towards justifying gentrification is disgusting. It’s a hard problem that deserves thought, and this is just classism.
HN, your viewpoint is clear. Try visiting oakland! It’s getting more photogenic every day.
You are confusing cause and effect.
Gentrification is a consequence of improving economic circumstances. Decay is a consequence of declining economic circumstances.
Public policies can plaster over this fact somewhat, but generally policies like rent control or CA's Prop 13 make things worse rather than better.
I have visited Oakland plenty. It's a terrible place, due at least in part to bad public policy as described above.
Yea, I’m not buying that you need to kick people out of their houses to improve the economy (whatever that means to you...). Employment and gentrification are linked and cause each other.
Please, stay away from the terrible cities! Would you go so far as to call them shitholes?
No, I wouldn't.
I'm not tracking the argument you're making. Between the frequent revisions of your comments, I've gathered that HN users are bad for not visiting Oakland, but once you discover that we've been there, now you want us to stay away? I thought I was preferring gentrification to decay, but now I'm personally kicking people out of their houses?
Life is hard and unfair. I get it. But if you make choices based on a short-sighted compassion for the disadvantaged that entirely neglects long-term consequences, you will make life harder and more unfair. Exhibit A: CA's Prop 13.
Sorry, but gentrification takes decades. Nobody is walking up to a door and dragging poor old grandma out.
Nobody is entitled to live in a certain community for a certain price. That road leads to a planned (and failed) economy.
Well, if you’re serious, I can take you to people in Oakland who have been put on the street this month. They’re not terribly hard to find.
I’m guessing you’re not.
Finally, there is obviously a huge spectrum between free and planned economy. You can probably fill in the rest of the argument from here.
People have a responsibility to live within their means. IF they can't afford their house/apartment, so be it. I really fail to see the problem here.
> Nobody is walking up to a door and dragging poor old grandma out.
What exactly do you think happens when an apartment complex gets purchased by a buyer whose plans are to redevelop (either remodel or demolish and rebuild) it for a more upscale market.
> Nobody is entitled to live in a certain community for a certain price.
Whether entitled or not, people are in fact harmed by being forcibly displaced from their home.
What happens in our markets up here (MA and NH) is the new building owner inherits the leases of the existing tenants and must fulfill the obligations of those leases. I assume the laws are similar in CA.
Once the building owner and tenant both fulfill that which they’ve agreed to, they can mutually choose to extend renew or not. If the building owner wants to redevelop, they need to wait for leases to run their term or they need to buy out of the lease with each tenant.
When they do that, they’ve fulfilled their end of the bargain. If a tenant wants more than that, they can negotiate (and pay for) lease renewal options. Most residential tenants do not (most commercial tenants do), but should then not be surprised when they don’t have that ironclad option to extend the lease that they didn’t choose to buy.
Then people need to adjust their living styles. "Forced" is the wrong term here. Either you can afford your apartment or not. Nobody deserves cheap rent.
> Then people need to adjust their living styles.
Yes, that's exactly a downward distribution of pain.
> "Forced" is the wrong term here.
As they are compelled by the actions of others, it is exactly the right word.
> Nobody deserves cheap rent.
That certainly includes the wealthier beneficiaries (the new residents, not the even wealthier investors) of government-subsidized gentrification, who are, after all, getting exaxtly what the poorer losers in that process are losing.
If nobody deserves it, taxpayers shouldn't be paying to transfer it from the poor to the wealthy.
When you significantly edit your comments after the conversation has moved on, it's really helpful to include the edits below the original post so that others can view the actual conversation.
-- Edit: like this.
They are only "forced" if you believe they were originally entitled to live there at a certain price.
Which, in a market economy, they were most certainly not.
The moral argument around gentrification is a weak one. Gentrification has been happening since cities existed. At some point we need to accept that people should make sound financial decisions.
> They are only "forced" if you believe they were originally entitled to live there at a certain price.
I’m not opposed to consumer protections here.
And not all old things are good. Hell, the oldest human social institutions are arguably the worst. Do you have an argument for its morality?
I'm just saying the moving of people throughout cities and neighborhoods is a very natural thing. Someone no longer being able to afford things in their neighborhood is not inherently a bad thing. Responsibly adults should be able to manage their finances, move, and adjust. That's life.
> They are only "forced" if you believe they were originally entitled to live there at a certain price.
No, they are forced independently of that.
Whether you view that as categorically wrong may be impacted on views of entitlement, but most of the suggestions I've seen about it being wrong are utilitarian, not categorical, and are thus not dependent on any system of entitlement.
Do you think the burned out, half-missing roof house adds beneficial je ne sais quoi to the neighborhood? Which of those houses would you like to have a next-door neighbor? Which of those houses would have the greatest positive effect on your willingness to move there, raise a family there, and invest there?
Some places were overbuilt, and it would probably be better to tear down the remaining structures, clean it up and designate the block as a park. The wrong approach to development can make things substantially worse for people who live in marginal neighborhoods.
I base where I live on things other than aesthetics and money, like the people.
If I had to guess, probably the dilapidated homes and streets covered in trash.
The gross majority of opportunity zones are not at risk of gentrification from opportunity zone investment. Most opportunity zone census tracts sorely need an incentive for new investment.
Sounds like what is going to happen to me is some "opportunity zones" are going to increase in value, and its going to lead to a runaway feedback effect where all this opportunity zone investment is going to be plowed into a few rapidly price increasing zones for maximum return and nowhere else.
End result is going to be an entire neighborhood of 3 million dollar condos nobody lives in (but prices have skyrocketed due to the huge influx of money), a huge tax free payoff for millionaires, and next to zero real societal value created.
The benefit of investing in an opportunity zone is not that great. It’s an incentive, but a rather modest one, for a specific group of people with ‘captive gains,’ and these investments will tend to be rather risky by nature of being in OZs. I have trouble fathoming a runaway investment situation (?). If, in 10 years, OZ policy has dramatically changed the state of a substantial portion of low income census tracts... is that a bad thing?
More expensive housing does precisely nothing for low income earners.
I live on the edge of one and real estate around here has tripled over the last decade already. I have lost a lot of friends and neighbors to endlessly rising rents over the last 5 years. Something tells me the hot money isn't going to fund the construction of homeless shelters or enough housing to seriously push down rents.
This is just how society works. Things change. Cities develop. People move. Creating a bigger and better middle class is a good thing.
Yes please. Lower crime, more economic opportunity, walkable cities.
What exactly is bad about it?
> What exactly is bad about it?
The fact that that the original residents are displaced to a place without those benefits and bear the cost of relocation, while the people that enjoy he benefits are people who could have afforded to get as good, or nearly so, conditions in existing places with them, anyway.
Gentrification is a magnifying downward redistribution of misery, where the new residents get a small gain in exchange for the old residents (particularly renters) getting a big loss.
Why are people entitled to live in a certain community just because they have been there for a long time?
At what point do I get to lay claim to my house and force my city to allow me to live there for a subsidized price if I can't afford it?
> Why are people entitled to live in a certain community just because they have been there for a long time?
I didn't say anything anout entitlement. I said that a certain change redistributes pain downward and magnifies it in the process.
Some pain for sure. Others make a cool 500k now that their house is no longer next to a meth lab.
Yes, property owners—who tend to be more wealthy than renters to start with—may see benefits. That kind of reinforces the point, rather than contradicting it.
And renters can move. Just as people have done for hundreds of years.
They could also band together, arm themselves, and so on, just as people have done for hundreds of years.
Yes, and that has a cost.
Hence, the downward distribution of negative impacts.
wait, are you now defending a "tax break for the rich, so they can show poor home owners that they are too entitled"?