How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich Pt. II

A Tax Break Is Born:

Mr. Scaramucci, left, shaking hands with John F. Kelly, the former White House chief of staff. Mr. Scaramucci is using opportunity-zone advantages to help build a hotel in a trendy section of New Orleans.

The opportunity-zone tax break was targeted at the trillions of dollars of capital gains held by rich Americans and their companies: profits from investments in the stock market, real estate and other businesses, even short-term trades by hedge funds. When investors sell those assets, they can incur tax bills of up to 41 percent.

Sean Parker, an early backer of Facebook, helped come up with the idea of pairing a capital-gains tax break with an incentive to invest in distressed neighborhoods. “When you are a founder of Facebook, and you own a lot of stock,” Mr. Parker said at a recent opportunity-zone conference, “you spend a lot of time thinking about capital gains.” Starting in 2013, Mr. Parker bankrolled a Capitol Hill lobbying effort to pitch the idea to members of Congress. That effort was run through his Economic Innovation Group. In addition to Mr. Parker, the group’s backers included Dan Gilbert, the billionaire founder of Quicken Loans, and Ted Ullyot, the former general counsel of Facebook. The plan won the support of Senators Cory Booker, Democrat of New Jersey, and Tim Scott, Republican of South Carolina. When Congress, at Mr. Trump’s urging, began discussing major changes to the federal tax code in 2017, Mr. Parker’s idea had a chance to become reality. Mr. Scott, who sponsored a version of the opportunity-zone legislation that was later incorporated into the broader tax cut package, said it was “for American people stuck, sometimes trapped, in a place where it seems like the lights grow dimmer, and the future does, too.”

“Let’s turn those lights on and make the future bright,” he added. Confined to six pages in the 185-page tax bill, the provision can significantly increase the profits investors reap on real estate and other transactions. It allows investors to defer for up to seven years any capital gains taxes on the money they invest in opportunity zones. (That deferral is valuable because it allows people to invest a larger sum upfront, potentially generating more profits over time.) After 10 years, the investor can cash out — by selling the opportunity-zone real estate, for example — and not owe any taxes on the profits. Over a decade, those dual incentives could increase an investor’s returns by 70 percent, according to an analysis by Novogradac, an accounting firm. “We are very, very excited about the potential,” the president’s daughter Ivanka Trump said last year at an event celebrating Mr. Parker’s role in creating opportunity zones. “The whole White House obviously is behind the effort. The whole administration.” The opportunity zones, focused on low-income census tracts, were drawn by officials in each state, as well as in Washington, D.C., and Puerto Rico. Last year, the Treasury Department approved roughly 8,800 such zones. (The White House and Treasury declined to make senior officials available to discuss the program.) Nearly a third of the 31 million people who live in the zones are considered poor — almost double the national poverty rate. Yet there are plenty of affluent areas inside those poor census tracts. And, as investors would soon realize, some of the zones were not low income at all.

The Middle Man

The Preston is financed by the investors in Cresset, a multibillion-dollar asset management firm. The Harvard Club of New York City, in Midtown Manhattan, is the embodiment of America’s old-money elite. Crimson-jacketed waiters serve members who are watched over by oil portraits of elite alumni. One recent morning, financial advisers representing several dozen of America’s richest dynasties — advisers to the Pritzker and Soros families were listed as attendees — crowded into a drab meeting room on the club’s third floor. The advisers were there to see Daniel Kowalski, a top aide to Treasury Secretary Steven Mnuchin and the Trump administration’s point person for the opportunity-zone rules. Mr. Kowalski is barnstorming the country, bouncing from one conference to the next, explaining to real estate investors and developers how to take advantage of the new rules. Mr. Kowalski was an aide to the Trump campaign, where he worked for the White House policy adviser Stephen Miller. Before that, he was an aide to Jeff Sessions when Mr. Sessions was on the Senate Budget Committee. At the Harvard Club, he dived into an explanation of how opportunity zones work — and for whom they work. “The audience for opportunity zones is inherently fairly small because it’s limited to capital-gains income, which is why I wanted to come and talk to this group,” he told the room of advisers. That audience is small indeed: Only 7 percent of Americans report taxable capital gains, and nearly two-thirds of that income was reported by people with a total annual income of $1 million or more, according to I.R.S. data.

Yet this is a vital constituency, since the success of the opportunity-zone program will hinge largely on how much money investors kick in. That is why the Trump administration — and Mr. Kowalski in particular — are promoting the tax break on Wall Street. “I have served a little bit as a middle man between the business community and the I.R.S.,” he said at another conference a few weeks later. More than 200 opportunity-zone funds have been established by banks like Goldman Sachs and major real estate companies, including CIM Group of Los Angeles, which has previously been a partner with the Trump and Kushner families on projects. Those funds have said their goal was to raise a total of nearly $57 billion. The law does not require public disclosure of who are taking advantage of the initiative or how they are deploying their funds. Among those who have invested money or said they intend to are Mr. Kohl, a founder of the department store chain that bears his name; Steve Case, co-founder of AOL; Alexander Bhathal, part owner of the Sacramento Kings basketball team; and Richard Forman, the former owner of the Forman Mills chain of clothing stores, according to interviews and other public statements. Many others are lesser-known business executives who recently sold small companies or real estate and are looking for ways to avoid large tax bills.

Paul DeMoret, for example, recently sold his auto-industry software company in Oregon. He said he was using some of those capital gains to help finance a Courtyard by Marriott in Winston-Salem, N.C., and an apartment building in Tempe, Ariz., among other projects in opportunity zones. He is making the investments through a private equity firm, Virtua Partners. The tax break is largely benefiting the real estate industry — where Mr. Trump made his fortune and still has extensive business interests — and it is luring people with personal or professional connections to the president. Mr. Christie, a one time adviser to Mr. Trump, has raised money for opportunity-zone investments including an apartment building in Hackensack, N.J., and a self-storage center in Connecticut.

Cadre, an investment company co-founded by Mr. Kushner and his brother, Joshua, is raising hundreds of millions of dollars that it hopes to use on opportunity-zone projects. The company is eyeing neighborhoods in Savannah, Ga., Dallas, Los Angeles and Nashville that are expected to grow larger and wealthier in coming years. Jared Kushner has a stake in Cadre worth up to $50 million, according to his most recent financial disclosure. Mr. LeFrak, a longtime confidant of Mr. Trump’s and a major campaign donor, is building a luxury residential community in the middle of an opportunity zone in Miami. (It is unclear how much of the development’s funding will end up being tax advantaged.)

Not far away in the Design District, Daniel Lebensohn is planning to build his high-end office tower. Mr. Lebensohn previously joined the Trump Organization to sell luxury condominiums at the Trump Hollywood complex north of Miami. And Mr. Kushner’s family company directly owns or is in the process of buying at least a dozen properties in New York, New Jersey and Florida that are in opportunity zones. They include a pair in Miami, where Kushner Companies plans to build a 393-apartment luxury high rise with sweeping views of Biscayne Bay, according to a company presentation for potential investors. A representative for the Kushner family confirmed that it was considering opportunity-zone funding for some developments, but said it would probably not use the funding for the Miami projects.

We continue our venture into the world of money making rich people along with the Trump Family enriching themselves off our government politics and the office of the presidency. Looks like ole Trump doesn’t care about another win for the presidency he’s cashing in rapidly on his good fortune of that office. And the people who were dumb enough to vote for him will suffer in the long haul. See Part III Continue?????