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Westlake Legal Group > Posts tagged "Trump, Donald J" (Page 198)

How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich

NEW ORLEANS — President Trump has portrayed America’s cities as wastelands, ravaged by crime and homelessness, infested by rats.

But the Trump administration’s signature plan to lift them — a multibillion-dollar tax break that is supposed to help low-income areas — has fueled a wave of developments financed by and built for the wealthiest Americans.

Among the early beneficiaries of the tax incentive are billionaire financiers like Leon Cooperman and business magnates like Sidney Kohl — and Mr. Trump’s family members and advisers.

Former Gov. Chris Christie of New Jersey; Richard LeFrak, a New York real estate titan who is close to the president; Anthony Scaramucci, a former White House aide who recently had a falling out with Mr. Trump; and the family of Jared Kushner, Mr. Trump’s son-in-law and senior adviser, all are looking to profit from what is shaping up to be a once-in-a-generation bonanza for elite investors.

The stated goal of the tax benefit — tucked into the Republicans’ 2017 tax-cut legislation — was to coax investors to pump cash into poor neighborhoods, known as opportunity zones, leading to new housing, businesses and jobs.

The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they plow the proceeds into projects in federally certified opportunity zones. Any profits from those projects can avoid federal taxes altogether.

“Opportunity zones, hottest thing going, providing massive new incentives for investment and job creation in distressed communities,” Mr. Trump declared at a recent rally in Cincinnati.

Instead, billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects.

Many of the projects that will enjoy special tax status were underway long before the opportunity-zone provision was enacted. Financial institutions are boasting about the tax savings that await those who invest in real estate in affluent neighborhoods.

ImageWestlake Legal Group 31ozbonanza8-articleLarge How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Among those raising money for opportunity-zone investments are Anthony Scaramucci, center, the founder of SkyBridge Capital, and Chris Christie, right, the former governor of New Jersey.CreditBridget Bennett for The New York Times

Mr. Scaramucci’s development in New Orleans offers a portrait of how the tax break works. His investment company, SkyBridge Capital, is using the so-called opportunity zone initiative to help build a hotel, outfitted with an opulent restaurant and a rooftop pool, in the city’s trendy Warehouse District.

The tax benefit also is helping finance the construction of a 46-story, glass-wrapped apartment tower — amenities include a yoga lawn and a pool surrounded by cabanas and daybeds — in a Houston neighborhood already brimming with new projects aimed at the wealthy.

And in Miami’s hot Design District, where commercial real estate prices have nearly tripled in the last decade, the tax break is set to be used for a ritzy new office tower with a landscaped roof terrace.

Some proponents of opportunity zones note that money is already flowing into downtrodden communities like Birmingham, Ala., and Erie, Pa. They argue that more funds will follow.

“The early wave, that’s not what you judge,” said John Lettieri, president of the Economic Innovation Group, an organization that lobbied for the establishment of opportunity zones.

But leaders of groups that work in cities and rural areas to combat poverty say they are disappointed with how it is playing out so far.

“Capital is going to flow to the lowest-risk, highest-return environment,” said Aaron T. Seybert, the social investment officer at the Kresge Foundation, a community-development group in Troy, Mich., that supported the opportunity-zone effort.

“Perhaps 95 percent of this is doing no good for people we care about.”

Mr. Scaramucci, left, shaking hands with John F. Kelly, the former White House chief of staff. Mr. Scaramucci is using opportunity-zone advantages to help build a hotel in a trendy section of New Orleans.CreditBridget Bennett for The New York Times

The opportunity-zone tax break was targeted at the trillions of dollars of capital gains held by rich Americans and their companies: profits from investments in the stock market, real estate and other businesses, even short-term trades by hedge funds. When investors sell those assets, they can incur tax bills of up to 41 percent.

Sean Parker, an early backer of Facebook, helped come up with the idea of pairing a capital-gains tax break with an incentive to invest in distressed neighborhoods. “When you are a founder of Facebook, and you own a lot of stock,” Mr. Parker said at a recent opportunity-zone conference, “you spend a lot of time thinking about capital gains.”

Starting in 2013, Mr. Parker bankrolled a Capitol Hill lobbying effort to pitch the idea to members of Congress. That effort was run through his Economic Innovation Group. In addition to Mr. Parker, the group’s backers included Dan Gilbert, the billionaire founder of Quicken Loans, and Ted Ullyot, the former general counsel of Facebook.

The plan won the support of Senators Cory Booker, Democrat of New Jersey, and Tim Scott, Republican of South Carolina. When Congress, at Mr. Trump’s urging, began discussing major changes to the federal tax code in 2017, Mr. Parker’s idea had a chance to become reality.

Mr. Scott, who sponsored a version of the opportunity-zone legislation that was later incorporated into the broader tax cut package, said it was “for American people stuck, sometimes trapped, in a place where it seems like the lights grow dimmer, and the future does, too.”

“Let’s turn those lights on and make the future bright,” he added.

Confined to six pages in the 185-page tax bill, the provision can significantly increase the profits investors reap on real estate and other transactions.

It allows investors to defer for up to seven years any capital gains taxes on the money they invest in opportunity zones. (That deferral is valuable because it allows people to invest a larger sum upfront, potentially generating more profits over time.) After 10 years, the investor can cash out — by selling the opportunity-zone real estate, for example — and not owe any taxes on the profits.

Over a decade, those dual incentives could increase an investor’s returns by 70 percent, according to an analysis by Novogradac, an accounting firm.

“We are very, very excited about the potential,” the president’s daughter Ivanka Trump said last year at an event celebrating Mr. Parker’s role in creating opportunity zones. “The whole White House obviously is behind the effort. The whole administration.”

The opportunity zones, focused on low-income census tracts, were drawn by officials in each state, as well as in Washington, D.C., and Puerto Rico. Last year, the Treasury Department approved roughly 8,800 such zones. (The White House and Treasury declined to make senior officials available to discuss the program.)

Nearly a third of the 31 million people who live in the zones are considered poor — almost double the national poverty rate. Yet there are plenty of affluent areas inside those poor census tracts. And, as investors would soon realize, some of the zones were not low income at all.

The Preston is financed by the investors in Cresset, a multibillion-dollar asset management firm.CreditBrandon Thibodeaux for The New York Times

The Harvard Club of New York City, in Midtown Manhattan, is the embodiment of America’s old-money elite. Crimson-jacketed waiters serve members who are watched over by oil portraits of elite alumni.

One recent morning, financial advisers representing several dozen of America’s richest dynasties — advisers to the Pritzker and Soros families were listed as attendees — crowded into a drab meeting room on the club’s third floor.

The advisers were there to see Daniel Kowalski, a top aide to Treasury Secretary Steven Mnuchin and the Trump administration’s point person for the opportunity-zone rules. Mr. Kowalski is barnstorming the country, bouncing from one conference to the next, explaining to real estate investors and developers how to take advantage of the new rules.

Mr. Kowalski was an aide to the Trump campaign, where he worked for the White House policy adviser Stephen Miller. Before that, he was an aide to Jeff Sessions when Mr. Sessions was on the Senate Budget Committee.

[The Trump associates benefiting from a tax break for poor communities.]

At the Harvard Club, he dived into an explanation of how opportunity zones work — and for whom they work. “The audience for opportunity zones is inherently fairly small because it’s limited to capital-gains income, which is why I wanted to come and talk to this group,” he told the room of advisers.

