RE: LeoThread 2025-08-16 03:50

What's up, everybody? My name is Demetrius Cofinas, and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and to learn how to think critically about the systems of power shaping our world. My guest in this week's episode is David Wessel, a senior fellow in economic studies at the Brookings Institution and director of the Hutchins Center on Fiscal and Monetary Policy. He is also the author of a new book out tomorrow titled Only the Rich Can Play, How Washington Works in the New Gilded Age. The book tells the story of the creation of what are known as Opportunity Zones, which supposedly incentivize people to invest in distressed areas in the United States with the official purpose of spurring economic growth and job creation in low-income communities, but which in practice seem to serve primarily as yet another tax loophole in an already convoluted code full of them. We spend the first part of our (1/40)

conversation discussing the bill itself, the story of its creation and implementation into law, and what this tells us about how financial and political power are wielded in Washington. The second part includes a discussion about political corruption, corporate concentration, the infrastructure bill that recently failed to make its way through Congress and its associated tax provisions, as well as the upcoming elections and Trump's chances in 2024. If you enjoy the first half of today's conversation, I encourage you to take the leap and become a premium subscriber. There's no commitment. You can cancel at any time and the entire library of subscriber content going all the way back to episode one becomes instantly available to you, including the overtimes, transcripts and rundowns, depending on your tier. So without any further ado, please enjoy yet another educational and enlightening episode of Hidden Forces with my guest David Wessel. David Wessel, welcome to Hidden Forces. Good to (2/40)

be with you. It's great having you on the podcast, David. You've written now, what is this, your fourth book that you've come out with recently? Yes, my fourth book. You know, someone must have sent me, when I had my old TV show, someone must have sent me Red Ink, which was, I think, well, not necessarily your last book. It was the book right before your book on the Fed, I think. And we never got around. It was right around the time we must have ended the show. We didn't get around to having you on. So this is a belated invitation. And I have to say this book, like when your publicist sent it to me, it was right up my alley. And it is a fascinating look into a system and a process that I've struggled to understand, you know? And I think one of the reasons why it's so hard, obviously, is because those who benefit from it and are in a position to actually explain it don't want people to understand how the, quote, sausage is made. But before we get into that, it's a fascinating book and (3/40)

we're going to discuss all of it. For those who don't know you, what is your background? How would you describe who you are and what you do? So I think of myself as a newspaper reporter. I spent 30 years at the Wall Street Journal as a reporter, editor and columnist, mostly writing about economic policy matters. I left that when I turned 60 and 30 years and I got the catalog from the company, say, I could pick golf clubs or a wristwatch. I thought, geez, if I'm ever going to do anything else, this is the time. And I lucked into a really good job at the Brookings Institution where I direct a program in our economic studies unit called the Hutchins Center on Fiscal and Monetary Policy. And our mission is to improve the quality of fiscal and monetary policy and public understanding of it. Well, that's great because I have many monetary and fiscal questions to ask you in the overtime. So are those the things that interest you most and how did you become proficient in the workings of (4/40)

Washington? Well, there's no better way to learn Washington than to be a reporter covering it. I had been in the Boston Bureau of the Wall Street Journal. I came to Washington in 1987. The stock market had just crashed. It was the very end of the Reagan presidency. And I majored in economics in college and I did spend a year at Columbia and go to school and get paid for a program called the Badget Fellowship, which is for reporters interested in economics and business. But one thing I learned is that if you work for the Wall Street Journal, there are a lot of really smart people who are willing to be your teachers because they want the Wall Street Journal to get it right. So I think what happened was that the more I wrote about economic policy, the more I found it interesting and the more I enjoyed it and the more people respected me so they're willing to take time explaining it. There's different ways in journalism. Some people go from one beat to another. I didn't choose that and I (5/40)

think it paid off handsomely for me. What did you like about economic policy so much? The ability to translate what was happening in Washington at the Federal Reserve in Congress and how it affects the ordinary people who read the newspaper or listen to NPR or something like that. One of the things I discovered is that there's a kind of high priest language in economics that excludes many people from participating. I mean, the Federal Reserve has gotten a lot better, but in the old days you basically needed a decoder ring to know what they were talking about. And I discovered that I enjoyed being the translator and that there was actually a market for that. So for instance, during the financial crisis of 2007, 8, 9, I was on NPR's Morning Edition frequently trying to talk about really complex things in three minutes and 45 seconds. I discovered that I enjoyed doing that and a lot of people don't. That's fascinating. That must have been quite an experience. But to that point about the (6/40)

