Analysis: Scott has ideas to help disadvantaged communities

Editor’s Note: The following is from an interview of U.S. Sen. Tim Scott by POLITICO’s chief economic correspondent. It was first published on Nov. 20 at politico.com.

Senator Tim Scott (R-SC) sat down with POLITICO’s Chief Economic Correspondent, Ben White for a conversation about bringing development to America’s most disadvantaged communities.

The $100 Billion Dollar Question

As the American economy has grown more unequal, with urban areas thriving and rural areas falling behind, free-market Republicans have generally stayed away from the debate about potential government solutions.

That is, until Tim Scott came along.

Scott, the first African-American senator from South Carolina since the end of Reconstruction, grew up in working-class poverty. And he’s championed essentially the only congressional effort to close this economic divide during Donald Trump’s presidency.

Scott’s Opportunity Zones would provide tax incentives for investment in parts of the country that have not seen big gains since the Great Recession ended. He helped get the provision tucked in the tax bill signed by Trump in December 2017, and along the way won the support of several Democrats.

“I am certainly an advocate of the free market, without any question,” Scott told me in an interview. “However, my worldview, really, is oftentimes seen through the eyes of a 7-year-old kid, growing up in a single-parent household, mired in poverty, feeling hopeless, at times frustrated, realizing that there was more potential in me than I could get out.”

Scott acknowledged in our interview that, contrary to conservative orthodoxy, he does believe that government can play a role in pushing against the economic tendency for investments to cluster in certain areas while leaving others behind.

“We always struggle with an even spread of resources,” he said, noting that one way government can address this is to ensure better access to broadband internet outside of major metropolitan centers.

The idea for Opportunity Zones initially came from the Economic Initiative Group, a D.C. think tank set up by Sean Parker, the tech billionaire who co-founded Napster and served as the first president of Facebook. Parker eventually enlisted Scott in his effort to get the Opportunity Zones into legislation.

The program would allow investors who direct their money into distressed communities to defer capital gains taxes for up to 10 years.

It is not yet operational; the Treasury Department in October released proposed rules to guide investors on how to take advantage of the tax incentives. Treasury Secretary Steven Mnuchin has suggested that the program could attract $100 billion in investment in distressed areas.

Tax incentives haven’t always proved successful in addressing entrenched poverty or stopping the decline of local economies based on old-line industries. And some progressives worry that programs like Scott’s can turn into boondoggles that give tax breaks to wealthy investors without doing much for the places they’re supposed to help.

In a paper earlier this year, Adam Looney, senior fellow at the Urban-Brookings Tax Policy Center, said there isn’t good evidence that tax incentives actually boost low-income local residents; Empowerment Zones, a previous government effort to boost troubled areas, wound up costing $850 per resident and in the end was limited to just 11 neighborhoods.

Scott, for his part, said he thought the program could create enormous investment within just a couple of years.

“There’s over a trillion dollars on the sidelines that could be deployed,” he told me. “I think a realistic estimation, in the first few years, would be about $100 billion.”