One of the major downfalls of low-income communities is the number of available jobs that are needed to spur economic growth and raise the standard of living. Low-income communities are generally defined as a population that has a poverty rate of at least 20%, or a median family income that does not exceed 80% of the statewide median family income. There are several factors contributing to a low-income community’s economic and social state, with lack of capital being the main culprit. Capital is what’s essential to the growth of an economy.
How is lack of capital an issue? Because of the perceived association of risk by investors regarding under-performing markets, which are synonymous with low-income communities. For investors, the risk is minimized when investing capital in thriving markets because the likelihood of gaining a positive return on investment is greater. Hence why low-income communities, especially rural ones, are often overlooked by big financial institutions. Just how does one go about reinvigorating distressed local economies? Simple, by utilizing the New Markets Tax Credit program.
The New Markets Tax Credit program (NMTC) provides individual and corporate investors the opportunity to invest private capital in struggling economies while simultaneously allowing them to write it off their federal income tax via tax credits. This reduces their tax liability and the risk associated with investing in under-performing markets. Through the Community Renewal and Tax Relief Act initiated in 2000 and amended in 2003, the NMTC program offers the necessary provisions to revitalize low-income communities by incentivizing individual and corporate investors into investing their private capital in these communities.
This is a classic case of a win-win situation for both investors and communities, allowing investors to capitalize on new opportunities by taking advantage of tax credits while spurring economic growth and job creation, thus raising the standard of living in low-income communities.