complexity, I never ceased to be surprised at how many otherwise brilliant people struggle to understand financial markets and economics. And I wonder how much that has to do with language. A perfect example was a recent appearance that you made on Al Hunt and James Carville's podcast. And James, who I think is one of the people who's famously quoted as saying that if he could come back, if he could be reincarnated, he would come back as the bond market. And he still seems to be traumatized by that experience and he still seems to be sort of intimidated by that language. And it's just something I find fascinating. So as I mentioned, David, your book is titled Only the Rich Can Play, How Washington Works and the New Gilded Age. How would you describe what the book is about and what did you mean by only the rich can play? The book is about a provision that was slipped into the 2017 tax bill that created or led to the creation of 8,764 tax havens across the country called Opportunity (7/40)

Zones. And the idea was, the marketing slogan was, we're going to give a big capital gains tax break to rich people and they will put money into poor neighborhoods and the poor neighborhoods will be better off. The reason that title is only the rich can play is that the tax break is only available to people who have large unrealized capital gains. It's not like, say, an IRA where anybody can put their money in and get the tax break. And that was by design because after all rich people have the money. I think that what intrigued me about it was, first of all, how did this happen? Secondly, it's a really important issue. How do we get money to poor neighborhoods? But two things really turned me onto the story. One was when I discovered it was not thought up by some Washington think tank, but came from Sean Parker, the guy of Napster and Facebook fame. And secondly, as I was thinking about doing the book, I heard there was an Opportunity Zone Expo at the Mandalay Bay Hotel and Resort in (8/40)

Las Vegas. And with images of the big short movie in the back of my mind, I went to that Expo. And that really convinced me that this was a fascinating story. It was like a modern gold rush. Yeah, that totally reminded me of that scene in the big short where Steve Isman and the guys at Front Point Partners went to the American Securitization Forum at Seizures Palace in Las Vegas and had a series of aha moments. And you have some similar examples like that in the book, whether it was the guy in the cowboy hat or the former model turned real estate developer with the Andy Warhol painting to sell. I guess one of the questions that comes to mind is how did all of these people become educated on this opportunity? Like what networks were they plugged into where they could learn about Opportunity Zones so early? I also want to ask you about Sean Parker because you mentioned him. I'm curious how an otherwise political novice like Parker could go from having this idea to actually getting it (9/40)

implemented into law. And that's actually the larger sort of context that I want to flesh out to begin with before we even begin to describe what Opportunity Zones are and how they work, which is how Washington works in the New Gilded Age. And to that point, the Gilded Age was a period I think between 1870 and 1900. It was kind of the Baroneal period where a lot of the wealth of the industrial revolution, primarily the first industrial revolution was beginning to become cemented into political power. And this was the period right before the beginning of the trust-busting era and not a time that we associate with robust regulatory oversight. So is it fair to say that you think we're living through a similar period today and that we might be on the cusp of a new regulatory regime that could begin to try and reign in large concentrations of private and corporate power? All right. So what did I mean about how Washington works in the New Gilded Age? One guy who's very rich spent several (10/40)

million dollars, not a lot by Washington lobbying standards, created a think tank called the Economic Innovation Group. And that think tank very successfully built the case that we needed to do something to the tax code to help left behind communities. They didn't spend a lot of time talking about how they were going to give a capital gains tax pay to the really rich. He managed to hire some really good veterans of Capitol Hill, effectively as lobbyists, but also some technicians that would help them structure the thing. So it's particularly attractive to rich people. And he also became a significant campaign donor. Originally, he only gave to Democrats, but as this thing took off, he started giving to Republicans. And so it's kind of like not the way policy gets made in the textbooks. Although there was a very public effort to build support for opportunity zones well before the tax bill came up. It was very superficial and at the talking point level. It wasn't on the details about how (11/40)

