Krugman: The great tax break heist

Photo by Doug Mills of the New York Times/President Donald Trump at a signing event to establish the White House Opportunity and Revitalization Council at the White House in Washington in Decemeber 2018. The bill directs federal agencies to steer funding toward certain distressed "opportunity zones" that qualify for a new tax break.
Photo by Doug Mills of the New York Times/President Donald Trump at a signing event to establish the White House Opportunity and Revitalization Council at the White House in Washington in Decemeber 2018. The bill directs federal agencies to steer funding toward certain distressed "opportunity zones" that qualify for a new tax break.

Tax scams are the tribute policy vice pays to policy virtue.

A few days ago, The 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 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.

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.

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?

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.

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. 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 to be a small group of wealthy individuals.

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.

The New York Times

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