Opportunity Zones: One Positive Takeaway for Impact Investors from the New Tax Act

by Connor Schoen

Among all of the recent debate and discussion of the Tax Cuts and Jobs Act of 2017, a key reform has greatly evaded the spotlight: “Opportunity Zones.” Opportunity Zones are areas that are traditionally left out from key investments and support. These inner cities and underdeveloped areas throughout the United States paradoxically need investment the most while receiving the least of it. According to the Initiative for a Competitive Inner City, a Boston-based economic development non-profit, 42% of working Americans are inner-city residents, and the majority of inner-city businesses see their locations as a competitive advantage.

Nonetheless, these pockets of American society receive some of the lowest levels of investments from VC/PEs and other institutions. In response, John Lettieri and Steve Glickman, co-founders of the DC-based Economic Innovation Group, were able to galvanize support for their proposed solution to this problem in the most recent tax act. According to Impact Alpha, another leading impact investing publication, the Governors of each state had to choose “no more than one-quarter of their low-income neighborhoods for investments that will let investors defer and reduce capital gains taxes.” This was done by the end of March, so the new initiative is now ready to go into full swing.

Will it have a tangible impact on America’s economically stagnant areas? Will it bring more support and leverage to minority-owned businesses and reduce economic inequalities nationwide? These are some extensive goals, and only time can tell us the real, substantive impact of these Opportunity Zones.