do you make sure this isn't abused. And because they were good at this and had the resources and energy and skill and time, they managed to get a provision into the bill without a lot of scrutiny. And I personally don't think that I'm no problem with billionaires who have good ideas about how to improve our society, but I don't think they should be able to basically maneuver without a lot of scrutiny by the rest of us about a provision in the tax bill, particularly one that is so valuable to people who have unrealized capital gains. Now, your second question is how do people find out about it? Well, there is an industry of people, tax lawyers, accountants, real estate, investment funds, and others who, once they discover a tax break, propagate it through the system. So some people knew this was cooking. Most of the people in the industry didn't. And once they found out about it, they send emails to their clients and then these organizations which exist to have conferences where people (12/40)

who have money encounter people who want their money like the one I went to in Las Vegas. They start to have these big conferences. There were dozens of them in the first couple of years after the law passed. And so word gets around when, and I suspect some of it also happens at the golf course or cocktail parties. Like I found this great way to avoid paying capital gains taxes. Tell me about it. So that's the way things get sold. There are people who make money by telling other people how they can cut their tax bills. And that's what happened this time. But how did Sean Parker get this provision to pass without even holding a single congressional hearing? And how atypical was that for how something like this happens? I think it's not atypical. I think things pop in. The smart people who want to get something into a tax bill know that sometimes public scrutiny causes a problem. So if you can get something slipped into a tax bill, the reconciliation bill that the House of (13/40)

Representatives reported recently is 2,500 pages. So it's not that hard for a determined member of Congress to get a provision in that other people don't really pay attention to. It turns out to have big implications. In this case, Sean Parker and the Economic Innovation Group were really clever. They enlisted two allies in the Senate, a Democrat, Cory Booker of New Jersey, and importantly a Republican, Tim Scott of South Carolina. Both happened to be African American men. Tim Scott was really convinced that this was a good idea. He is an economically conservative Republican who seems to believe that giving tax breaks and having less regulation is the way to get prosperity. And he turned out to be particularly important in the shaping of that 2017 tax bill, the Tax Cuts and Jobs bill. So with an ally like that, they didn't need to have lots of ads in the New York Times or going on Meet the Press or doing grassroots lobbying because he really wanted this in the bill. And he made sure it (14/40)

was there. And when you're in the center of the action, he's one of four senators who were instrumental in that bill, you can basically get your way, especially if it's something that appears to be non-controversial and who could be against helping poor neighborhoods. So this actually touches on a few things I wanted to ask you about. Number one, how important is that finding a champion or multiple champions within the power structure? And to your point, you said they happened to be African American. Is that true that they happened to be? Or were the people lobbying for this provision explicitly looking to avoid having to rely on white men or old white men in this environment? And so they were looking for bipartisan support and support by people that would align with the current zeitgeist around racial equity, gender. Well, they were both men, but you catch my drift. How important was that as well, the sort of optics of this? Okay, to answer your first question, yes, it's really (15/40)

important to have a champion. You don't get anything done without having a champion on Capitol Hill, and you got to pick your champions wisely. The people at EIG, John Latterian, Steve Glickman explained to me, one of the tricks is you get people who are respected to endorse your bill, then other people figure they know what they're talking about. And so they come alongside as well. But you make a really good point, and it's not just that they happen to be African American. By having two black senators, both of whom had experience in local government, Booker had been the mayor of Newark, and Scott had been on the county council in his hometown of Charleston, South Carolina. It made it almost impervious to the criticism that this was a stop for rich people, and it made it easier for them to sell it because, after all, if you got the two of the only black male Republicans in the Senate, the other one, of course, was Kamala Harris at the time, endorsing something, it must be good because (16/40)

these guys don't agree on a lot of stuff. So I think it was very clever. And actually, race plays an interesting part later on in the story, if you don't mind me rushing ahead. No, please. Originally, the Trump administration, the White House, was not interested in this provision. In fact, some of the people in the White House didn't like it. When President Trump made those unfortunate remarks about how there were good people on both sides in Charlottesville during that confrontation between white nationalists and racists and people who wanted to take down that statue in the park, Tim Scott was offended, and he was very public about how offended he was. And he criticized the president pretty shrilly on TV and in a podcast. The White House invited him to meet with Trump. He thought about not going, but he said, you know, the president calls you can't. He expected a confrontation. And when he met with the president, the president was very, very conciliatory and listened. And at some (17/40)

