Take the energy and currency of a Silicon Valley billionaire, create an unconventional Washington think tank, recruit high-profile bipartisan politicians as supporters, simmer gently until an opportunistic moment presents itself and take a step back as several cooks interfere to alter the taste of the final dish.
That, as David Wessel describes in Only the rich can play, is not a normal recipe for impatient tech entrepreneurs, nor a recipe that has been very successful for lobbyists pushing for ambitious tax reforms in the dysfunctional Beltway atmosphere of recent years.
But that was Sean Parker’s approach. In 2013, the co-founder of music-sharing service Napster pitched an idea at a “future of philanthropy” party in Davos. In four years, the “zones of opportunity” (OZ) he proposed had crystallized into a tax break generating millions of dollars in investments later backed by Donald Trump and the White House.
The goal, as announced by the US Treasury, was to encourage economic growth and investment in struggling communities, offering tax breaks to investors who have blocked capital gains for a decade. It has become, Wessels writes, “the centerpiece – pretty much the one piece” of Trump’s strategy to help poor and black communities.
But, the book shows, the reality was a jamboree for accountants, lawyers, developers, and investors keen to maximize their income and minimize their taxes. Communities in need of help were left behind and further removed as costly developments were forced on their neighborhoods, largely benefiting outside investors.
Parker funded the Economic Innovation Group, which distinguished itself from mainstream think tanks by initially operating on a stealth basis, as it built bipartisan support by funding elected officials, hiring a top congressional official, and avoiding pushing of particular special interest. It was then launched publicly with a series of poverty and entrepreneurship datasets that garnered media and political attention across the country to strengthen the case for intervention.
Wessel, a senior researcher at the Brookings Institution Think Tank, brings his analytical lens to the story. Reports on politics often focus disproportionately on the initial political battles and rhetoric – to which he sometimes devotes too much detail. But, to his credit, he goes much further to explore what happened next, drawing on the best available research into the effects once the battle has shifted from legislation to implementation.
He demonstrates his credentials as a former reporter, taking to the road to observe how OZs were publicized at trade shows in Las Vegas and speaking to officials and developers from Oregon to Maryland where politics was. applied. He shows a strong turn of phrase, attention to detail and a generous heart in attributing some of his best lines to his long list of interviewees.
In short, the OZs were “a stowaway of Trump’s biggest tax cut bill,” which turned 8,764 enumeration districts into “national tax havens” or “national emerging market funds.” The compromises to get them passed meant there was no accountability or relationship to justify their nominal social purpose.
Wessel seeks to be scrupulously fair, navigating between “phobic Trump headlines and exaggerated boosterism” in evaluating policy. He acknowledges that – at least until the Internal Revenue Service releases full data – even basic statistics on money invested and tax deferred are scarce. But the preliminary outline is bleak.
On the one hand, the amounts invested were well below the initial hype. On the flip side, the $ 75 billion that he estimates to have funneled to ZOs through the end of 2019 has largely gone to places that were already on the rise, mainly benefitting wealthy investors outside of the ZOs. targeted communities and have supported projects that have done little to boost local economies – from self-storage facilities to data centers with few jobs.
He sees some efforts by local authorities, foundations and impact entrepreneurs to use tax breaks to support local businesses or provide affordable housing. But demand was limited and often OZ was “the icing on the cake” of projects that were already receiving grants.
Wessel cites the historical parallel of the UK’s corporate zones, launched in the 1980s to tackle inner city deprivation. Most evaluations suggested that job creation was expensive and minimal, that the benefits accrued to landowners more than local residents, and that success required employment and skills support as well as tax incentives. .
The author concludes that Parker was not venal – he did not invest any of his capital gains in OZs and saw his support as philanthropic – but he was “idealistic, arrogant, stubborn and naive”.
In a sobering reflection on how politics can go wrong, his supporters have spent too much time creating policy to encourage the rich to invest and far too little learning from the lessons of the past or listening to members of the communities that their policies were meant to benefit. A moral story for the beneficent rich around the world.
Only the rich can play: How Washington Works in the New Golden Age, by David Wessel, Public Affairs, £ 25 / $ 30
This article is part of FT Wealth, a section offering in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investing