Tax scams are the tribute policy vice pays to policy virtue.
A few days ago, The New York Times reported on widespread abuse of a provision in the 2017 Trump tax cut that was supposed to help struggling urban workers. The provision created a tax break for investment in so-called “opportunity zones,” which would supposedly help create jobs in low-income areas. In reality the tax break has been used to support high-end hotels and apartment buildings, warehouses that employ hardly any people and so on. And it has made a handful of wealthy, well-connected investors — including the family of Jared Kushner, Donald Trump’s son-in-law — even wealthier.
It’s quite a story. But it should be seen in a broader context, as a symptom of the Republican Party’s unwillingness to perform the basic functions of government.
First of all, the opportunity-zone debacle isn’t the only example of abuse enabled by the Trump tax cut, which is full of destructive loopholes. That is, after all, what’s bound to happen when you ram a multitrillion-dollar bill through Congress without a single hearing, presumably out of fear that it would have been rejected if anyone had had time to figure out what was in it. The bill’s drafting was so rushed that many provisions were actually written in by hand at the last minute.
Among other things, the bum’s rush meant that much of the bill was drafted by lobbyists on behalf of their clients. Given that, it shouldn’t be a surprise that a provision sold as a policy to help the poor has actually ended up being a giveaway to hedge funds and real estate developers.
Beyond that, however, the opportunity-zone affair reflects the reality that Republicans are no longer willing to spend public money in the public interest.
I don’t mean that the GOP is committed to limited government, which would at any rate be coherent. If Republicans were willing to say, “We don’t care about the poor,” or even, “We care about the poor, but don’t consider fighting poverty an appropriate role for government,” at least they’d have the virtue of intellectual consistency.
In fact, however, the modern GOP pretends to share traditionally liberal goals, like poverty reduction or expanded health coverage. But it refuses to spend money on these goals, trying instead to bribe private investors into serving those goals by offering targeted tax breaks.
You can see this syndrome in many areas. Take, for example, the problem of America’s crumbling infrastructure, which Donald Trump claimed he would fix, and is one area in which he might have expected bipartisan support. Why hasn’t anything happened on that front? Why has “infrastructure week” become a punch line for political jokes?
A large part of the reason is that neither the Trump administration nor Republicans in Congress have been willing even to consider the idea of building infrastructure by, you know, building infrastructure.
You might think that right now there’s an overwhelming case for engaging in old-fashioned public works spending. After all, the need for new spending is obvious, and the government’s financing costs are extremely low. (Inflation-protected 10-year bonds are actually paying negative interest.) Why not just borrow some money and get to work on those bridges?
But that’s not how modern Republicans do things. The closest thing we’ve seen to an actual Trump infrastructure plan was a proposal, not for public spending, but for huge tax credits to private developers. And in practice the plan would have been more about privatizing public assets than about promoting new investment.
As far as I can tell, the last time Republicans were willing to spend serious amounts of public money for the public good was 1997, when they agreed to the creation of the Children’s Health Insurance Program, which was, by the way, highly successful. Since then it has all been about policy by tax break — which consistently fails, for at least three reasons.
First, such policies rarely trickle down to the people they’re supposedly intended to benefit. Opportunity zones aren’t the only part of the 2017 tax cut that is notably failing to deliver; remember how slashing corporate tax rates was going to lead to a surge in ordinary workers’ wages?
Second, the main beneficiaries of targeted tax cuts tend, consistently, to be a small group of wealthy individuals. Another provision of the 2017 law was a provision supposedly intended to help small businesses; in fact, 61% of the provision’s benefits are flowing to the top 1% of households.
Finally, selective tax breaks often end up mainly providing new and improved ways to dodge taxes. Rich people with smart accountants don’t have a hard time pretending to be small-business owners, developers serving poor communities or whatever else the creators of those tax breaks are ostensibly trying to promote.
The point, again, is that you shouldn’t think of the opportunity-zone fiasco as an isolated mistake. Things like this are inevitable when one of our two major political parties has basically turned its back on the very idea of productive public spending.