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Should There Be Tax Breaks For Investing In Distressed Communities?

Bi-partisan legislation backed by Sean Parker proposes the plan.

Should There Be Tax Breaks For Investing In Distressed Communities?

Photos: Cafe Racer via Shutterstock

Increasingly, America looks like two countries, with some places bounding ahead and others falling behind. The recession exacerbated long-running economic gaps. And now 50 million Americans live in "distressed ZIP codes" hampered by low investment and persistent unemployment.

It's these ZIPs that are the focus of a new bill in Congress called the Investing in Opportunity Act. Backed by Sean Parker, of Napster and Facebook fame, the legislation would offer tax breaks to investors willing to move money out of conventional funds into targeted "opportunity funds." In effect, investors would get a holiday on capital gains in return for investing in real estate, small businesses, and infrastructure projects in distressed communities.

Unusually, the bill has bipartisan support, according to a report in USA Today. Many of the most distressed ZIPs are concentrated in the south, southwest, and the Rust Belt regions.

Parker is chairman of the non-profit Economic Innovation Group, which last year outlined the opportunity fund idea in a report (see our post here). "The idea is to find a channel by which capital that's sitting on the sidelines, or just compounding on financial markets, that could find its way into these disadvantaged places," report co-author Jared Bernstein said at the time.

The report criticized existing federal vehicles for bringing private dollars to distressed areas. At the same time, it said many investors would be willing to cash in conventional investments if they could do good and avoid taxes at the same time.

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