point says to him, what can I do to assuage the feelings of people I've offended, namely black people? At which point, Tim Scott, who was ready for this says, you can support my Opportunity Zone bill. The next day on Air Force One, President Trump is asked about his meeting with Tim Scott, which was close to the press. And Trump said, we had a good conversation or whatever that thing is he wants to get in the tax bill. I hope it's there. That led the White House to energize and be endorsed this provision, which was already percolating on the Hill. And interestingly, once the bill passes, the people in the White House who the White House picks to promote Opportunity Zones are black. Jerome Smith, who had worked for Koch related organizations before coming to the White House, who's a White House aide. He becomes very influential. And they set up this White House Opportunity Council, the spokesman for which is Scott Turner, who's a former professional football player and motivational (18/40)

speaker who's also black. And the president himself, a number of times, when asked about what is he doing to close the gap between blacks and whites in America. He says, look at my opportunities on things. That's fascinating. It's almost like race, gender, and other sort of minority markers are like loopholes that people in politics use to divert the public's attention away from what is an even deeper, more universal and arguably consequential force, which is money and power. Do you feel like that's an accurate representation of how race was used in this particular case? And do you agree that this speaks to a broader phenomenon that we're seeing in society and possibly more specifically in the Democratic Party? Okay, so I mostly agree with what you said, but I want to be clear on one thing. After substantial reflection, I conclude that Sean Parker was not an evil guy who wanted to cut his own taxes and those of his peers. I conclude that he actually was well intentioned, but was so (19/40)

arrogant as Silicon Valley people often are that he allowed something to happen that is being exploited by the tax loophole seekers. But I do think you're absolutely right that these days, it's sometimes hard to get something through if your frontman is a well known billionaire. And it's a lot easier to get something through if you can say, look, these two African American senators, one of whom grew up poor, Tim Scott, one of whom was the mayor of a poor city, Cory Booker, are for this. And then people are much less likely to challenge your motives. So people in power who have power and who are smart know how to shape the public image of their proposals so they look better than they are. And this is why often big businesses send up small businesses to lobby Congress about some particular provision when the small business won't benefit as much as the big one will. Or in the most unbelievable and hard to understand thing, how ordinary people lobby Congress not to toughen the estate tax, (20/40)

even though they have no chance of ever being rich enough to benefit from the estate tax. So let me ask you something else with respect to appearances, because while in normal times it can be very beneficial to have the support of the executive branch, at the same time, in many ways, having Trump support was a kind of a toxic emblem for anyone trying to operate and push any kind of agenda in Congress. How true was that in this case? And how important was it that this bill had bipartisan support? And again, to the point I made at the very early on of the question I had, how important is that period when trying to build a strategy for passing a bill through Congress? So proponents of Opportunity Zones built a bipartisan coalition initially to build support for this bill, but for the idea. And that is definitely a fact. But when you look at how it became law, that was irrelevant. What happened was a key Republican senator got it into a tax bill that passed Congress without any Democratic (21/40)

votes. That's the big tax cut bill of 2017. In this case, the White House was really just a grace note on how this bill became law. But what happened afterwards is it got branded a Trump tax cut, and then it got really controversial because clearly a lot of people in the real estate industry who were close to Trump were taking advantage of it, and that led people to be really suspicious. So the New York Times did a series of stories which suggested that somehow, well, it suggested maybe it was strong, that you could draw the conclusion that they thought that this was one of a real estate deal Trump and his cronies cooked up. I don't think that's what happened here. I think this was a tax break that was particularly valuable to real estate people. A lot of Trump cronies are in real estate, including Jared Kushner, and they took advantage of it. But they actually didn't have very much to do with its origins. In fact, many of them didn't know about it until months after the bill was (22/40)

