NCPA - National Center for Policy Analysis

Investing In Pockets Of Poverty

July 16, 1999

President Clinton's recent tour of economically blighted areas across the country -- as well as his attempt to convince businesses to invest in them -- has raised the question: just how far should the federal government go to entice the private sector into such risky commitments? And will enormous government handouts simply amount to more government waste at the end of the day?

  • Businesses often shun impoverished areas for a number of reasons -- poor schools and unskilled populations plagued by alcoholism and drug abuse, poor infrastructure, and environmentally contaminated work sites.
  • To generate $15 billion in investments in poor areas, Clinton's various proposals would cost as much as $30 billion, according to administration estimates.
  • The Republicans' American Community Renewal Act focuses on encouraging small business development in distressed areas through tax credits for redeveloping property, plus cuts in capital gains taxes.
  • Because government itself is sometimes the problem, G.O.P. plans include reducing taxes and regulations on businesses operating in poor areas.

The White House plan calls for a 25 percent tax credit for businesses investing in distressed areas, $45 millions in loans and guarantees for venture capital firms making the commitment, and $2 in loans for every $1 companies invest in poor areas.

Republicans focus on extending tax credits for the working poor and offering other credits to businesses that restore commercial properties, while business that clean up contaminated properties could write off those costs.

The Republican bill passed the House last year, but died in the Senate. This year, it has been incorporated into the GOP's tax- cut package.

Source: Joseph Guinto, "Poor Areas: Good for Business?" Investor's Business Daily, July 16, 1999.


Browse more articles on Tax and Spending Issues