That audience is small indeed: Only 7 percent of Americans report taxable capital gains, and nearly two-thirds of that income was reported by people with a total annual income of $1 million or more, according to I.R.S. data.

Yet this is a vital constituency, since the success of the opportunity-zone program will hinge largely on how much money investors kick in. That is why the Trump administration — and Mr. Kowalski in particular — is promoting the tax break on Wall Street.

“I have served a little bit as a middle man between the business community and the I.R.S.,” he said at another conference a few weeks later.

More than 200 opportunity-zone funds have been established by banks like Goldman Sachs and major real estate companies, including CIM Group of Los Angeles, which has previously been a partner with the Trump and Kushner families on projects. Those funds have said their goal was to raise a total of nearly $57 billion.

The law does not require public disclosure of who are taking advantage of the initiative or how they are deploying their funds. Among those who have invested money or said they intend to are Mr. Kohl, a founder of the department store chain that bears his name; Steve Case, co-founder of AOL; Alexander Bhathal, part owner of the Sacramento Kings basketball team; and Richard Forman, the former owner of the Forman Mills chain of clothing stores, according to interviews and other public statements.

Daniel Kowalski, the Trump administration’s point person for opportunity-zone rules, speaking at a Washington forum about them in June.CreditMelissa Lyttle for The New York Times

Many others are lesser-known business executives who recently sold small companies or real estate and are looking for ways to avoid large tax bills.

Paul DeMoret, for example, recently sold his auto-industry software company in Oregon. He said he was using some of those capital gains to help finance a Courtyard by Marriott in Winston-Salem, N.C., and an apartment building in Tempe, Ariz., among other projects in opportunity zones. He is making the investments through a private equity firm, Virtua Partners.

The tax break is largely benefiting the real estate industry — where Mr. Trump made his fortune and still has extensive business interests — and it is luring people with personal or professional connections to the president.

Mr. Christie, a onetime adviser to Mr. Trump, has raised money for opportunity-zone investments including an apartment building in Hackensack, N.J., and a self-storage center in Connecticut.

Cadre, an investment company co-founded by Mr. Kushner and his brother, Joshua, is raising hundreds of millions of dollars that it hopes to use on opportunity-zone projects. The company is eyeing neighborhoods in Savannah, Ga., Dallas, Los Angeles and Nashville that are expected to grow larger and wealthier in coming years. Jared Kushner has a stake in Cadre worth up to $50 million, according to his most recent financial disclosure.

Mr. LeFrak, a longtime confidant of Mr. Trump’s and a major campaign donor, is building a luxury residential community in the middle of an opportunity zone in Miami. (It is unclear how much of the development’s funding will end up being tax advantaged.)

Not far away in the Design District, Daniel Lebensohn is planning to build his high-end office tower. Mr. Lebensohn previously joined the Trump Organization to sell luxury condominiums at the Trump Hollywood complex north of Miami.

And Mr. Kushner’s family company directly owns or is in the process of buying at least a dozen properties in New York, New Jersey and Florida that are in opportunity zones. They include a pair in Miami, where Kushner Companies plans to build a 393-apartment luxury high rise with sweeping views of Biscayne Bay, according to a company presentation for potential investors.

A representative for the Kushner family confirmed that it was considering opportunity-zone funding for some developments, but said it would probably not use the funding for the Miami projects.

Backers of the opportunity-zone program say luxury projects are the easiest to finance, which is why those have been happening first. Over the long run, they say, those deals will be eclipsed by ones that produce social benefits in low-income areas.

At least some struggling neighborhoods are already starting to receive investments.

In Birmingham, for example, a developer is using opportunity-zone funds to convert a building, vacant for decades, into 140 apartments primarily aimed at the local work force.

“We are seeing projects that are being announced here in Alabama that would not have happened otherwise,” said Alex Flachsbart, founder of Opportunity Alabama, which is trying to steer investors to economically struggling neighborhoods.

Similar projects are getting underway in Erie, Cleveland and Charlottesville, Va. Goldman Sachs is using some of its capital gains — profits on the company’s own investments — in opportunity zones, including $364 million for mixed-income housing developments in Salt Lake City, Baltimore and other cities.

Mr. Case, the AOL co-founder, and Derrick Morgan, a former professional football player, are among those who have announced that they will invest in opportunity-zone projects that are designed to address clear social and economic problems.

As he announced his retirement from the Tennessee Titans in July, Mr. Morgan wrote on Instagram that his goal would be to “create more opportunities for those who are underserved and overlooked” in communities like Coatesville, Pa., where he went to high school.

Emanuel J. Friedman, a hedge fund manager, is using some of his capital gains and money he has raised from others to build 11 warehouses in rural Jasper County, S.C., near the Savannah seaport. The warehouses won’t employ many people, but he said the jobs would offer higher wages than hotel housekeeping positions at the nearby Hilton Head resort, where many area residents now work.

“Of course it will make a difference,” Mr. Friedman said. “It is mind-boggling. It is the best thing I have ever done.”

The developers of the Sole Mia project in North Miami, Fla., urged a local official to nominate the area as an opportunity zone and are now considering ways to take advantage of the status.CreditScott McIntyre for The New York Times

But even supporters of the initiative agree that the bulk of the opportunity-zone money is going to places that do not need the help, while many poorer communities are so far empty-handed.

Some opportunity zones that were classified as low income based on census data from several years ago have since gentrified. Others that remain poor over all have large numbers of wealthy households.

Number of Opportunity Zones by Median Household Income

More than 7 percent of opportunity zones had household incomes above the median census tract in 2017. Investors are focusing on projects in these neighborhoods.

Westlake Legal Group oz-distribution-335 How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$77,692

Fishtown,

Philadelphia

$137,147

Long Island City,

Queens

$98,508

Market Square,

Houston

Westlake Legal Group oz-distribution-600 How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$77,692

Fishtown,

Philadelphia

$91,397

Gowanus,

Brooklyn

$98,508

Market Square,

Houston

$137,147

Long Island City,

Queens

Westlake Legal Group oz-distribution-900 How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$91,397

Gowanus,

Brooklyn

$77,692

Fishtown,

Philadelphia

$98,508

Market Square,

Houston

$137,147

Long Island City,

Queens

Source: American Community Survey

By Blacki Migliozzi and Juliette Love

And nearly 200 of the 8,800 federally designated opportunity zones are adjacent to poor areas but are not themselves considered low income.

Under the law, up to 5 percent of the zones did not need to be poor. The idea was to enable governors to draw opportunity zones in ways that would include projects or businesses just outside poor census tracts, potentially creating jobs for low-income people. In addition, states could designate whole sections of cities or rural areas that would be targeted for investment, including some higher-income census tracts.

In some cases, developers have lobbied state officials to include specific plots of land inside opportunity zones.

In Miami, for example, Mr. LeFrak — who donated nearly $500,000 to Mr. Trump’s campaign and inauguration and is personally close to the president — is working with a Florida partner on a 183-acre project that is set to include 12 residential towers and eight football fields’ worth of retail and commercial space.

In spring 2018, as they planned the so-called Sole Mia project, Mr. LeFrak’s executives encouraged city officials in North Miami to nominate the area around the site as an opportunity zone, according to Larry M. Spring, the city manager. They did so, and the Treasury Department made the designation official.