signed. Okay, so let's talk about what opportunity zones are, like specifically how they work and how the tax benefits work, because there are several ways in which investors can benefit from putting their money into these things, both on the way in and on the way out. So how do they work? Okay, so the law created some criteria for what census tracts could be eligible to be opportunity zones. The Treasury turned that into a list of census tracts, and every governor was allowed to choose up to 25% of the eligible tracts as to be opportunity zones. In an opportunity zone, here's how it works. You have to have an unrealized capital gain. That is, you have to have bought something, stock property, or something that went up in value that you haven't yet sold. You sell it, and you would normally owe capital gains tax on that profit. If you put it into an opportunity zone fund, then A, you don't have to pay capital gains taxes right away. You can put them off until 2026, and paying taxes (23/40)

later is always better than paying them sooner. And secondly, depending on how soon you move, you can reduce your tax on that original investment by 15%. So that's the first benefit. When you say you can reduce your taxes on that original investment, what do you mean? Do you mean that you can pay 15% fewer taxes on the investment that you just invested in upon the time that you sell it? Let's say you bought something for $100, and you sell it for $200. You have a $100 capital gain. You would owe, roughly speaking, $28 in capital gains taxes on that. If you're putting it into an opportunity fund, you don't have to pay that $28 tax on day one. You can put it off until 2026. And secondly, you won't owe $28. You only owe $20. So you put that $100 gain into a building or a business in an opportunity zone. And if you hold onto it for 10 years, and it appreciates in value, you can sell it, and you don't have to pay any capital gains on that profit. So the first stage is you get a delay and a (24/40)

break on your original capital gain. Your second stage is if you put it into a property in an opportunity zone or a business in an opportunity zone, and you hold onto it for 10 years, when you unload it, you will owe zero capital gains. Okay, so let me see if I got this right. So you do pay some reduced percentage of capital gains tax on the asset that you sold in order to fund the next investment, but when you sell that investment, you don't have to pay capital gains on those returns. Correct. Okay. Let me add one little bit of context here. If you're in the real estate business, there are other tax breaks. One of them is called 1031, where if you sell a building, and you put them all the proceeds of that building into another building, you can delay paying capital gains taxes. But that means if you have a building that's worth $10 million, you sell it for $10 million, you have to put the whole $10 million into another property to delay paying capital gains taxes. The people who wrote (25/40)

the Opportunity Zone legislation saw an interesting way to make this even more juicy. If you put your money in an opportunity zone, you don't have to put all the proceeds of the sale, only your profits into the Opportunity Zone. It's complicated, but it makes a big difference if you're in the real estate business. Yeah, and what you were describing there is a like kind exchange. So is this still in effect today, or have any of the provisions expired? The like kind 1031 exchanges were narrowed in the 2017 tax bill to cover only real estate. So you no longer can sell your dental practice and use it to put into something or farmers can no longer use it when they sell a cow. There are proposals underway to narrow it further. And one of the ironies of what's going on now is a lot of the things that Congress is discussing to raise taxes on the rich, eliminating the 1031 like kind exchange program or raising the tax on capital gains are going to make Opportunity Zones look even more (26/40)

attractive to rich people because it'll be one of the remaining ways that you can cut your capital gains tax bill. So what has been the effect of these zones? First of all, how much money has gone into them? And what effect has it had on the local property markets? Have you seen like what kind of data do we have on this? One of the unfortunate things is the way this became law is that was through this process in Congress, known as reconciliation, which is actually getting a lot of attention right now. And the rules of the Senate mean that something can't be in a reconciliation bill unless it explicitly involves taxes and spending. As a result, the clause in this proposal that would have required reporting to the Treasury and the Treasury reporting to the public was stripped out. So we actually don't have very much hard data. Clearly, from what public announcements and what we can see in SEC filings, tens of millions of dollars have gone into Opportunity Zone funds, most of which has (27/40)

been invested in real estate. The best data I've seen is by an economist at the Joint Committee on Taxes in the Congress, which he got access to 2019 tax returns filed by these Opportunity Zone funds. And he found that 84% of the zones got no money at all and that half the money went to just 1% of the zones. And when you think about it, that's not surprising. There are 8,764 census tracts that are Opportunity Zones. Some of them are really down and out neighborhoods. Some of them the governors chose foolishly or were influenced and they're more attractive. They're in neighborhoods that are already gentrifying or there's something else going on. And so a bunch of people who are looking for a way to save money on their taxes but not take big risks naturally gravitated to the best off of the Opportunity Zone. And that's the problem. And that is a flaw in the law that governors were allowed to pick places that personally I don't think should have been picked. And there was nothing that (28/40)

