Gov. Newsom says Trump-backed investment program could boost California
Gov. Gavin Newsom said Monday that a Trump administration program that provides tax breaks meant to spur investment in low-income areas could boost California’s economy.
Newsom said the Opportunity Zones program could help address two of the state’s major challenges: promoting energy investment to meet its climate change goals and providing funding for housing amid a shortage that has exacerbated income inequality.
Newsom is also open to encouraging investment in other sectors, he said at the Opportunity Zone Investor Summit at Stanford University. Accelerator For America, an economic development nonprofit co-founded by Los Angeles Mayor Eric Garcetti, organized the event.
The program, which was part of the 2017 Tax Cuts and Jobs Act, reduces capital gains taxes for real estate and business investors in designated low-income areas. Those include southern parts of San Francisco, much of Oakland, and parts of other Bay Area cities such as San Jose, Berkeley and Vallejo. After holding an investment for 10 years, investors pay no capital gains taxes, which can otherwise run as high as 20 percent.
Newsom acknowledged that it was unusual for a Democrat to endorse a Trump program, particularly given how frequently he and the president have sparred.
“We all heard about these opportunity zones. We were a bit perplexed,” Newsom said. “A lot of us, at least on my side of the political aisle said, ‘That actually sounds like a good idea. Wait a second, it came out of which administration? I’m still trying to get my arms around it. Maybe it’s too good of an idea.’”
The program’s roots date back to a proposal from the Economic Innovation Group, a think tank backed by Bay Area venture capitalist and former Facebook and Napster executive Sean Parker.
A newly formed White House Opportunity and Revitalization Council, which includes 13 federal agencies, will oversee the program. State governors designate census tracts from among those eligible. In 2018, Gov. Jerry Brown recommended nearly 800 census tracts in the state. A tract typically contains about 4,000 people.
Newsom said the zones could be a way to draw investors into California and prevent them from prioritizing lower-tax states. “We want to address the issue that we have the highest tax rate in the United States. We’re not naive about that,” Newsom said.
However, he said for the program to succeed, it has to spur investment while benefiting existing residents, rather than just investors.
“We don’t just believe in growth. We believe in inclusion. You can’t have one without the other,” Newsom told summit attendees. “I appreciate your interest. I hope it’s not just to make a quick buck.”
Newsom closed his speech with a reference to his predecessor Brown, who was fond of quoting philosophers.
Newsom cited the first century Greek philosopher Plutarch, who is thought to have said, “The imbalance between the rich and the poor is the oldest and most fatal ailment of all republics.”
March 18, 2019 Updated: March 18, 2019 7:28 p.m.