Deadline Approaches on Tim Scott’s Low-Income Tax Incentive
It took three years for Tim Scott to rally his Senate colleagues around a tax plan he thinks will encourage investment in low-income communities.
Now Scott, who was born in a poor community in South Carolina, has until late March to get as many state officials as he can to sign on. He’s doing it with a national “opportunity” tour of low-income areas, including upcoming visits to Florida and Ohio.
His first stop was in the Chicora-Cherokee neighborhood of North Charleston, where his grandfather lived.
“I have been coming back and forth to this neighborhood all my life,” Scott said during a phone call from an event there last Friday. “This is a place where I know the potential.”
The neighborhood is one of countless low-income communities still suffering from the 2008 recession, even as growth in wealthier metropolitan areas has boomed.
Scott thinks his tax plan could be the missing piece. The so-called Investing in Opportunity Act was included without fanfare in the GOP tax plan that President Donald Trump signed in December.
Under the provision, the governors of each state and the mayor of the District of Columbia have until March 21 to designate zones from a pool of low-income, high-poverty census tracts where investors would be eligible for special tax credits.
Scott said the Chicora-Cherokee neighborhood demonstrates the untapped potential of struggling communities.
The area has one of the highest child poverty rates in South Carolina, according to The Post and Courier, and has long been seen as one of North Charleston’s most crime- and drug-ridden communities.
Community leaders have been trying for years to attract investment. There are signs their efforts could succeed, including a real estate development project funded in part by Hollywood actor Bill Murray. Scott also pointed to a group founded by a local pastor that works to provide affordable housing and after-school programs and encourage economic development in the neighborhood.
“I’m seeing so much creativity in the community now,” he said. “I’m hoping more private dollars will make this crumb grow.”
Scott developed the tax break proposal based on research by the Economic Innovation Group, a Washington think tank. Its chairman, Sean Parker — co-founder of the music-sharing service Napster and first president of Facebook — also threw his weight behind the idea.
Parker told USA Today last year that the law could create “a vital new pathway for investors and entrepreneurs to kick-start economic growth in distressed areas across America.”
Scott, the only African-American Republican in the Senate, sold the provision in Congress by talking about how it would help people like his mother. When he was growing up, she was single and worked a 60-hour week as a nurse’s aide, doing additional odd jobs over the weekend.
Scott sponsored earlier versions of the bill with Democratic Sen. Cory Booker of New Jersey. A similar version was sponsored by 81 lawmakers from both parties in the House. But the provision went nowhere until Scott managed to get it tucked into the GOP’s $1.5 trillion tax cut last fall.
Scott’s provision was not debated on the House or Senate floors or promoted by party brass and is only now starting to attract attention from investors and community leaders.
The law is the first new substantial federal attempt to help low-income communities in over a decade, according to The New York Times.
Governors can designate up to 25 percent of certain low-income census tracts in their states and up to 5 percent of tracts that are not low-income communities but are next to one. Investors in those areas, including real estate developers, corporations, banks and hedge funds, would be allowed to create special funds for development. They would then be able to defer capital gains taxes on their projects, potentially a huge help to their bottom lines.
Scott estimates that the program could tap into as much as $2 trillion in unrealized capital gains sitting on individual and corporate balance sheets across the country. The law allows those earnings to be rolled into new investments and defer capital gains taxes on the profits. The benefits grow the longer the investment is held.