Hamill: Tax cuts, opportunity zones and ‘efficiency’

One of the provisions in the 2017 Tax Cuts and Jobs Act, or TCJA, was opportunity zone investments.

Investment in an opportunity zone, or OZ, allows the taxpayer to defer a capital gain until the 2026 tax year. An investment made in 2018 could achieve an eight-year tax deferral.

Even better, any gains made by the investment itself could escape any tax if the investment is made for at least 10 years.

An OZ investment must be made in an approved low-income census tract. The investment must be new so that new capital flows into the zone.

The law required the Treasury Department to assess the effectiveness of the tax provision. The department has since prepared a study.

Effectiveness refers to the extent to which a desired outcome is achieved. The problem with OZ investments is that Congress never specified a desired outcome.

One could infer a desired outcome. New investment in a low-income census tract might suggest a desire to help less desirable areas achieve economic growth.

But “might” is a poor way to assess effectiveness. Unfortunately, that is the best we can do.

The hot tax topic this year is whether the TCJA will be extended beyond 2025.

Only a few people have addressed whether some provisions should be kept and other parts ditched.

The TJCA was thrown together in a fleeting period, at least for tax legislation. I have concerns about certain provisions. Others have concerns about different areas.

It is hard to imagine that the “right” answer is to extend the entirety of the TCJA.

Perhaps some new provisions are needed. Certainly, some provisions are not needed.

Taxpayers, businesses and otherwise, do not like uncertainty in the tax laws. We find ourselves in a state of constant flux in tax laws because we fail to define desired outcomes.

It should be advisable to evaluate the effectiveness of the TCJA on a provision-by-provision basis before we extend or do not extend.

It is not possible to evaluate the effectiveness. I suppose that either you or I could establish our desired outcomes and assess the TCJA effectiveness.

But it is not up to us; it is the responsibility of the Congress to set the desired outcomes. They did not do this in 2017 or prior.

If Congress does define a desired outcome, we can also assess efficiency.

Efficiency is different from effectiveness.

Efficiency means doing something we want to do in a way that uses the least amount of resources. Something can be effective yet not efficient.

To assess efficiency, we need to have something that we want to do. If we fail to specify a desired outcome we cannot measure efficiency.

This brings me to the Department of Government Efficiency. Elon Musk and hand-picked helpers are going through the federal government like Union General William Tecumseh Sherman went through Georgia.

Sherman assaulted military, civilian, industrial and infrastructure targets. Sherman did it in five weeks. Musk’s DOGE is attacking similar targets and almost as quickly.

DOGE, of course, is an acronym. The “E” stands for efficiency. It is hard to see how DOGE is doing anything connected to efficiency.

In fact, it is hard to see that DOGE is trying to achieve anything other than dismantle congressionally approved programs.

DOGE started with dismantling the United States Agency for International Development, or USAID. USAID provides humanitarian aid, promotes democracy and supports economic development.

Government spending on foreign aid has ranged from 0.7% to 1.4% of total federal expenditures over the last 25 years.

Most recently USAID spent between $58 billion and $74 billion annually. Foreign aid started in the Cold War to establish the U.S. position as a world leader.

Congress funded this, so it seems, to see it as a desirable outcome. Improving efficiency would address only how to carry out USAID functions with fewer resources.

Federalist No. 51 deals with the importance of separation of powers. It recognizes that each of the three branches wants power. Each must be checked.

It says, “Constituent parts may, by their mutual relations, be the means of keeping each other in their proper places.”

Federalist 51 continues, “Ambition must be made to counteract ambition.” The ambition shown by DOGE has encountered only the judicial branch as a counterweight.

True efficiency will carry out the objectives — and legislative programs — of Congress at a lower cost.