CityLab: Why entrepreneurs of color are struggling

CityLab, April 23, 2018: Why entrepreneurs of color are struggling

For almost 40 years, the rate at which Americans have started new businesses has been in a steady decline. This is bad news, since new firms drive the high-wage jobs and market competition that our economy desperately needs. Racial and socioeconomic disparities in business ownership further stifle entrepreneurship and threaten the long-term economic health of our cities and our economy.

But a silver lining may have come in one of the most unexpected of places: the Trump administration’s tax overhaul. A little-known provision in the final version signed into law enables states to establish “opportunity zones” that encourage investors to defer capital gains, so long as they invest in existing or new businesses.

The bipartisan Economic Innovation Group, a key proponent of the provision, has estimated that there are $2.3 trillion in unrealized capital gains. This could be used to create a pool of capital for investment in areas designated as opportunity zones, or census tracts that have a poverty rate of at least 20 percent and median family income no greater than 80 percent of the median for the overall region.

This new source of investment could make a difference in addressing the nation’s steady decline in the rate of new business startups. But it will only be effective if the fastest-growing segments of our population—people of color—are able to become entrepreneurs at exponentially increasing rates.

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