investors or their agents had to do to make sure the people in the communities benefited. It was all about, am I going to get my money back? Which is why there's a Ritz-Carlton hotel and condo going up in Portland, Oregon with Opportunity Zone money. Yeah. So I'd love for you to explain how that works technically, how the language defines what constitutes or doesn't constitute a potential Opportunity Zone and what some of the political incentives were for governors to pick them. Because in New York State, for example, I was looking at the map. It looks like parts of Dumbo, Williamsburg, what looks like Soho or the East Village, Long Island City are covered in the city. And I think that's the reason why the Spill or not in the bill but actually are actually Opportunity Zones, lots of areas in Brooklyn. So how did that work technically? And I believe also was it the case in California that students or parts of areas around certain universities were also Opportunity Zones precisely (29/40)

because even though the students themselves came from wealthy families because they have no income, the entire real estate area there would be considered an opportunity or could be an Opportunity Zone. Right. So there are two stages to this. One is the criteria that the law set and the law basically borrowed from previous laws and it said you have to have a certain poverty rate or something like that in order to make the list. Then the Treasury had to decide what data to use to comply with that definition. And because sometimes there's a lag in getting the data, they ended up using data that was a little out of date. And that was a problem because a lot had changed since 2008 after the financial crisis. So you start with kind of a flawed list of eligible tracks, technically, legally eligible. And in fact, the law had a very strange provision which said that you didn't really need to be a poor neighborhood. You could be next to a poor neighborhood. Contiguous is the word they used. And (30/40)

so there's this list of eligible tracks, some of which are really down and out and some of which are like already getting better or are, as you point out, show up as low income, but only because they have a lot of college students or actually not very many people live there and the only people who show up in the census are the people who live in a housing project or homeless people, like in a downtown where nobody lives except the poor people. So you have this list that on average they show up as poor, but then the governors get to pick from that list. And as I said, some governors picked foolishly and some picked wisely. In California, the original list that Jerry Browns off has put out included the Stanford campus. And that's ridiculous. And that's the one place where the Economic Innovation Group, the Sean Parker think tank went public and said this is crazy and they took it off the list. In New York, Governor Cuomo was hostile to the opportunity zones, because it was a Trump thing (31/40)

he thought. And so they didn't take it very seriously. I understand that they thought about not designating any census tracts as opportunity zones, but that would have been politically foolish and probably economically foolish as well. But in the end, and I don't know whether there was politics or just clumsiness, 25% of New York state's opportunity zones are in Brooklyn, which as you know, doesn't really need much help. And Long Island City, where Amazon was going to put its headquarters until there was a political opposition that killed it, that was an opportunity zone and they said they weren't going to use opportunity zone money. So there were a lot of really bad choices. The Trump Treasury maybe could have done something more to tell people don't pick this. This isn't the spirit of the law. The law didn't force them to do that and they chose not to go any further. So they basically rubber stamped every opportunity zone that a governor picked, wise or not. And the law also required (32/40)

all this to be done in a matter of months. So I spent some time in Portland, Oregon, as I mentioned earlier. And there are a lot of now publicly available records from Freedom of Information Act requests by the local newspaper where you can see the dialogue among the state officials. And they were actually, first of all, what the hell is this? Then secondly, what do we do? And they ran sort of a process to get local communities to nominate zones. But they had a really difficult strategic decision, which is if you pick the very poorest communities in your state as an opportunity zone, you might look good in the headlines, but the neighboring state will pick the places that are already gentrifying and you won't get very much money. On the other hand, if you pick places as they did like downtown Portland, you might actually get some people taking advantage of it, whether it's marginal investment or not is another question, but you'll get bad headlines. They tried to split the baby. They (33/40)

