A host of tax cuts introduced under former president Donald Trump’s Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of 2026. Notably, the opportunity zones (OZs) economic development tool, designed to entice real estate investors to build or rehab both residential and commercial properties in low-income communities, will disappear.
The initiative brought more than $100 billion in equity into designated qualified opportunity zones across the U.S. However, many studies indicate that OZs likely have no effect on poverty, earnings, or employment — or even on housing prices in distressed communities.
One study out of the University of California, Irvine, found little evidence of salary increases in opportunity zones, except in areas where average wages were already trending upward. Likewise, poverty rates continued trending downward in areas where poverty was already beginning to improve.
A more recent analysis, published in the Journal of Urban Economics in July 2023, found “limited evidence of any effect of OZs on job postings on average.” However, the study went on to say that OZs had “small positive effects” in urban areas, areas with above median Black populations, and some states.
In conclusion, however, the study stated, “We do not find evidence that zip codes with OZs have more job postings than comparable non-OZ zip codes over the whole sample.”
Further Considerations Regarding the TCJA
Many factors may have disrupted the success of the opportunity zones program, including the COVID-19 pandemic. Additionally, with low unemployment rates across the country, it’s possible that it isn’t realistic to see even greater improvement in OZ tracts.
Beyond the more narrow discussion of opportunity zones and their impact on the economy, a separate Brookings Institution analysis found the following:
“Overall, the TCJA’s advocates promised many supply-side benefits and promised they would materialize quickly. But at least for the first two years, the Act failed to deliver its promises on investment and growth, leaving the country instead with higher deficits and a less equal distribution of after-tax income.”
The next two years will provide more evidence of whether or not the tax cuts worked. If signs point to success, legislators may vote to extend the program beyond 2026.
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