The Far West Side of Manhattan is part of an opportunity zone — even as high-end towers have been replacing run-down apartment buildings and more than 15 percent of households reported income of $200,000 or more in 2017, according to an analysis by Webster Pacific, a consulting firm. This is the new home of Pershing Square Capital Management, the prominent hedge fund run by the billionaire Bill Ackman.

Mr. Ackman is trying to find tenants for 80,000 square feet of unused office space in his fund’s building, which has a Jaguar dealership on the ground floor. He said he was using its location inside an opportunity zone as a lure.

That is because investors can use their capital gains to invest not only in real estate but also in businesses inside opportunity zones. A company that sets up shop inside Mr. Ackman’s building therefore would be eligible to accept tax-advantaged opportunity-zone money.

One of the Sole Mia partners is Richard LeFrak, who donated nearly $500,000 to President Trump’s campaign and inauguration.CreditScott McIntyre for The New York Times

Financial institutions are not even trying to make it look as if their opportunity-zone investments were intended to benefit needy communities.

CBRE, one of the country’s largest real estate companies, is seeking opportunity-zone funding for an apartment building in Alexandria, Va., which CBRE is pitching to prospective investors as “one of the region’s most affluent locations.”

JPMorgan Chase is raising money to build housing targeting students in College Park, Md., near the University of Maryland. (Because many students do not have jobs, census data often wrongly suggests that college towns are poor neighborhoods.)

In marketing materials, JPMorgan noted that while College Park “qualifies as low income due to the student population, the area around it is affluent.” The bank added, “The tax benefits can be remarkable.”

The Swiss bank UBS is raising funds from its “ultra high net worth” clients — requiring in some cases that they have at least $50 million in investable assets — for developments in New York and Connecticut. The projects include a 23-story retail and office building in Downtown Brooklyn and an upscale apartment building in New Rochelle, N.Y., with a yoga studio and 24-hour valet parking. There is even a spa — for residents’ pets.

Other companies have set up subscription databases showing which zones have the highest incomes and fastest-growing populations to help investors steer their money to the most lucrative and least risky destinations.

“The current system is clearly driving capital to places that are known to be winners,” said Christopher A. Coes, vice president at Smart Growth America, a nonprofit group that encourages investments in American cities.

This street in New Orleans became part of an opportunity zone after a hotel in the Virgin chain had already been planned there.CreditAkasha Rabut for The New York Times

The Warehouse District of New Orleans is one of the city’s trendiest neighborhoods. Some of the area’s hottest restaurants — as well as a new one dishing out shrimp tempura tacos — are here. So are hipster barbershops. Boutique hotels spill well-heeled tourists onto the red brick sidewalks. High-end coffee shops are packed with young people buried in their MacBooks.

And it is getting hotter. The sounds of heavy-duty equipment heaving steel or pouring cement are audible across the neighborhood.

In other words, in a city grappling with acute poverty, this is not a neighborhood that especially needs a generous new tax break to lure luxury lodging. Yet state officials have established an opportunity zone here.

That decision benefited businesses already operating or planned for the district. One of those is a 225-room hotel, part of Richard Branson’s Virgin Hotels chain, whose plans were unveiled a year before Mr. Trump signed the tax law. Its location inside an opportunity zone meant investors could earn greater profits than they otherwise would have, by financing the project with tax-advantaged money.

Changing Incomes in New Orleans

Early opportunity zone development is often happening in neighborhoods where income was already rising, not in struggling areas.

Westlake Legal Group la-map-Artboard_1 How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household

income 2012-17

Opportunity

zones

French

Quarter

Virgin Hotel

(under construction)

Hoffman Triangle

Warehouse District

NEW ORLEANS

Garden

District

Mississippi River

Westlake Legal Group la-map-Artboard_1_copy How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household income 2012-17

Opportunity

zones

French

Quarter

Virgin Hotel

Hoffman

Triangle

Warehouse

District

NEW ORLEANS

Mississippi River

Sources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki Migliozzi

Those investors include Mr. Scaramucci, who briefly served as White House communications director in 2017 and has claimed credit for helping to create the opportunity-zone plan. “We got to get into this business because this will be transformative to the United States,” he said recently.

Mr. Scaramucci’s investment firm, SkyBridge Capital, has raised more than $50 million in capital gains from outside investors, and most of it is being used to finance the hotel, according to Brett S. Messing, the company’s president. He said the hotel was likely to be the first of numerous opportunity-zone projects financed by SkyBridge.

The Virgin Hotels construction site in New Orleans. Because of the zone, the 225-room hotel can be financed with tax-advantaged money.CreditAkasha Rabut for The New York Times

Less than two miles away is the poorest opportunity zone in Louisiana — and one of the poorest nationwide. The zone includes the Hoffman Triangle neighborhood, where the average household earns less than $15,000 per year. Block after block, streets are lined with dilapidated, narrow homes, many of them boarded up. On a recent afternoon, one of them was serving as a work site for prostitutes.

City officials, including the head of economic development for New Orleans, said they were not aware of any opportunity-zone projects in this neighborhood.

Terrance Ross, a construction worker who has lived in the area for 20 years, is familiar with the building boom underway in the Warehouse District.

“Why is the federal government putting money where money is already accumulating?” he asked, lighting a cigarette and standing across the street from an abandoned house. “This neighborhood just needs some tender loving care.”

Similar scenes are playing out in opportunity zones across the United States: The federal government is subsidizing luxury developments — often within walking distance of economically distressed communities — that were in the works before Mr. Trump was even elected president.

In Houston, construction recently started on the Preston, with 373 “luxury for rent” apartments as well as a “skydeck” and a resort-style swimming pool. The development is being financed by the investors in Cresset, a multibillion-dollar asset management firm, including one of its founders, Avy Stein.

Changing Incomes in Houston

Early opportunity zone investment is coming to Market Square, already a site of high-end developments and major income growth.

Westlake Legal Group houston-map-Artboard_1 How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household

income 2012-17

Market Square is home to three recent luxury developments.

Greater

Fifth Ward

Downtown

Houston

Fourth Ward

Opportunity zones

South

Central Houston

University

of Houston

Rice

University

Houston

Zoo

Westlake Legal Group houston-map-Artboard_1_copy How a Trump Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household income 2012-17

Market Square is home to three recent luxury developments.

Downtown

Houston

Fourth Ward

South

Central Houston

University

of Houston

Houston

Zoo

Opportunity zones

Sources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki Migliozzi

And in downtown Portland, Ore., the developers of a 35-story tower with a hotel, condos and office space are hoping to raise up to $150 million in opportunity-zone money to pay for the project. Condos will go for as much as $7.5 million each. The hotel is a Ritz-Carlton.

Exhibits at Mr. Scaramucci’s investment conference in Las Vegas, where opportunity zones were discussed as the next big thing.CreditBridget Bennett for The New York Times

Club music blared from speakers as millionaires and billionaires — and the money managers, lawyers, accountants and other professionals looking to make money off all this wealth — milled around a pool and private cabanas at the Bellagio hotel in Las Vegas.

They were at an annual investment conference to talk about the next big thing. This year, that thing was opportunity zones, which were the focus of five panel discussions.

The Las Vegas event was hosted by Mr. Scaramucci. Among the attendees was Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team. At one point he posed and smiled for a photo with Mr. Scaramucci and his wife.

“OZ are super hot right now,” Mr. Cuban said in an email after the event, adding that he had recently bought a property in an opportunity zone, but had not decided yet if he would use the tax break. “Every major investor I know has been pitched a property or fund within an OZ.”

