A staircase shaped like a waterfall. A lobby sculptured like a forest. These are some of the finishing touches on the soon-to-open Ritz-Carlton in downtown Portland, where $7 million only gets you a standard condo.
The self-proclaimed “first ultra-luxury structure in the Pacific Northwest” pampers the rich in more ways than one, because the Ritz-Carlton is also a tax shelter. Its investors can take advantage of the tax break known as Opportunity Zones.
The Ritz-Carlton is emblematic of what’s wrong with Opportunity Zones, a tax break that enriches the rich while harming the common good. Oregon lawmakers should delay no further in severing ties with this tax subsidy boondoggle.
Opportunity Zones are a set of tax breaks created by the Trump tax plan passed in 2017. They became Oregon tax breaks — piling on to the federal tax breaks — because the state’s tax code often connects automatically to the federal one. The Oregon legislature had the power to say “no,” but it failed to do so.
Opportunity Zones encompass three different tax breaks for capital gains income — the profits from selling investments in things such as stocks, businesses, and real estate. To benefit, you must invest in “Opportunity Funds” that then invest in real estate projects or businesses located within areas designated as “Opportunity Zones.” The profits reaped by investors get taxed at a lower rate than they normally would or escape taxation altogether, depending on how long the money is invested.
Concocted by a Facebook billionaire, this tax break should come with a label: only the rich need apply. One study estimated the income of the average investor to be $4.9 million. That’s not surprising, given that capital gains are concentrated in the hands of the rich. About 85% of all capital gains flowing to Oregonians in 2020 went to the richest 5%. And more than a third went to the richest one-tenth of 1% — the richest one out of every thousand Oregonians.
The concentration of capital gains income is a key driver of economic inequality, which stands at record-levels. Opportunity Zones pour fuel on the raging fire that is economic inequality.
Opportunity Zones also harm Oregonians by depriving the state of tax revenue. The taxes wealthy investors avoid through Opportunity Zones is money that could instead go to improve our schools, make college more affordable, expand affordable housing, or fund other ways of making Oregon more prosperous.
Though the exact amount of revenue lost by the state is unclear, it’s substantial. A recent study estimated that, from 2020 to 2024, the federal government will lose about $8.2 billion in foregone revenue, making Opportunity Zones “the largest ongoing federal community economic development program in the U.S.” In Oregon, the tax break is costing tens of millions in each budget period.The costliest part of the tax break seems set to arrive later this decade, when the investments become tax free.
For the big hit to the public purse, you might expect some good to come out of Opportunity Zones, but you’d be hard pressed to find it. Research points to “mixed, limited, or no effects” on things like the number of job postings and the formation of new businesses in the areas designated as Opportunity Zones. One study found no real improvement on the employment, earnings, or poverty rates of the people living in the zones — the purported goal.
The reality is that Opportunity Zones subsidize investments that, like the Ritz-Carlton, would happen anyway. The money has gone into marinas for superyachts, luxury hotels, and self-storage warehouses, instead of going to affordable housing or businesses that would lift up the people living in Opportunity Zones.
Enough time remains this legislative session for Oregon to cut ties with the Opportunity Zones tax break. House Bill 3039 would end the state’s version of this subsidy. Lawmakers can rest assured that Oregonians would much prefer to see public resources going to schools, childcare and affordable housing, than to the pockets of wealthy investors.