Zoning Out: How the Trump Tax Cuts are Making Gentrification Worse by Jay Edgar

            You might remember the Tax Cuts and Jobs Act. President Trump’s solitary legislative accomplishment secured a massive handout to the wealthiest individuals and corporations, slightly rose taxes on the lower middle class, and enabled longtime Republican-supporting companies like Home Depot to create a positive news cycle for themselves and the party by giving employees a one-time bonus of $100 around Christmas. You know, like what used to be expected.

            To my knowledge, there’s never been a tax bill that was just a simple tax cut or increase. In a real tax bill, the tax code is expanded, esoteric subsidies are given to corn farmers, and loopholes are closed and created. One of the underreported aspects of the TCJA was an addition to the tax code that allowed states to designate Opportunity Zones. Ostensibly, these are areas of the country that have been neglected by institutional investors, and as a result, the local economies have stalled and the residents have been left in poverty. Economic blacklisting is a real phenomenon, and in urban areas, is often the hidden first step of gentrification; the banking system refuses to lend to anyone living in a neighborhood, all the businesses close, blight sets in, and eventually new investors swarm to “revitalize” an area almost everyone except the most vulnerable have already fled. Locals can see new developments on First Street south of the 280 overpass to see how this process has played out over the past decade.

            So the Republicans are concerned about the real problem of economic blacklisting, and so used their signature legislation to help the poor out. Their solution has to do with capital gains taxes. When you invest in something, you’re buying a stake with the hope that you can sell it for a profit down the line. When you finally do sell it, a certain percentage of that profit is owed to the government as a capital gains tax. The new law allowed investors to invest in a new entity called an Opportunity Fund, which exclusively invests in developments within the Opportunity Zones. Significant capital gains tax breaks are given on investments in Opportunity Funds, depending on how long that stake is held. If an investor waits 10 years to sell their investment in an Opportunity Fund, they don’t have to pay any capital gains tax whatsoever. As the Republicans tell it, this will encourage investors to put money into “disadvantaged” neighborhoods, bringing forth a new era of prosperity.

            The more cynical of you might have already scoffed at the Reaganomics fairy tale on display here. Pretty much no matter where you place these Opportunity Zones, the best case scenario is that they’ll be a giveaway to developers with very dubious benefit to poor people living there. The Tax Foundation, a non-partisan think tank, has detailed the long history of literature on the ineffectiveness of “place-based incentive programs,” and the potential negative effects they have on the supposedly intended recipients of aid; displacement can be accelerated dramatically.

            Remember, it’s ultimately up to the state where these Opportunity Zones are placed. And California’s supposed to have the most progressive government in the country! Certainly they wouldn’t just allow a naked giveaway to predatory developers, right?

Anyway, here’s the Opportunity Zones in San Jose:

a greyscale map of san jose has 5 different highlighted chunks.  North San Jose, Downtown San jose, "Manufacturing Core", Little Portgual and BART Industrial District, and East San Jose.  Each highlighted part dentes what the city considers an opportunity zone.
Image of Opportunities Zones in San Jose

            I got this map from the San Jose Office of Economic Development’s slideshow pitching potential investors in the Opportunity Zones. People familiar with the broad trends of the city already know most of these zones have already been pretty aggressively developed over the past decade, or in the case of the “Manufacturing Core” are logical next steps for the gentrification sprawling south of downtown. A significant radius around the future Google development is now receiving these ridiculous subsidies, as well as the site surrounding San Jose’s future first BART station. According to the slideshow, there are 49,162 (housed!) people living in Opportunity Zones, the majority of which are black and brown, 67% of which are renters, and one fifth are living in poverty. There are vanishingly few protections for these people, and even less for homeless folks for whom new development will invariably bring increased police violence.

            So far, the biggest Opportunity Fund to make its presence known in San Jose is an outfit called Urban Catalyst, headed by a real estate developer named Erik Hayden. Most of the current projects listed on its website are part of the Google village, as well as a brand new office and retail building to replace the old Lido nightclub. It’s certainly hard to see how these developments will lift up the economic opportunities of the threatened residents of and nearby the Opportunity Zones!

            Ultimately, San Jose’s Opportunity Zones are a mostly-hidden force pouring gasoline on an already-raging fire. San Jose is in a development speculation bubble whose long-term effects will prove to be disastrous for those who have not already suffered its real damages. It’s easy to assume that the free market is real, that the rampant gentrification San Jose is facing is the result of the harsh reality of a natural system of supply and demand that cannot be controlled by political forces. Instead, as with all aspects of our economy, the rich get richer and the poor get poorer not through natural market forces, but intentional policymaking on the federal, state, and local levels.

            If politics got us in this situation, it will take politics to get us out. The Bay Area is proof positive of market urbanism’s failure to meet the needs of ordinary people. The only sensible response is to call for what one fear-monger made the mistake of calling New Left Urbanism, which is a very cool name for a movement. We need universal rent control and a new generation of social housing, rather than endless giveaways to wealthy . And while that battle might seem impossible to win, progress is being made at every level. In San Jose, tenant organizers are pushing for public land to be donated to the new South Bay Community Land Trust, a model of social housing that could also radically democratize the tenant experience. Due to statewide organizing by groups like Tenants Together, a first step rent control law was passed in California. The Bernie Sanders campaign has adopted the ambitious #HomesGuarantee plan boosted by activists across the country. It’ll take a truly mass movement, but a truly sustainable future can be won, no Opportunity Zones required.

Jay is the host of the podcast the Blockchain Boys and a socialist organizer born and raised in San Jose. He’s currently studying in Santa Cruz. Other contributions by Jay include the Q&A with the Blockchain boys.

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