While monetary policy works on the national level, the Fed under former chair Janet Yellen and now under chairman Jerome Powell has been only gently raising interest rates in part to see if it can help lagging areas join the recovery.
However, a consensus is building among economists and politicians that the persistence of unemployment and poverty in certain areas needs to be addressed with direct, “place-based” policies.
The tax code approved by the Republican Congress in December included a bipartisan-backed measure to support such locally-directed efforts, granting a capital gains waiver for those who invest in locations included on a list of distressed census tracts being chosen by state governors.
Advocates, who include Donald Trump’s Council of Economic Advisers Chair Kevin Hassett and Jared Bernstein, a former Obama administration adviser, hope it shifts capital from buoyant stock markets and high-value real estate to blighted rural pockets, struggling suburbs, or ailing inner-city neighborhoods.
“Investors are sitting on a large pile of (unrealized) capital gains,” said John Lettieri, president of the Economic Innovation Group, a think tank that sponsored a 2015 paper by Hassett and Bernstein outlining the idea.
“We think the scale is likely to be measured certainly in the tens of billions of dollars,” Lettieri said about how much of an estimated $1 trillion in unrealized capital gains could make its way to neglected areas. Such amounts still pale with the scale of the U.S. economy and critics worry the plan may only reshuffle where the poor and jobless live by speeding up gentrification in areas already on the upswing.
However, while the rules for the program are still under development and its effects uncertain, several local initiatives are gaining traction even without federal tax breaks. The Fed’s Bostic also noted that dollars invested in capital-starved areas may have greater impact and return than elsewhere.
That is a point often overlooked in the national debate over issues such as tariffs, or by development authorities who traditionally focus on large, greenfield projects, say officials at the DeSales Community Development Corp. in St. Louis.
The non-profit group is renovating a century-old, 87,000 square foot building in the Fox Park area that once housed a maker of high-end barber chairs, then a hat factory that supplied World War II troops. The plan is to bring jobs back to the area by filling the space with cabinetmakers, small bakers, or similar craft businesses.
In Baltimore, officials are backing an effort by Under Armour chief executive Kevin Plank to rebuild the Covington Point industrial area as an integrated tech, manufacturing, and residential hub.
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