Structural Inequality and the New Markets Tax Credit

55 Pages Posted: 1 Mar 2023 Last revised: 30 Jan 2024

See all articles by Michelle D. Layser

Michelle D. Layser

University of San Diego School of Law

Andrew Greenlee

University of Illinois at Urbana-Champaign

Date Written: February 25, 2023

Abstract

The New Markets Tax Credit (NMTC) is a federal tax incentive used to promote investment in low-income neighborhoods. Many of these neighborhoods are home to historically marginalized communities. However, very few minority-led institutions participate in the NMTC program. This Article provides the first theoretical and empirical exploration of the underrepresentation of minority-led institutions in the NMTC program. Based on original interviews with representatives of Community Development Entities (CDEs), investors, borrowers, and consultants who participate in the NMTC program, this Article describes the “NMTC ecosystem,” a complex, relationship-driven network of NMTC program participants who influence decision making and create opportunities for success within the NMTC program. The Article demonstrates that within the NMTC ecosystem, minority-led CDEs face structural barriers to entry similar to those that exist in purely private markets, such as unequal access to professional networks and lack of track records. Troublingly, those barriers are intensifying with time.

The underrepresentation of minority-led CDEs in the NMTC program undermines its capacity to promote equitable economic development. To remedy that problem, this Article proposes that Treasury should increase transparency and guidance in its administrative process, engage institutional intermediaries to aid minority-led CDEs, and relax requirements that chill participation among minority-led CDEs. These insights and prescriptions have relevance well beyond the context of the NMTC. In many domains, regulators have adopted measures that aim to promote equitable community development. This Article’s findings and reform recommendations thus have important implications for the broader universe of place-based regulatory policies, including for the many other tax incentive programs that aim to promote equity and reduce economic marginalization.

Keywords: tax, urban, new markets tax credit, taxation, development, urban planning, racial inequality, structural inequality

JEL Classification: H25, K34, R58

Suggested Citation

Layser, Michelle D. and Greenlee, Andrew, Structural Inequality and the New Markets Tax Credit (February 25, 2023). Duke Law Journal, Vol. 73, No. 4 (2024), San Diego Legal Studies Paper No. 23-012, Available at SSRN: https://ssrn.com/abstract=4370689

Michelle D. Layser (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://https://www.sandiego.edu/law/faculty/biography.php?profile_id=12852

Andrew Greenlee

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

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