Billionaires’ Favorite Tax Reform

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S1: Justin Elliott is a reporter for ProPublica, and for the last year, he’s been trying to understand the secret language of taxes. How did you prep to cover taxes? Like, were taxes always your jam, like you wanted to learn about the tax code?

S2: No, not at all. Actually, I had a very painful period at the beginning of this year when I started going to American Bar Association tax law conferences.

S1: Justin says When you show up at one of these conferences, it’s kind of like going to a foreign country as a lay person, you sort of understand maybe 20 percent of what’s being talked about.

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S3: But what you do understand very quickly is that there’s an army of very, very smart people in suits who do understand this and spend all their time thinking about it and sort of working with the tax code.

S4: It sounds like at a tax conference, every panel is just about how to not pay taxes.

S3: That’s a lot of it. But you using acronyms and jargon that make it basically impossible to understand for a normal person.

S1: Over the last year or so, this new kind of tax conference cropped up all about what’s called an opportunity zone. Justin says these two words, they mean different things to different people. If you listen to the pundits on CNBC talk about opportunity zones, they’ll refer to the program one way.

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S5: But this idea, since it came out really as a transformative, potentially transformative program that will unleash private capital into some of the areas of our country that need it most. And it’s both.

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S6: Justin, he explains it a little differently.

S2: You know, he gets called the Opportunity Zone Program, and I see the word tax and the phrase tax break is not in the program name, but the program literally is a tax break. Like that’s all it is.

S1: The people who are supposed to benefit from this tax break or some of the country’s poorest communities, places that need jobs and housing instead. Justin has found opportunities, own perks headed to the owners of a yacht club, a ski resort, and the guy who owns the Cleveland Cavaliers. All because these are the kinds of people who speak the secret tax language.

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S2: This is opaque to most of us and certainly opaque to to lay people who don’t think about taxes all the time. But there’s nothing that most rich people paid more than taxes.

S4: So today on the show, Justin is going to tell the story of these opportunity zones, how one rich guy in particular, someone who really hated taxes, came up with an elegant solution to avoid paying them and then convinced Washington to give it a try. I’m Mary Harris. You’re listening to what next. Stick with us.

S1: The idea for these opportunity zones, it actually starts with a tech entrepreneur guy named Sean Parker, the former president of Facebook. If you saw the social network, he’s the guy played by Justin Timberlake. Anyway, once he started piling up all that Facebook money, he ran into a problem and opportunity zones were a way to fix it.

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S2: So the tax break is all about capital gains, which is not something that normal people encounter in their day to day lives. But what it means basically is to just use the example of Facebook. If you bought a share of Facebook stock and was worth one dollars and then you waited 10 years and now it’s worth, let’s say, $2000. The capital gain is the difference. It’s like essentially the profit. So you have a capital gain of nineteen hundred dollars.

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S1: I think Sean Parker has actually been quoted saying like, I’m a rich person, I have this rich person problem.

S2: Exactly. Well, it’s only a problem if you don’t like paying taxes. Right. So so how it works is, you know, if you if you sell your stock. So like in the case of Sean Parker, he acquired all his Facebook stock when it was basically worth nothing and now it’s worth billions. So he’s sitting on a potential capital gain of billions of dollars. Now, the problem for him is that when you sell the stock, if you want the cash and you want to do something with it, the IRS charges you like 20, 25 percent of that money. You know, he doesn’t want to give that up. And in fact, there’s a lot of rich people who who don’t want to pay their capital gains taxes. So they just hold onto that stock. And so the idea here is if you take those capital gains and invest them in one of these opportunity zones, you don’t have to pay the taxes upfront. Which which is the first benefit. And then later, you actually have those taxes cut.

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S6: Right. If you if you stay invested for 10 years, you actually don’t have to pay taxes or you want to pay some of the taxes you get some of the taxes you would have had to pay would be forgiven.

S2: And then the third big benefit is on the new investment. So if you’re starting a business in the opportunity zone and that increases in value, that increase in value is now tax free, which is a big deal, because if you started you know, if you have a successful investment, normally any kind of successful investment is going to you know, it’s going to generate a tax bill. If you do it under this program, it’s tax free. It’s not normal to be able to have the possibility of making an investment that grows and then just keeping all the money. Usually there’s some you know, the tax man comes for some of it.