The feeding frenzy is not confined to rich individuals. Lawyers, accountants, wealth managers and consultants are enjoying a gusher of new work — and raking in fees — helping clients structure deals with the maximum tax savings.

Real estate lawyers like Brad A. Molotsky are billing hundreds of extra hours as they field calls from eager investors. One day in June, Mr. Molotsky juggled clients who wanted to invest in $500 million worth of opportunity-zone projects.

“I am just one guy, and that was from just two meetings,” said Mr. Molotsky, who works in New Jersey for the law firm Duane Morris. He has completed more than 20 opportunity-zone deals, he said, and has dozens more in the pipeline.

The night after Mr. Scaramucci’s pool party, more festivities were underway on the other end of the Las Vegas Strip — part of a separate event also focused on opportunity zones. One party was at the Soviet-themed Red Square restaurant. Inside, an investor handed out postcards with photographs of buildings he wanted to buy in opportunity zones.

At another open-bar soiree, a man in a navy suit and a cowboy hat wandered the crowd, drink in hand. Attached to the top of his hat was a large sign. It beckoned: “Looking for OZ Funds.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How a Tax Break to Help Poor Communities Became a Bonanza for the Rich

NEW ORLEANS — President Trump has portrayed America’s cities as wastelands, ravaged by crime and homelessness, infested by rats.

But the Trump administration’s signature plan to lift them — a multibillion-dollar tax break that is supposed to help low-income areas — has fueled a wave of developments financed by and built for the wealthiest Americans.

Among the early beneficiaries of the tax incentive are billionaire financiers like Leon Cooperman and business magnates like Sidney Kohl — and Mr. Trump’s family members and advisers.

Former Gov. Chris Christie of New Jersey; Richard LeFrak, a New York real estate titan who is close to the president; Anthony Scaramucci, a former White House aide who recently had a falling out with Mr. Trump; and the family of Jared Kushner, Mr. Trump’s son-in-law and senior adviser, all are looking to profit from what is shaping up to be a once-in-a-generation bonanza for elite investors.

The stated goal of the tax benefit — tucked into the Republicans’ 2017 tax-cut legislation — was to coax investors to pump cash into poor neighborhoods, known as opportunity zones, leading to new housing, businesses and jobs.

The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they plow the proceeds into projects in federally certified opportunity zones. Any profits from those projects can avoid federal taxes altogether.

“Opportunity zones, hottest thing going, providing massive new incentives for investment and job creation in distressed communities,” Mr. Trump declared at a recent rally in Cincinnati.

Instead, billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects.

Many of the projects that will enjoy special tax status were underway long before the opportunity-zone provision was enacted. Financial institutions are boasting about the tax savings that await those who invest in real estate in affluent neighborhoods.

ImageWestlake Legal Group 31ozbonanza8-articleLarge How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Among those raising money for opportunity-zone investments are Anthony Scaramucci, center, the founder of SkyBridge Capital, and Chris Christie, right, the former governor of New Jersey.CreditBridget Bennett for The New York Times

Mr. Scaramucci’s development in New Orleans offers a portrait of how the tax break works. His investment company, SkyBridge Capital, is using the so-called opportunity zone initiative to help build a hotel, outfitted with an opulent restaurant and a rooftop pool, in the city’s trendy Warehouse District.

The tax benefit also is helping finance the construction of a 46-story, glass-wrapped apartment tower — amenities include a yoga lawn and a pool surrounded by cabanas and daybeds — in a Houston neighborhood already brimming with new projects aimed at the wealthy.

And in Miami’s hot Design District, where commercial real estate prices have nearly tripled in the last decade, the tax break is set to be used for a ritzy new office tower with a landscaped roof terrace.

Some proponents of opportunity zones note that money is already flowing into downtrodden communities like Birmingham, Ala., and Erie, Pa. They argue that more funds will follow.

“The early wave, that’s not what you judge,” said John Lettieri, president of the Economic Innovation Group, an organization that lobbied for the establishment of opportunity zones.

But leaders of groups that work in cities and rural areas to combat poverty say they are disappointed with how it is playing out so far.

“Capital is going to flow to the lowest-risk, highest-return environment,” said Aaron T. Seybert, the social investment officer at the Kresge Foundation, a community-development group in Troy, Mich., that supported the opportunity-zone effort.

“Perhaps 95 percent of this is doing no good for people we care about.”

Mr. Scaramucci, left, shaking hands with John F. Kelly, the former White House chief of staff. Mr. Scaramucci is using opportunity-zone advantages to help build a hotel in a trendy section of New Orleans.CreditBridget Bennett for The New York Times

The opportunity-zone tax break was targeted at the trillions of dollars of capital gains held by rich Americans and their companies: profits from investments in the stock market, real estate and other businesses, even short-term trades by hedge funds. When investors sell those assets, they can incur tax bills of up to 41 percent.

Sean Parker, an early backer of Facebook, helped come up with the idea of pairing a capital-gains tax break with an incentive to invest in distressed neighborhoods. “When you are a founder of Facebook, and you own a lot of stock,” Mr. Parker said at a recent opportunity-zone conference, “you spend a lot of time thinking about capital gains.”

Starting in 2013, Mr. Parker bankrolled a Capitol Hill lobbying effort to pitch the idea to members of Congress. That effort was run through his Economic Innovation Group. In addition to Mr. Parker, the group’s backers included Dan Gilbert, the billionaire founder of Quicken Loans, and Ted Ullyot, the former general counsel of Facebook.

The plan won the support of Senators Cory Booker, Democrat of New Jersey, and Tim Scott, Republican of South Carolina. When Congress, at Mr. Trump’s urging, began discussing major changes to the federal tax code in 2017, Mr. Parker’s idea had a chance to become reality.

Mr. Scott, who sponsored a version of the opportunity-zone legislation that was later incorporated into the broader tax cut package, said it was “for American people stuck, sometimes trapped, in a place where it seems like the lights grow dimmer, and the future does, too.”

“Let’s turn those lights on and make the future bright,” he added.

Confined to six pages in the 185-page tax bill, the provision can significantly increase the profits investors reap on real estate and other transactions.

It allows investors to defer for up to seven years any capital gains taxes on the money they invest in opportunity zones. (That deferral is valuable because it allows people to invest a larger sum upfront, potentially generating more profits over time.) After 10 years, the investor can cash out — by selling the opportunity-zone real estate, for example — and not owe any taxes on the profits.

Over a decade, those dual incentives could increase an investor’s returns by 70 percent, according to an analysis by Novogradac, an accounting firm.

“We are very, very excited about the potential,” the president’s daughter Ivanka Trump said last year at an event celebrating Mr. Parker’s role in creating opportunity zones. “The whole White House obviously is behind the effort. The whole administration.”

The opportunity zones, focused on low-income census tracts, were drawn by officials in each state, as well as in Washington, D.C., and Puerto Rico. Last year, the Treasury Department approved roughly 8,800 such zones. (The White House and Treasury declined to make senior officials available to discuss the program.)

Nearly a third of the 31 million people who live in the zones are considered poor — almost double the national poverty rate. Yet there are plenty of affluent areas inside those poor census tracts. And, as investors would soon realize, some of the zones were not low income at all.

