Demagogues always do well in economic downturns, but this surreal presidential cycle has so far been defined by the rise of populist anger during an economic expansion.
One reason why: The recovery from the Great Recession has not been equally distributed. America’s poorest ZIP Codes have seen a deepening of economic despair during the Obama years while the wealthiest ZIP Codes have boomed. Harnessing the anger that creates for political gain is easy. Proposing solutions to the problem is much harder—especially in an election year when policy specifics have taken a backseat to bluster.
But there is a glimmer of hope in a new bipartisan bill backed by Senators Cory Booker (D-NJ) and Tim Scott (R-SC)—perhaps not incidentally the only two black senators.
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Both New Jersey and South Carolina have areas of great prosperity and pockets of deep poverty. Sen. Booker was mayor of Newark. Sen. Scott hails from North Charleston, an area whose future seemed bleak when military bases moved out. They’ve joined with two congressmen to sponsor the Investing in Opportunity Act of 2016, building off the work produced by a new Washington research and advocacy group, the Economic Innovation Group, seeded by Facebook’s founding president, Sean Parker.
Their bill would incentivize long-term private investment in distressed communities by allowing individuals and businesses to delay payment of capital gains taxes by putting cash into Opportunity Funds. This could create a far more productive use of the estimated $2.3 trillion in capital gains Americans have sitting in cash. These funds would be targeted toward distressed communities identified by state governors, designated Opportunity Zones, with the money used to fund local start-ups, build small businesses, or develop properties, while mitigating risk by broadening the investor pool.
Think of them as domestic emerging markets funds, working with local governments to spur investment and infrastructure improvements that can not only provide jobs in the short run but also create a framework for sustainable development.
“The American economy would be far better off if every community could realize its full entrepreneurial potential,” Booker emailed The Daily Beast. “But barriers stand between too many communities and access to the capital needed to generate economic growth and opportunity. In an era of capital moving overseas or going towards uses that don’t maximize opportunity for most Americans, our bipartisan legislation will help lower these barriers and jumpstart economic development and entrepreneurship by stimulating the flow of investment into the communities that need it most, from Camden to Newark and beyond.”
Let’s temper expectations. Cynicism passes for wisdom in Washington for a reason. Most folks inside the Beltway believe that no new legislation will be passed during this presidential election year, even in areas where there is broad bipartisan agreement.
But the really big game is about the next president’s first hundred days and what legislation could have credible bipartisan support in Congress. It’s worth noting that Speaker Paul Ryan has been willing to talk about income inequality and conservative policy solutions to poverty—two broad topics Republicans have been reluctant to discuss in the two decades since Jack Kemp was nominated for vice president in 1996. And Ryan’s cross-aisle House colleague from Wisconsin, Ron Kind, is one of the Opportunity Act’s prime sponsors.
While talking about investing in distressed communities can make some folks feel like they need to reach for their PBS tote bag, this is deeply practical stuff, consistent with Republican and Democratic rhetoric about returning jobs to America. Many of the afflicted areas have been struggling for industry that left decades ago. It’s going to take something big to spur them out of their economic slumber.
By harnessing private-sector capital through tax incentives, this bill would sidestep the taxpayer costs and political hurdles of a War on Poverty-style approach to income inequality. It’s the kind of prescription that, say, President Hillary Clinton and Speaker Paul Ryan just might be able to see eye-to-eye on.
Tea Partiers might still rage, but as House co-sponsor Patrick Tiberi (R-OH) explains, “We’re not writing a check from the federal government. We’re getting private-sector dollars. It wouldn’t be up to some bureaucrat or congressman in Washington, D.C. It would be up to the people in the community who would tailor the investment to what they think would actually work… The beauty of the program is that it’s individualized per the region and per the community.”
Conservatives who remain skeptical about the political benefits of investment in inner cities should remember this: Societal stability is the ultimate conservative virtue and there is no country in the history of the world where persistent income inequality has not led to upheaval. That’s why there needs to be a conservative answer to income inequality. And Opportunity Funds fit the script, by incentivizing private-sector investment rather than mandating taxpayer dollars.
The Investing in Opportunity Act could provide the first policy-based hope for getting beyond populist politics of anger—a public-private partnership that could cause even some liberals and libertarians to find common ground.
And the presence of a possible policy solution also serves to remind us that all this election year grandstanding is supposed to be just a precursor to the main event: governing.