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S6: And my understanding is that Sean Parker actually founded a think tank in Washington to basically go to Congress and kind of sell this idea rises.

S2: This is sort of a classic case of just the incredible influence that the billionaire class has. So Parker has enough money that he literally started a think tank called the Economic Innovation Group, headlined by a Democratic economist and Republican economist. So bipartisan, pushing this idea and got the ear of members of Congress again of both parties. Famously, Cory Booker, the New Jersey senator and presidential candidate, has been a big proponent of this. He sometimes calls opportunity zones domestic emerging markets.

S7: This is probably the biggest economic development tool that local government leaders have to attract capital and investment into their communities to create jobs and economic opportunity.

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S2: Booker has actually told stories of talking to Sean Parker about this idea over sushi in San Francisco. So obviously, you know, you and I can’t go out to sushi with Cory Booker, but Sean Parker can. So Booker, another senator, Tim Scott of South Carolina Republican. We’re sort of the the biggest name backers of this idea, and they were pushing it as a standalone bill. Then Donald Trump gets elected in 2016. And his first and really now only big legislative achievement is the 2017 tax law, you know, which has sort of been widely derided as a giveaway to the rich. But they get this opportunity zone legislation incorporated into the larger tax law. This has been touted by President Trump himself, Ivanka Trump, Tim Scott, others as the sort of big piece of the Trump tax law that is actually supposed to help poor people.

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S1: You can see why this idea is appealing. Everybody seems to get something. The wealthy get to take their money out of the stock market, save on taxes, and then that money goes into communities that need it. Those opportunity zones. But after the Trump tax bill passed at the end of 2017, there’s one more thing to do. The government had to get out their maps and decide what is an opportunity zone. What kind of neighborhoods need this extra cash flow? Justin says. This is when more red flags started going up for him.

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S2: Everyone you know comes back from. New years are bleary eyed and wakes up and then this this process starts that again happens very quickly in the first few months of 2018. And the process is the Trump Treasury Department releases a list of census tracts around the country that are eligible to be named opportunity zones. And then the key thing that happens that we’ve been focused a lot on is the people who actually do the picking. Are the governors of each state. So the law gives enormous, basically unchecked discretion to every governor to pick one quarter of the eligible tracks in their state as opportunity zones. So suddenly the governors are the ones giving out the golden tickets.

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S6: And you got a really good look at how this worked in Florida at West Palm Beach. Yeah. Can you talk a little bit about what happened there and how you could really see because you began flipping through the government documents, how the governor was influenced by people who had been donors.

S2: Right. So if you look at Florida at the time, Rick Scott was the governor. He’s now the U.S. senator from Florida. And there’s a Florida economic development agency. And through these documents that we obtained, through public records requests, you can see actually there’s there’s people at the Economic Development Agency who are who are trying to do this in a kind of transparent, data based way.

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S8: And there’s economists who are saying, okay, what are the neediest areas? What are the areas that are going to most benefit from from potential development or most sort of ripe for development and also eligible for this program?

S6: And they basically come up with their own maps like, hey, are the places we would consider.

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S2: Right. So this Florida state agency comes up with their their own maps. But it’s it’s Governor Rick Scott’s ultimate call as to what what gets picked. Then what emerges from these documents is a rush of lobbying, starts lobbying by municipalities, but also private companies, consultants and individuals. One of the striking episodes involved a guy, a billionaire family, the high zenga family. People might remember Wayne, hisand a senior from the 80s and 90s, he started Waste Management, the trash collection company. And then he he later, I believe they own the Miami Dolphins for a while. So it’s sort of big Florida billionaire family. Turns out they’re also major donors to Rick Scott. We got a letter that Wayne Huizenga Junior, the son, wrote to Rick Scott in which he says, hey, look, we realized that this area of West Palm Beach, where I own this super yacht, Marina, is on the eligible list to be an opportunity zone. And we’ve been planned to build these luxury condos next to the super yacht Marina. And you know, we want you to pick this.

S6: How did this match up with the maps that people inside the government were drawing?