The Preston is financed by the investors in Cresset, a multibillion-dollar asset management firm.CreditBrandon Thibodeaux for The New York Times

The Harvard Club of New York City, in Midtown Manhattan, is the embodiment of America’s old-money elite. Crimson-jacketed waiters serve members who are watched over by oil portraits of elite alumni.

One recent morning, financial advisers representing several dozen of America’s richest dynasties — advisers to the Pritzker and Soros families were listed as attendees — crowded into a drab meeting room on the club’s third floor.

The advisers were there to see Daniel Kowalski, a top aide to Treasury Secretary Steven Mnuchin and the Trump administration’s point person for the opportunity-zone rules. Mr. Kowalski is barnstorming the country, bouncing from one conference to the next, explaining to real estate investors and developers how to take advantage of the new rules.

Mr. Kowalski was an aide to the Trump campaign, where he worked for the White House policy adviser Stephen Miller. Before that, he was an aide to Jeff Sessions when Mr. Sessions was on the Senate Budget Committee.

At the Harvard Club, he dived into an explanation of how opportunity zones work — and for whom they work. “The audience for opportunity zones is inherently fairly small because it’s limited to capital-gains income, which is why I wanted to come and talk to this group,” he told the room of advisers.

That audience is small indeed: Only 7 percent of Americans report taxable capital gains, and nearly two-thirds of those people reported total annual income of $1 million or more, according to I.R.S. data.

Yet this is a vital constituency, since the success of the opportunity-zone program will hinge largely on how much money investors kick in. That is why the Trump administration — and Mr. Kowalski in particular — is promoting the tax break on Wall Street.

“I have served a little bit as a middle man between the business community and the I.R.S.,” he said at another conference a few weeks later.

More than 200 opportunity-zone funds have been established by banks like Goldman Sachs and major real estate companies, including CIM Group of Los Angeles, which has previously been a partner with the Trump and Kushner families on projects. Those funds have said their goal was to raise a total of nearly $57 billion.

The law does not require public disclosure of who are taking advantage of the initiative or how they are deploying their funds. Among those who have invested money or said they intend to are Mr. Kohl, a founder of the department store chain that bears his name; Steve Case, co-founder of AOL; Alexander Bhathal, part owner of the Sacramento Kings basketball team; and Richard Forman, the former owner of the Forman Mills chain of clothing stores, according to interviews and other public statements.

Daniel Kowalski, the Trump administration’s point person for opportunity-zone rules, speaking at a Washington forum about them in June.CreditMelissa Lyttle for The New York Times

Many others are lesser-known business executives who recently sold small companies or real estate and are looking for ways to avoid large tax bills.

Paul DeMoret, for example, recently sold his auto-industry software company in Oregon. He said he was using some of those capital gains to help finance a Courtyard by Marriott in Winston-Salem, N.C., and an apartment building in Tempe, Ariz., among other projects in opportunity zones. He is making the investments through a private equity firm, Virtua Partners.

The tax break is largely benefiting the real estate industry — where Mr. Trump made his fortune and still has extensive business interests — and it is luring people with personal or professional connections to the president.

Mr. Christie, a onetime adviser to Mr. Trump, has raised money for opportunity-zone investments including an apartment building in Hackensack, N.J., and a self-storage center in Connecticut.

Cadre, an investment company co-founded by Mr. Kushner and his brother, Joshua, is raising hundreds of millions of dollars that it hopes to use on opportunity-zone projects. The company is eyeing neighborhoods in Savannah, Ga., Dallas, Los Angeles and Nashville that are expected to grow larger and wealthier in coming years. Jared Kushner has a stake in Cadre worth up to $50 million, according to his most recent financial disclosure.

Mr. LeFrak, a longtime confidant of Mr. Trump’s and a major campaign donor, is building a luxury residential community in the middle of an opportunity zone in Miami. (It is unclear how much of the development’s funding will end up being tax advantaged.)

Not far away in the Design District, Daniel Lebensohn is planning to build his high-end office tower. Mr. Lebensohn previously joined the Trump Organization to sell luxury condominiums at the Trump Hollywood complex north of Miami.

And Mr. Kushner’s family company directly owns or is in the process of buying at least a dozen properties in New York, New Jersey and Florida that are in opportunity zones. They include a pair in Miami, where Kushner Companies plans to build a 393-apartment luxury high rise with sweeping views of Biscayne Bay, according to a company presentation for potential investors.

A representative for the Kushner family confirmed that it was considering opportunity-zone funding for some developments, but said it would probably not use the funding for the Miami projects.

Backers of the opportunity-zone program say luxury projects are the easiest to finance, which is why those have been happening first. Over the long run, they say, those deals will be eclipsed by ones that produce social benefits in low-income areas.

At least some struggling neighborhoods are already starting to receive investments.

In Birmingham, for example, a developer is using opportunity-zone funds to convert a building, vacant for decades, into 140 apartments primarily aimed at the local work force.

“We are seeing projects that are being announced here in Alabama that would not have happened otherwise,” said Alex Flachsbart, founder of Opportunity Alabama, which is trying to steer investors to economically struggling neighborhoods.

Similar projects are getting underway in Erie, Cleveland and Charlottesville, Va. Goldman Sachs is using some of its capital gains — profits on the company’s own investments — in opportunity zones, including $364 million for mixed-income housing developments in Salt Lake City, Baltimore and other cities.

Mr. Case, the AOL co-founder, and Derrick Morgan, a former professional football player, are among those who have announced that they will invest in opportunity-zone projects that are designed to address clear social and economic problems.

As he announced his retirement from the Tennessee Titans in July, Mr. Morgan wrote on Instagram that his goal would be to “create more opportunities for those who are underserved and overlooked” in communities like Coatesville, Pa., where he went to high school.

Emanuel J. Friedman, a hedge fund manager, is using some of his capital gains and money he has raised from others to build 11 warehouses in rural Jasper County, S.C., near the Savannah seaport. The warehouses won’t employ many people, but he said the jobs would offer higher wages than hotel housekeeping positions at the nearby Hilton Head resort, where many area residents now work.

“Of course it will make a difference,” Mr. Friedman said. “It is mind-boggling. It is the best thing I have ever done.”

The developers of the Sole Mia project in North Miami, Fla., urged a local official to nominate the area as an opportunity zone and are now considering ways to take advantage of the status.CreditScott McIntyre for The New York Times

But even supporters of the initiative agree that the bulk of the opportunity-zone money is going to places that do not need the help, while many poorer communities are so far empty-handed.

Some opportunity zones that were classified as low income based on census data from several years ago have since gentrified. Others that remain poor over all have large numbers of wealthy households.

Number of Opportunity Zones by Median Household Income

More than 7 percent of opportunity zones had household incomes above the median census tract in 2017. Investors are focusing on projects in these neighborhoods.

Westlake Legal Group oz-distribution-335 How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$77,692

Fishtown,

Philadelphia

$137,147

Long Island City,

Queens

$98,508

Market Square,

Houston

Westlake Legal Group oz-distribution-600 How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$77,692

Fishtown,

Philadelphia

$91,397

Gowanus,

Brooklyn

$98,508

Market Square,

Houston

$137,147

Long Island City,

Queens

Westlake Legal Group oz-distribution-900 How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

$54,408

Median

U.S. tract

$91,397

Gowanus,

Brooklyn

$77,692

Fishtown,

Philadelphia

$98,508

Market Square,

Houston

$137,147

Long Island City,

Queens

Source: American Community Survey

By Blacki Migliozzi and Juliette Love

And nearly 200 of the 8,800 federally designated opportunity zones are adjacent to poor areas but are not themselves considered low income.

