Bills
| 3.23.22

Would 'Economic Freedom Zones' Drive Job Growth in Impoverished Areas? (S. 790)

Do you support or oppose this bill?

What is S. 790?

(Updated March 15, 2018)

This bill aims to facilitate job growth, entrepreneurship, and improved educational opportunities by creating "Economic Freedom Zones" in economically distressed areas. Individuals and businesses investing in those areas would receive tax breaks and would be exempt from complying with certain regulations.

An area designated as an Economic Freedom Zone would be prohibited from receiving federal assistance (e.g. loans, loan guarantees, or purchases). Economic Freedom Zones would be defined as a state, municipality, zip code, or rural area that is:

  • A debtor in a bankruptcy;

  • An insolvent municipality or state that can no longer pay its debts;

  • Eligible for bankruptcy;

  • Blighted with poverty and high rates of unemployment (defined as 1.5 times the national average or more).

After an Economic Freedom Zone is designated, this bill would activate tax incentives for individuals and corporations to invest in them by establishing:

  • 5 percent flat tax rate on individual & corporate income in the zone;

  • 0 percent capital gains tax rate on profits from the sale of assets and property in Economic Freedom Zones -- which could be tangible assets like property or intangible like stocks;

  • Reduced employment tax rates;

  • Increased allowance for business property expensing.

Economic Freedom Zones would be exempt from having to comply with some environmental regulations, historic preservation requirements, and wage rate requirements under the Davis-Bacon Act.

This bill amends the tax code to allow:

  • A $5000 tax credit for a student attending elementary or secondary school whose primary residence is in an Economic Freedom Zone.

  • A tax-exempt educational savings account for individuals living in an Economic Freedom Zone.

  • A tax credit, rather than a tax deduction, for contributions to a charitable organization serving individuals in an Economic Freedom Zone.

The Elementary and Secondary Education Act of 1965 would be amended to allow special allocation of grant funds to children whose families live in an Economic Freedom Zone and whose incomes are below the federal poverty level.

To widen the pool of investors, the Secretary of Homeland Security (DHS) and Secretary of Labor to issue Special Economic Freedom Zone Visas to aliens meeting educational & skill requirements who seek to enter the U.S. to invest in Economic Freedom Zones.

Argument in favor

This bill would incentivize entrepreneurs to invest and create jobs in economically depressed communities to revitalize themselves, and it doesn’t require a federal bailout or stimulus.

Argument opposed

Economically distressed communities will need more assistance than just tax breaks. This bill doesn’t provide for government spending on infrastructure and public services.

Impact

Families & individuals who live in an Economic Freedom Zone, prospective investors and entrepreneurs, areas designated as Economic Freedom Zones, state & local governments, the Internal Revenue Service, the Department of Education, the Department of Labor, the Environmental Protection Agency, the Department of Homeland Security.

Cost of S. 790

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Sen. Rand Paul (R-KY) explained the goal of Economic Freedom Zones in a press release introducing this bill:

"The Economic Freedom Zones Act will allow impoverished areas to remove the shackles of big government by reducing taxes, regulations, and burdensome work requirements. These zones will give parents and students the flexibility to find better schools and provide incentives for philanthropy. By taking drastic, meaningful action, we can create new jobs and finally get these communities back to work."

Of Note: Economic Freedom Zones aren’t a new idea, and in many ways are a revival of Rep. Jack Kemp’s Urban Enterprise Zones introduced during the Reagan administration in the 1980’s. These zones incentivize economic activity by reducing taxes and regulations, while expanding educational opportunities. The concept has gained backing from Democrats as well, with Senator Cory Booker (D-NJ) and former Governor Jennifer Granholm (D-MI) having expressed support.

However, not all Democrats have warmly received Senator Paul’s bill. Congressman Carl Levin (D-MI) gave Paul’s bill a mixed review, saying that there needs to be more federal investment in infrastructure and social services. For his part, President Obama has introduced a similar mix of policies, calling his Promise Zones. The Promise Zones are similar in terms of their focus on reducing taxes and regulations, but they also allow for federal spending on housing and infrastructure.

The similarities between Senator Paul’s Economic Freedom Zones and President Obama’s Promise Zones led Democratic strategist Douglas Schoen to note that there is room for compromise, but it remains to be seen if that opportunity will be embraced.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user niiicedave)