Clinton, Hastert reach deal on 'new markets' tax breaks

By Major Garrett/CNN

May 23, 2000
Web posted at: 1:00 p.m. EDT (1700 GMT)

WASHINGTON (CNN) -- The White House and House Speaker Dennis Hastert reached a deal Tuesday to provide new tax breaks and other incentives to spur development in poor urban and rural communities.

President Bill Clinton

The "new markets" compromise reflects the priorities of both the Clinton Administration and Republican social conservatives in coping with poverty, drug dependency and low investment in America's poorest communities.

The two announced the agreement at a White House appearance Tuesday morning. "We have achieved an agreement that will allow us to give every family in every community a stake in the prosperity Americans have worked so hard to build," Clinton said.

Hastert, an Illinois Republican, said, "We can do a lot of good things together." There was a bipartisan show of support as Republican and Democratic members of Congress applauded the accord.

The administration won tax credits that could lead to $15 billion in equity investment in funds that use this new capital to finance businesses in poor areas. The deal will also create America's Private Investment Companies (APICs), which will provide $2 for every $1 of private capital invested in poor areas.

Republicans won zero capital gains designations for all investments made in 40 soon-to-be-created Renewal Zones, and held for five years. This means investors will pay no capital gains taxes on profits made on investments in these 40 communities, provided they hold the investment for five years.

The Renewal Zones will be located in 32 urban and eight rural communities. They are a new, GOP-created alternative to the administration's Empowerment Zones. Generally, the key difference between the two is that Renewal Zones seek to spur development by slashing investment taxes and using modest wage credits that employers can use to hire low-skilled workers.

Empowerment Zones try to encourage investment through higher wage credits and less-generous investment tax breaks. So far, there are 11 full-fledged Empowerment Zones. Twenty more zones are in the pipeline and another nine are on the drawing board. There are no Renewal Zones.

The deal will also eliminate capital gains for all investments in 40 Empowerment Zones as long as all profits are rolled back into the original business or development.

Social conservatives also won participation of faith-based organizations in federal drug treatment programs. This will allow organizations that link drug treatment to prayer or other religious teachings to compete on an equal basis with all other providers of drug treatment therapy. But faith-based organizations must have a proven, three-year track record of successful drug treatment to qualify for consideration.

The deal is product of two months of negotiations. Hastert pulled the president aside at Friday's signing of the Africa Trade/Caribbean Basin Initiative and proposed striking a deal by May 23. Intense negotiations commenced, involving Hastert's senior aides and Gene Sperling, chairman of the president's National Economic Council, and Lawrence Summers, Secretary of the Treasury.

Senior GOP congressional sources say Senate Republicans support the New Markets deal. Hastert intends to bring the New Markets legislation to the House floor in the second or third week of June. Senate consideration is expected soon thereafter.

The Associated Press contributed to this report.