Treasury Issues Rules on Tax Breaks for Opportunity Zones

Study Article

Selected Article: Treasury Issues Rules on Tax Breaks for Opportunity Zones by Jim Tankersley. The New York Times [April 17, 2019]

Tankersley (2019) explores tax policy review in his article titled the “Treasury Issues Rules on Tax Breaks for Opportunity Zones.” Taking exemption from the Trump administration policy reviews, the authors revive a positive analogy of incentive tax regulations as an investment promoter on designated areas. The article explains a government regulation set to encourage venture capitalist, particularly from the indigenous communities to invest in local entrepreneurial projects that could promote local economic development. The author refers to the regions as Opportunity Zones due to the tax incentive offered by the government. In addition, the precision of the opportunity is limited to investors who target start-up businesses.

The article takes an explanatory focus on reiterating an administrative role to explain what the project is about. The author explores the newly released proposed regulation meant to clarify on the 2017 tax laws, which created an opportunity for opportunity Zones and tax breaks to benefit investors. Refereeing to a statement by Economic Innovation Group’s President, John Littieri, the article reports that new tax regulations eliminate investment barriers particularly on business operations, hence promoting investment.

Tankersley (2019) believes the inclusion of the zones into the tax law is a desirable step to strengthen the regulation. The zoning was done on merit in consideration of poverty and native income. However, the tax regulations received criticism from some economic quarters that termed it an unaccountable program. The article reports that critics believe that the US government has no system in place to track development in the zones. Nonetheless, the Treasury has assured the public of its decision to seek proposals for data collection in the tax exemption zones.

The author draws attention to an unaddressed issue by the Treasury concerning the invasion of the project by real estate developers. The local communities also believe that the project risk being hijacked by rich people as opposed to start-ups who deserve it. However, the article acknowledges the Treasury persistence on the viability of the programs. According to the article, the Treasury has undertaken numerous tests to ensure that only deserving people benefit from the tax breaks in exchange for job creation. In addition, the article hints Mr. Scott’s argument that more sting rules must be put in place to safeguard the entrepreneurial interest of start-ups and also establish a funding scheme to back programs in the zone. Thus, Tankersley (2019) concludes with President Trump’s remarks that term the zones as most significant part of new tax laws that would assist low-income earners.

The article has an exceptional approach to literature, which makes it unique. It takes an educational approach by making clarification on the new tax regulations. The approach makes the article resonate with the course and the topic, Principles of International Business. The commonality in the study between the article and the course purposed the primary reason for selecting the article. There is a great need to analyze an article that directly links to the course of study. With a tax regulation topic, the article aligns to issues of Income Tax, corporate governance, and business strategy. The article provides an exemplary case study for a real-world situation of tax function analysis. Thus, the author builds his analysis from an administrative point of view that showcases the process of tax reform and implementation under consideration of the tax cuts, the role of the government in doing business and promotional business models.

The newly proposed regulations on the 2017 tax laws cover a great depth in relation to the income tax. The article reveals tax as the primary source of government revenue (Tankersley, 2019). By emphasizing on the government’s intention to let go taxation within the opportunity zone, the article shows tax as a compulsory obligation to people and businesses. Every American who earns an income is legally expected to pay taxes to the government. Moreover, this gives the impression of tax as revenue to the government but a production cost to the business.  The government offers a tax break in the zones to show its willingness to forget its tax revenue, which increases income to investors. According to the article, such conduct by the government would thereby give enough incentive to investors to take advantage of the reduced cost of production through taxes breaks.

The article also gives great relevance to the purpose of taxation in setting up an optimum economic system. By introducing a tax break, the government’s main objective was to create an ideal arena for an optimum economic system in the Opportunity Zones as discussed in the article (Tankersley, 2019). The article’s argument finds a resemblance to taxation’s objective of ensuring maximum economic freedom under great consideration of all stakeholders. The article promotes investment in risky opportunity zones for a tax break. The decision also relates to the importance of tax in setting up optimum living standards through the distribution of skills and resources, economic growth and equitable redistribution of income. Thus, by giving incentives, the government promotes the relocation of resources to the less developed opportunity zones.

The article also confers to the principles of taxation learned in class. The principles are neutrality, none-neutrality, and equity. First, the article considers the neutrality principle of taxation. The government set a jurisdictional limit for the application of the tax breaks to ensure that the policy does not affect other markets (Tankersley, 2019). Secondly, the article applies non-neutrality tax principle within the opportunity zones. As learned in class, the tax incentive applied in the zones interferes with free market operations in the region but for the benefit of an economic boost. The system applied confers the two-fold purpose to control market entry and only meriting revenue collection purpose of tax. The principle of equity also resonates in the article with an equal share of benefit and risks among the investors. Thus, the article measures investment incentive in terms of income earned and risks investors are exposed to.

The article also draws a clear distinction between horizontal and vertical tax. The article reports Treasury’s commitment to ensure that investment in the zone is only for the deserving start-up entrepreneurs (Tankersley, 2019). The statement implies that the tax incentive will be applied equally to investors with an equal income. However, the Treasury also promises to use data collected to legate the tax along with the income disparity between the different categories of entrepreneurs in the zone. The tax break will be applied to measurable varying factors without harming or taking advantage of any investor in the zones. Hence, there is more emphasis on the application of a horizontal system to have investors enjoy the tax break based on the nature of business operation undertaken and other accountable factors. Nonetheless, on a standard measure by the Treasury, all investors will benefit from what its implementers term viability. The same tax system must also be used to discourage sectors like real estate taxed from involvement in the zones.

The article also discusses business strategy and governance subtopics of the course. The tax decision of the government reveals a governmental strategy in promoting economic growth in the country. The case is not just a tax regulation reform but a professional and structural strategy to attract more investment in regions that are less attractive. Like mentioned earlier, tax amounts to business expenditure, another factor of accounting principle learned in class. Therefore, for businesses to pay taxes, they have to sacrifice a few expansion goals to meet their obligatory tax role (Hill, 2008). However, by giving them a tax break, investors are saved from huge tax expense hence find reasons to invest in the zones. The investors are then only left with the tussle of measuring their profitability against risks exposure in the zones. Where the risks level is low, businesses will begin to sprawl in the zone. Thus, the article explains the government’s tax incentive strategy used to lure more investors into the opportunity zones.

Concisely, the article relates to government responsibility in business promotion under the Principles of International Business. The article reveals the intermediary role of the government through various tools like tax, security and policy formation. The 2017 tax laws were meant to promote business operations in less attractive regions. The new regulations released by the Treasury are another policy tool set to ensure the success of the tax laws. Coupled with other factors like security and infrastructural development in the zones, the article shows the government in its best role to promote economic growth in the zones. Therefore, there is undeniable relevance between the article and the study of Principles of International Business covered in class.

Reference

Hill, C. (2008). International business: Competing in the global market place. Strategic Direction, 24(9).

Tankersley, J. (2019). Treasury Issues Rules on Tax Breaks for Opportunity Zones. The New York Times Publication. Online Article.

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