The Impact of Opportunity Zones: An Initial Assessment

The Council of Economic Advisers August 2020

Abstract

The Tax Cuts and Jobs Act of 2017 not only cut taxes for businesses and individuals broadly but also made targeted cuts to spur investment in economically distressed communities designated as Opportunity Zones (OZs). This report from the Council of Economic Advisers (CEA) compares the advantages of OZs with those of other Federal antipoverty programs and documents the characteristics ofthe nearly 8,800 low-incomecommunities designated as OZs. It also quantifies the effect of OZs investment and finds that a large increase is already benefiting OZ residents while potentially having only a small effect on the Federal budget.

OZs chart a new course in Federal policy aimed at uplifting distressed communities. Antipoverty transfer programs subsidize the consumption of goods such as housing and healthcare but can lead to reduced economic activity by raising taxes and discouraging eligible, working-age participants from seeking jobs. Also, under other existing place-based development programs, the Federal government selects who receives grants or tax credits and narrowly prescribes their use. By comparison, OZs cut taxes to increase economic activity by spurring private sector investment, job creation, and self-sufficiency. They also give greater scope for market forces to guide entrepreneurs and investors because they have no cap on participation and require no government approval.