Under the law, up to 5 percent of the zones did not need to be poor. The idea was to enable governors to draw opportunity zones in ways that would include projects or businesses just outside poor census tracts, potentially creating jobs for low-income people. In addition, states could designate whole sections of cities or rural areas that would be targeted for investment, including some higher-income census tracts.

In some cases, developers have lobbied state officials to include specific plots of land inside opportunity zones.

In Miami, for example, Mr. LeFrak — who donated nearly $500,000 to Mr. Trump’s campaign and inauguration and is personally close to the president — is working with a Florida partner on a 183-acre project that is set to include 12 residential towers and eight football fields’ worth of retail and commercial space.

In spring 2018, as they planned the so-called Sole Mia project, Mr. LeFrak’s executives encouraged city officials in North Miami to nominate the area around the site as an opportunity zone, according to Larry M. Spring, the city manager. They did so, and the Treasury Department made the designation official.

The Far West Side of Manhattan is part of an opportunity zone — even as high-end towers have been replacing run-down apartment buildings and more than 15 percent of households reported income of $200,000 or more in 2017, according to an analysis by Webster Pacific, a consulting firm. This is the new home of Pershing Square Capital Management, the prominent hedge fund run by the billionaire Bill Ackman.

Mr. Ackman is trying to find tenants for 80,000 square feet of unused office space in his fund’s building, which has a Jaguar dealership on the ground floor. He said he was using its location inside an opportunity zone as a lure.

That is because investors can use their capital gains to invest not only in real estate but also in businesses inside opportunity zones. A company that sets up shop inside Mr. Ackman’s building therefore would be eligible to accept tax-advantaged opportunity-zone money.

One of the Sole Mia partners is Richard LeFrak, who donated nearly $500,000 to President Trump’s campaign and inauguration.CreditScott McIntyre for The New York Times

Financial institutions are not even trying to make it look as if their opportunity-zone investments were intended to benefit needy communities.

CBRE, one of the country’s largest real estate companies, is seeking opportunity-zone funding for an apartment building in Alexandria, Va., which CBRE is pitching to prospective investors as “one of the region’s most affluent locations.”

JPMorgan Chase is raising money to build housing targeting students in College Park, Md., near the University of Maryland. (Because many students do not have jobs, census data often wrongly suggests that college towns are poor neighborhoods.)

In marketing materials, JPMorgan noted that while College Park “qualifies as low income due to the student population, the area around it is affluent.” The bank added, “The tax benefits can be remarkable.”

The Swiss bank UBS is raising funds from its “ultra high net worth” clients — requiring in some cases that they have at least $50 million in investable assets — for developments in New York and Connecticut. The projects include a 23-story retail and office building in Downtown Brooklyn and an upscale apartment building in New Rochelle, N.Y., with a yoga studio and 24-hour valet parking. There is even a spa — for residents’ pets.

Other companies have set up subscription databases showing which zones have the highest incomes and fastest-growing populations to help investors steer their money to the most lucrative and least risky destinations.

“The current system is clearly driving capital to places that are known to be winners,” said Christopher A. Coes, vice president at Smart Growth America, a nonprofit group that encourages investments in American cities.

This street in New Orleans became part of an opportunity zone after a hotel in the Virgin chain had already been planned there.CreditAkasha Rabut for The New York Times

The Warehouse District of New Orleans is one of the city’s trendiest neighborhoods. Some of the area’s hottest restaurants — as well as a new one dishing out shrimp tempura tacos — are here. So are hipster barbershops. Boutique hotels spill well-heeled tourists onto the red brick sidewalks. High-end coffee shops are packed with young people buried in their MacBooks.

And it is getting hotter. The sounds of heavy-duty equipment heaving steel or pouring cement are audible across the neighborhood.

In other words, in a city grappling with acute poverty, this is not a neighborhood that especially needs a generous new tax break to lure luxury lodging. Yet state officials have established an opportunity zone here.

That decision benefited businesses already operating or planned for the district. One of those is a 225-room hotel, part of Richard Branson’s Virgin Hotels chain, whose plans were unveiled a year before Mr. Trump signed the tax law. Its location inside an opportunity zone meant investors could earn greater profits than they otherwise would have, by financing the project with tax-advantaged money.

Changing Incomes in New Orleans

Early opportunity zone development is often happening in neighborhoods where income was already rising, not in struggling areas.

Westlake Legal Group la-map-Artboard_1 How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household

income 2012-17

Opportunity

zones

French

Quarter

Virgin Hotel

(under construction)

Hoffman Triangle

Warehouse District

NEW ORLEANS

Garden

District

Mississippi River

Westlake Legal Group la-map-Artboard_1_copy How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household income 2012-17

Opportunity

zones

French

Quarter

Virgin Hotel

Hoffman

Triangle

Warehouse

District

NEW ORLEANS

Mississippi River

Sources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki Migliozzi

Those investors include Mr. Scaramucci, who briefly served as White House communications director in 2017 and has claimed credit for helping to create the opportunity-zone plan. “We got to get into this business because this will be transformative to the United States,” he said recently.

Mr. Scaramucci’s investment firm, SkyBridge Capital, has raised more than $50 million in capital gains from outside investors, and most of it is being used to finance the hotel, according to Brett S. Messing, the company’s president. He said the hotel was likely to be the first of numerous opportunity-zone projects financed by SkyBridge.

The Virgin Hotels construction site in New Orleans. Because of the zone, the 225-room hotel can be financed with tax-advantaged money.CreditAkasha Rabut for The New York Times

Less than two miles away is the poorest opportunity zone in Louisiana — and one of the poorest nationwide. The zone includes the Hoffman Triangle neighborhood, where the average household earns less than $15,000 per year. Block after block, streets are lined with dilapidated, shotgun-style homes, many of them boarded up. On a recent afternoon, one of them was serving as a work site for prostitutes.

City officials, including the head of economic development for New Orleans, said they were not aware of any opportunity-zone projects in this neighborhood.

Terrance Ross, a construction worker who has lived in the area for 20 years, is familiar with the building boom underway in the Warehouse District.

“Why is the federal government putting money where money is already accumulating?” he asked, lighting a cigarette and standing across the street from an abandoned house. “This neighborhood just needs some tender loving care.”

Similar scenes are playing out in opportunity zones across the United States: The federal government is subsidizing luxury developments — often within walking distance of economically distressed communities — that were in the works before Mr. Trump was even elected president.

In Houston, construction recently started on the Preston, with 373 “luxury for rent” apartments as well as a “skydeck” and a resort-style swimming pool. The development is being financed by the investors in Cresset, a multibillion-dollar asset management firm, including one of its founders, Avy Stein.

Changing Incomes in Houston

Early opportunity zone investment is coming to Market Square, already a site of high-end developments and major income growth.

Westlake Legal Group houston-map-Artboard_1 How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household

income 2012-17

Market Square is home to three recent luxury developments.

Greater

Fifth Ward

Downtown

Houston

Fourth Ward

Opportunity zones

South

Central Houston

University

of Houston

Rice

University

Houston

Zoo

Westlake Legal Group houston-map-Artboard_1_copy How a Tax Break to Help Poor Communities Became a Bonanza for the Rich Trump, Donald J Tax Cuts and Jobs Act (2017) Scaramucci, Anthony Parker, Sean (1979- ) opportunity zones New Orleans (La) Miami (Fla) Lefrak, Richard S Kushner, Jared Kushner Cos Federal Taxes (US) Christie, Christopher J Capital Gains Tax

Median household income 2012-17

Market Square is home to three recent luxury developments.