did about half of each. But as best I can tell, all the money went, or nearly all the money went to the best off communities, and very little went to the poor communities that got to designation. So one of the things that's, if you're on the ground looking at this from the point of view of people who live in these communities, as opposed to the rich people are getting the tax break, there was a lot of noise about who got designated as an opportunity zone. But if you didn't get any money, it doesn't matter. And that's true for most opportunity zones. A lot of talk about how the zones got selected, but the money seems to have gone to the ones that didn't really need it, in my opinion. Right. So, I mean, again, the data on this isn't perfect, but if you had to take a guess at it based on everything you've seen, do you think that the vast majority of the projects that have seen funding in these areas would have received funding otherwise? That even, in other words, that even the loophole (34/40)

itself hasn't been the primary driver of investments. It's simply just been the coincidence of that additional opportunity. I believe that's the case. Yes. I think in some cases it may have speeded up a project. That is, it might have been done a year or two earlier than it would have otherwise, because it opened up a new set of potential investors. And I have no doubt that there are some projects for which opportunity zone funding was the make or break thing. But from what I've seen, and it's largely anecdotal, the majority of the projects are projects that either would have been done otherwise, or that they were already in the works, and they were just financed differently. So, for instance, in the book I tell the story of a particularly outrageous loophole. There's a building in Portland, Oregon, which is the headquarters of the local natural gas utility. And long before opportunity zones were on the table, the utility was looking for new headquarters, did a search, agreed to move (35/40)

into and lease almost entirely this building that was under construction. And it was all leased up, so it's a pretty safe investment. But it turns out that because of, I think, a flaw in the law and the regulations, if you don't yet have a certificate of occupancy for your building, it can count as a new investment. And so, after the building was done, but before it got their formal certificate of occupancy and the natural gas utility moved into it, Chicago Opportunity Fund bought it with Opportunity Zone money. So people are getting a tax break for investing in a new office building in Portland, Oregon, that when they put their money in was fully leased to a public utility, and they're getting a capital gains tax break. That serves no social purpose other than to cut rich people's taxes. And it's very hard to find lots of examples of those, because you don't have to disclose this stuff. This just happens to be one that, frankly, I heard about because people in the real estate industry (36/40)

are incredible gossips, and they love to dish on their competitors. And so I was told about this by a real estate guy in Portland, Oregon, and because of the, what was disclosed by the utility and their public filings, and the city records, you could find out that this had actually happened. And also the fund that put money into it, it called itself an Opportunity Zone Fund, so I knew that that's where the money came from. It's like a needle in the haystack thing, but I suspect there's a lot of that and that over time we'll learn a lot more about things like that, where it actually only provided a tax break for rich people and didn't do anything to improve a community. And in that case, you got an office building in downtown Portland, Oregon, which until the recent troubles there was doing pretty darn well on its own. So David, I'm going to move the rest of our conversation into the overtime. I want to ask you, again, what this experience has taught you that you didn't already know (37/40)

about how Washington works, but also I want to ask some more timely and relevant questions related to the reforming of the tax code and some of the proposals that have been put forward in the infrastructure bill, how likely it is to pass, as well as your thoughts on fiscal and monetary policy, and whether both parties have embraced a sort of new consensus around permanent deficit spending. For anyone who is new to the program, Hidden Forces is listener supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access to the second part of today's conversation with David, as well as the transcripts and rundowns to this episode and every other episode we've ever done, head over to hiddenforces.io and check out our episode library or subscribe directly through our Patreon page at patreon.com slash Hidden Forces. There's also a link in the summary page to this episode with instructions on how to connect the (38/40)

overtime feed to your phone so that you can listen to these extra discussions just like you listen to the regular podcast. David, stick around and we're going to move the rest of our conversation into the subscriber overtime. For more information about this week's episode or if you want easy access to related programming, visit our website at hiddenforces.io and subscribe to our free email list. If you want access to overtime segments, episode transcripts and show rundowns full of links and detailed information related to each and every episode, check out our premium subscription available through the Hidden Forces website or through our Patreon page. At patreon.com slash Hidden Forces. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. Join the conversation at Facebook, Twitter and Instagram at Hidden Forces Pod or send me an email at dk at hiddenforces.io. As always, thanks for listening. We'll see (39/40)

you next week. (40/40)