S2: Right. So it’s interesting. The area with the super rich Marina was was not selected through the process of looking at the data by the Florida Economic Development Agency. And it also you also might be thinking we were thinking we saw as well. How is it that attract with the super yacht Marina is even eligible for this program at all? Right. Because I thought there, you know, there was data there had to be, you know, income thresholds and this sort of thing showing that these were poor areas. It turns out in this certain it’s sort of intuitive when you think about it, that there’s just a lot of areas in the country in which there’s extremely rich people and and poor people that happen to be in the same census tract. So it evens out. Right. So it evens out. And the way that the program is structured, you end up with a bunch of census tracts where there’s in this case, literally some of the richest people in the country, like Rosie O’Donnell, had a waterfront mansion in this census tract. But then actually on the other side of it, you know, a mile away. There’s some genuinely quite poor people. But but it’s eligible. So what happened after this letter was sent? So what happens is, you know, suddenly this track, which is not going to be picked based on the kind of objective state analysis the billionaire donor asks the governor to included. And sure enough, a few weeks later, Rick Scott announces his selections and this tract is in there.

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S9: The other significant thing about this, I think, is if you believe in this program, the idea is we want to incentivize new investment because this summer is going to do something anyways. Then why are we, all of us as taxpayers subsidizing one of the striking things in this case is high, zenga says in the letter we’ve been planning to. Build these luxury condos for a while and please give us this tax break, and then actually one of his partners in the project was quoted subsequently saying, look, the this project already made sense.

S2: Economics of it were good for us. And now now that we have this opportunity zone tax break, it’s even better.

S6: And that quote was in Bloomberg. It’s not like those people were hiding.

S2: Right. Some of this is sort of in plain sight. So, I mean, fundamentally, what this is, is a subsidy paid by all of all of us as American taxpayers for projects in these areas and in this case in West Palm Beach. You know, we are all collectively subsidizing his luxury condo development that was planned before this idea. No one had even entered anyone’s mind.

S1: And it’s potentially worth a lot of money, although we don’t exactly know how much some wealthy investors weren’t just approaching local leaders asking to take advantage of this new tax break. At least one man seems to have been coordinating directly with the White House. Justin non-covered an email linking an opportunity zone in Michigan to billionaire investor Dan Gilbert. Gilbert founded Quicken Loans. He’s also known for owning nearly 100 buildings in downtown Detroit.

S2: We got an email from a Michigan state official who said that she’d been talking to Dan Gilbert’s people, the Quicken Loans people. And she writes they worked with the White House on it and want to be sure we are coordinated. And then again, a few weeks later, the Michigan Opportunity Zones get announced. And a bunch of Dan Gilbert’s properties in downtown Detroit are now in opportunity zones, including an in one tract that shouldn’t have even qualified, I should say.

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S1: Dan Gilbert’s company has denied any kind of coordination here.

S8: We still don’t know everything about what happened at the federal level. But I mean, to give you a sense of how well connected these people are. Dan Gelber was one of a select group of billionaires who literally was at the White House with Donald Trump watching the 2018 midterm election results. It was like Dan Gilbert and Sheldon Adelson and a few other people like that.

S2: So, you know, we’ve seen just again and again around the country that extremely wealthy people with very high levels of access to the Trump administration have, you know, ended up getting what they wanted out of this program.

S6: The thing that I find so frustrating about your reporting is that it ends up doubling down on this narrative that’s so familiar and toxic, which is there are people in power who are arranging things so that the government will benefit them. In this case, you have a very wealthy Facebook investor who comes up with an idea. He says, hey, I’d like to keep more of my money, starts a research group in Washington to push the idea, gets people on board, and then you have more wealthy people close to other people in the government taking advantage of that and not to sort of draw too much of a EPSTEIN style conspiracy theory here.

S2: But it turns out these things a lot of things are connected, like Dan Gilbert actually was a member of the Founders Circle of the Sean Parker think tank that pushed this idea. So he was actually involved before Trump was even elected.

S6: Something I really struggle with with this story is the optics of it. When it comes to race, because the president has been really clear that he thinks the Opportunity Zones program benefits black Americans. I mean, I should also say, because this I looked up the signing of the opportunity, Vail’s legislation, and it’s one of the few events where you can see the president surrounded by black people who are excited about this.

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S1: But is there any evidence that this law is actually benefiting black communities?