Downtown

Houston

Fourth Ward

South

Central Houston

University

of Houston

Houston

Zoo

Opportunity zones

Sources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki Migliozzi

And in downtown Portland, Ore., the developers of a 35-story tower with a hotel, condos and office space are hoping to raise up to $150 million in opportunity-zone money to pay for the project. Condos will go for as much as $7.5 million each. The hotel is a Ritz-Carlton.

Exhibits at Mr. Scaramucci’s investment conference in Las Vegas, where opportunity zones were discussed as the next big thing.CreditBridget Bennett for The New York Times

Club music blared from speakers as millionaires and billionaires — and the money managers, lawyers, accountants and other professionals looking to make money off all this wealth — milled around a pool and private cabanas at the Bellagio hotel in Las Vegas.

They were at an annual investment conference to talk about the next big thing. This year, that thing was opportunity zones, which were the focus of five panel discussions.

The Las Vegas event was hosted by Mr. Scaramucci. Among the attendees was Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team. At one point he posed and smiled for a photo with Mr. Scaramucci and his wife.

“OZ are super hot right now,” Mr. Cuban said in an email after the event, adding that he had recently used some of his capital gains to buy a property in an opportunity zone. “Every major investor I know has been pitched a property or fund within an OZ.”

The feeding frenzy is not confined to rich individuals. Lawyers, accountants, wealth managers and consultants are enjoying a gusher of new work — and raking in fees — helping clients structure deals with the maximum tax savings.

Real estate lawyers like Brad A. Molotsky are billing hundreds of extra hours as they field calls from eager investors. One day in June, Mr. Molotsky juggled clients who wanted to invest in $500 million worth of opportunity-zone projects.

“I am just one guy, and that was from just two meetings,” said Mr. Molotsky, who works in New Jersey for the law firm Duane Morris. He has completed more than 20 opportunity-zone deals, he said, and has dozens more in the pipeline.

The night after Mr. Scaramucci’s pool party, more festivities were underway on the other end of the Las Vegas Strip — part of a separate event also focused on opportunity zones. One party was at the Soviet-themed Red Square restaurant. Inside, an investor handed out postcards with photographs of buildings he wanted to buy in opportunity zones.

At another open-bar soiree, a man in a navy suit and a cowboy hat wandered the crowd, drink in hand. Attached to the top of his hat was a large sign. It beckoned: “Looking for OZ Funds.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

In a Tweet Taunting Iran, Trump Releases an Image Thought to Be Classified

A mysterious explosion on Thursday at an Iranian space center prompted speculation that it was American sabotage, rather than an accident, that was responsible for the third successive failure of Tehran’s efforts to show it could loft satellites into orbit.

As pictures from commercial satellites of a rocket’s smoking remains began to circulate, President Trump denied Friday on Twitter that the United States was involved. It was an unusual message because the Iranian government had neither acknowledged the accident nor blamed the United States. His tweet ended with an apparent taunt: “I wish Iran best wishes and good luck in determining what happened” in the fiery accident.

But Mr. Trump also included in his tweet a high-resolution image of the disaster, immediately raising questions about whether he had plucked a classified image from his morning intelligence briefing to troll the Iranians. The president seemed to resolve the question on Friday night on his way to Camp David when he told reporters, “We had a photo and I released it, which I have the absolute right to do.”

There is no denying that, even if it runs the risk of alerting adversaries to American abilities to spy from high over foreign territory. And there is precedent for doing so in more calculated scenarios: President John F. Kennedy declassified photographs of Soviet missile sites during the Cuban Missile Crisis in 1962, and President George W. Bush declassified pictures of Iraq in 2003 to support the faulty case that Saddam Hussein was producing nuclear and chemical weapons.

It was unclear if Mr. Trump was using the explosion and the lurking suspicions among Iranians that the United States was again deep inside their nuclear and missile programs to force a negotiation or to undermine one.

Mr. Trump’s comments came days after a Group of 7 summit at which France tried to organize talks between Mr. Trump and President Hassan Rouhani of Iran. Both Washington and Tehran seem to be maneuvering to restart some kind of contact, and perhaps reopen negotiations over Iran’s nuclear program. At the same time, the United States is ratcheting up sanctions and Iran is resuming nuclear activities it had suspended under a 2015 agreement with the Obama administration.

Commercial satellite photographs and the far more detailed image that Mr. Trump released showed devastating damage at the Imam Khomeini Space Center. The rocket itself appeared to have disintegrated. White House and intelligence officials declined to say whether the image Mr. Trump tweeted came from his morning intelligence briefing, but other officials conceded it bore all of the markings of a spy-satellite image.

American officials have often accused Iran of conducting the launches, under the guise of its space program, to simulate the technology involved in deploying a conventional or nuclear warhead — an effort American officials have vowed to stop. In February, The New York Times reported that the Trump administration had accelerated a secret American program to sabotage both Iran’s missiles and its rockets.

Two previous attempts at launching satellites — on Jan. 15 and on Feb. 5 — failed. More than two-thirds of Iran’s satellite launches have failed over the past 11 years, a remarkably high number compared with the 5 percent failure rate worldwide.

Mr. Trump’s denial and the satellite image he released seemed meant to maximize Iran’s embarrassment over the episode.

“The United States of America was not involved in the catastrophic accident during final launch preparations for the Safir SLV Launch at Semnan Launch Site One in Iran,” he tweeted. “I wish Iran best wishes and good luck in determining what happened at Site One.”

If the accident was linked to a covert action by the United States — one that Mr. Trump would have been required to authorize in a presidential “finding” — he and other American officials would be required by law to deny involvement.

The laws governing covert actions, which stretch back to the Truman administration, focus on obscuring who was responsible for the act, not covering up the action itself. Most American presidents have fulfilled that requirement by staying silent about such episodes, but Mr. Trump does not operate by ordinary rules — and may have decided that an outright denial was his best course.

Alternatively, the president may have been trying signal to the Iranians that the United States was not involved in order to keep the episode from derailing the odd dance underway between Tehran and Washington more than a year after Mr. Trump abandoned the nuclear deal. While in public, Iranian officials insist they would negotiate only if the United States re-enters the Obama-era agreement and lifts sanctions. In private, many Iranian elites now appear to be coalescing around a strategy of continued provocations, but also an openness to talks with Mr. Trump.

ImageWestlake Legal Group merlin_159960075_d3e4bb90-9f9e-4003-ab1a-224d444fef6e-articleLarge In a Tweet Taunting Iran, Trump Releases an Image Thought to Be Classified Trump, Donald J Satellites Rouhani, Hassan Missiles and Missile Defense Systems Iran Group of Seven Espionage and Intelligence Services Classified Information and State Secrets

President Trump appears to have taken the highly unusual step of releasing an official and relatively high resolution annotated U.S. intelligence image.CreditPresident Trump, via Twitter

Many in Iran will suspect American involvement in the string of unexplained disasters striking the country’s space program. A decade ago, the United States and Israel were the prime players in a covert action, code-named “Olympic Games,” to sabotage Iran’s nuclear centrifuges using a hard-to-detect cyberattack at the Natanz nuclear enrichment plant. Changes in computer code being fed to the centrifuges caused them to speed up or slow down, and to spin out of control.