S2: On the whole, certainly not. But I think the one caveat is because there are so few really, really there’s no disclosure requirements. No one knows the answer to the question of how is this working in aggregate. We have a lot of examples of apparent abuse by billionaires and governors handing out favor to their political allies. But no one knows, you know, houses working overall hand.

S8: You know, in some ways, you know, we need to wait a number of years to see how it’s going to work because, you know, investments take time. You would want academics to at least attempt to do sort of careful studies of how this worked. I will say, though, that this is actually not a new idea. The idea to have served geographically based investment incentives. In fact, there was a quite similar program in the Clinton years called Empowerment Zones. Those framed in a very similar way. I’m not an expert on it, but I did restriction. It was actually, I think, more targeted and there were more requirements to try to actually ensure that the tax break was going to investments that would actually help people in a certain area rather than just investments in a certain area. You know, I’ve actually talked to one of the architects of that program who said in hindsight, he didn’t think it really were. I think a lot of the academic research backs that up. Also, President Trump does talk a lot when whenever he starts talking about what he’s done for African-Americans. This is one of the big things he he says and he makes a lot of totally baseless claims that opportunity zones are generating a lot of benefit in in the black community. And there’s there’s no there’s no concrete evidence for that.

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S6: So Senator Ron Widen is pushing to reform this law. How would that change how the opportunity zones work?

S8: Yeah, so there’s there’s several proposals out there. So the proposal is actually got some bipartisan support to add some disclosure requirements. So at least there would be some ability, at least by the government to collect data. So in five or 10 years, we could have a conversation based on, you know, some kind of data set, which right now is going to be impossible. Senator Wyden, in parliament, in response to some of our stories and also other other reporting by The New York Times, introduced a bill that would tighten the rules essentially. So some of the tracks, essentially sort of wealthier tracks would be booted out of the program, sort of going even further. Bernie Sanders has said we should just kill this. It’s a it’s just a giveaway. I don’t think there’s you know, there isn’t seem to be prospects for either the Sanders or Wyden proposals to to get through Congress because there’s no evidence of bipartisan support for those. It is possible that the increased disclosure requirements will get into some kind of bill, although, you know, with Congress, it’s hard to say until it actually happens.

S6: The defense I’ve read about opportunity zones is that it’s just too early to know.

S1: It’s too early to know really how these zones are working or not working and that there could be all kinds of people that we aren’t paying attention to right now who aren’t millionaires and billionaires who are taking advantage of these zones in really positive ways.

S2: Yeah, I mean, I think it’s it’s correct that we can’t make a final judgment, partly because, again, we don’t have the overall picture.

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S8: We don’t have any kind of aggregate data to make any kind of judgment about the program. And I think there’s no doubt there. There have been some examples reported of people using this in in ways that look like, you know, what was intended or how they talked about it before the bill was passed. So that that’s definitely true. But I think it’s also significant that even a small a relatively small number of reporters, so myself and my colleagues at ProPublica there, folks at The New York Times, other folks at Bloomberg is probably like under 10 reporters were really on this in the country, have found, you know, 10 or 20 probably seemingly egregious examples of abuses or excesses of one form or another. I think it’s also worth noting that the amounts of money here. You know, if a billionaire is getting to use his tax break for a luxury condo investment, the upside is potentially huge. We’re talking many, many millions, tens of millions of dollars of tax breaks compared to if there’s some affordable housing being being built somewhere, that’s going to be a much smaller amount of money. And that’s all that’s money. It’s all collectively coming out of our pockets. So, again, that’s all anecdotal at this point. And I don’t think we should make a sort of overall judgment because we can’t.

S9: But a lot of what we’ve seen doesn’t look good.

S10: Justin Elliott, thank you so much for coming in. Thanks a lot.

S11: Justin Elliott is a reporter at ProPublica. And that’s the show. What next? Is produced by Mary Wilson. Jason de Leon, Daniel Hewitt and Maura Silvers.

S1: We are so psyched to be back in your feed for 20/20.

S12: In fact, we’re so excited that we’re gonna be back here twice tomorrow. Lizzie O’Leary will be here in the morning with what next TBD. I’ll catch up with you in the afternoon to tell you everything you missed in impeachment.

S13: I’m Mary Harris. Happy New Year. Talk to you tomorrow.