In 2011, a huge explosion destroyed a major missile-testing site near Tehran, killing the military officer who oversaw the Iranian program. Initially, the Iranians described that as an accident, but they later linked it to an Israeli program to assassinate nuclear scientists. Israeli officials have since hinted they were involved.

That explosion destroyed buildings at a vast development site; the explosion on Thursday appeared more isolated, limited to the launchpad, which was shown smoldering in satellite photographs released by Planet Labs.

But it was Mr. Trump’s release of a satellite photograph that attracted the most discussion among intelligence officials. Several former officials noted that the upper left-hand corner, where the level of classification of the photograph would normally be denoted, was blacked out before Mr. Trump tweeted the image. That suggested a rushed effort by the United States to declassify it, presumably at Mr. Trump’s command. A glare on the photograph suggested someone may have used a cellphone to take a picture of the image as it was displayed on a tablet computer, which is how classified images are often shown to the president during security briefings.

“You can bet every adversary is going to school on what’s been exposed,” James R. Clapper Jr., a former director of national intelligence, said in an email. “I can’t see what the point was, other than to make fun of the Iranians.”

Daryl G. Kimball, the executive director of the Arms Control Association, said the image posted by Mr. Trump looked “far better than any commercial imagery” that has been released about the launch. Revealing the abilities of American satellite surveillance, he argued, does not advance American interests.

“This tweet is an excellent example of Trump’s aimless, impulsive thinking about many national security issues,” Mr. Kimball said. “Why tweet that the United States was not involved when it may have been? Why, apparently sarcastically, wish them good luck in finding the cause for the accident?”

Commercial satellite images by Planet Labs and Maxar Technologies showed a thick plume of black smoke rising from the launching pad on Thursday, as well as what appeared to be the burned remains of the launching tower.

It was the third disaster to befall a rocket launching attempt this year at the Iranian space center, a desert complex east of Tehran named for the nation’s first supreme leader. The site specializes in rocket launchings meant to put satellites into orbit.

Tehran announced its January rocket failure but said nothing about the one in February that was picked up by American intelligence officials. It has also said nothing officially about Thursday’s blast. Like many closed societies, Iran tends to hide its failures and exaggerate its successes.

While Tehran says the launchings are for peaceful purposes, American officials say the advancement of orbital rocketry can aid the development of intercontinental ballistic missiles — the kind that might one day threaten the United States with nuclear strikes.

David Schmerler, a senior research associate at the Middlebury Institute of International Studies, who closely examined the satellite imagery of Thursday’s blast, said there was no way to know if it was accidental or intentional.

“Something went wrong and it ignited the fuel,” he said. “It could be sabotage or an accident. There’s no way to tell.”

Mr. Schmerler added that the first images on Thursday seemed to imply the launching pad had suffered a catastrophic explosion associated with a failed launching. But later imagery and analysis, he said, suggested the billowing smoke and debris were the result of a fueling accident.

In an interview, Mr. Schmerler said the image in Mr. Trump’s tweet revealed many details that reinforced the idea of a fueling or final-preparations disaster. For instance, Mr. Schmerler said, the launching tower was clearly still in the middle of the launching pad rather than having been pulled back — the standard Iranian practice.

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Trump’s Personal Assistant, Madeleine Westerhout, Shared Intimate Details of First Family

Westlake Legal Group 30dc-westerhout-facebookJumbo Trump’s Personal Assistant, Madeleine Westerhout, Shared Intimate Details of First Family Westerhout, Madeleine United States Politics and Government Trump, Donald J

WASHINGTON — If a White House official wanted to talk to President Trump, it helped to have a good relationship with Madeleine Westerhout, his 28-year-old assistant. She was known for brusquely deflecting officials senior to her both in title and age who wanted a few minutes of face time with the president with one withering question: “Why are you here?”

But it was not what some administration officials saw as Ms. Westerhout’s overprotectiveness of the president that led to her abrupt and unceremonious departure from the White House on Thursday. Instead, it was an act of disloyalty.

At an off-the-record dinner and several rounds of drinks with reporters two weeks ago during the president’s working vacation in Bedminster, N.J., she shared personal details about the president and his family.

Ms. Westerhout attended the dinner with Hogan Gidley, a White House spokesman. After he left, she began to tell reporters about Mr. Trump’s eating habits; his youngest son, Barron Trump; and his thoughts about the weight and appearance of his daughter Tiffany Trump, according to a group of current and former administration officials who were told what happened.

Accounts of the dinner, which reporters from The New York Times did not attend, began circulating at the White House within a couple of days. But it took over a week for the information to reach the president. It was delivered to him by Mick Mulvaney, the president’s acting chief of staff, who said Ms. Westerhout had indiscreetly discussed details of his family with reporters.

An ambivalent Mr. Trump had to be persuaded throughout the day Thursday that Ms. Westerhout, who was on vacation in California, needed to resign, which she did that night.

In interviews, over a dozen current and former Trump administration officials said that the episode was emblematic of a White House where constant turnover has allowed inexperienced staff members to rise to positions of power — or, at least, to pursue them.

Ms. Westerhout, a 2013 graduate of the College of Charleston in South Carolina, came to the White House on the recommendation of Mr. Trump’s first chief of staff, Reince Priebus, the former head of the Republican National Committee, where she has been an assistant. Her previous experience included time as an intern in the 2012 Romney campaign and a job as a fitness instructor.

As he departed Washington for Camp David on Friday afternoon, soon after details of Ms. Westerhout’s comments were first reported by Politico, Mr. Trump said Ms. Westerhout had been drinking when she “said things about my children” to reporters. He praised Ms. Westerhout’s work in the White House and admonished reporters for breaking an off-the-record agreement.

“But still, you don’t say things like she said,” Mr. Trump added of Ms. Westerhout, “which were just a little bit hurtful to some people.”

Mr. Trump also said that he loved his daughter: “Tiffany is great,” the president said.

Even for a White House besieged with leaks from the beginning, Ms. Westerhout’s behavior was considered a stunning breach of protocol for an aide who Mr. Trump this year had promoted to special assistant and director of Oval Office operations.

“He was expressing confidence in her,” Martha Joynt Kumar, a political science professor at Towson University who has studied the presidency and the culture of the White House. “As president, you need to be confident that that person is going to respect your wishes and your privacy and also the privacy of the family.”

After two years in the White House, one former senior official said, “she thought she was a senior adviser” — one who tried recently to weigh in on crafting Mr. Trump’s tweets — rather than an aide in a secretarial role. In recent months, Ms. Westerhout had become more interested in traveling with the president and in Bedminster it was noticed that she was seated closer to the president than his chief of staff at a campaign briefing.

Ms. Westerhout’s main responsibilities were answering the phone and providing clerical help to the president. But her role was tailored to Mr. Trump’s particular eccentricities. Whenever the president held an event at the White House, it fell to Ms. Westerhout to make sure that it was well attended, according to one White House official.

“How’s the room looking?” she would email to dozens of White House staffers in different departments. If there was any question that the room appeared full, Ms. Westerhout would make sure to find staff members or interns to send to it to avoid Mr. Trump’s anger at lackluster attendance.

Ms. Westerhout became an expert at reading his moods and translating them for other aides, according to those officials. She also became good at monitoring whom he was speaking with and, in some cases, alerting other White House officials if someone had called to try to rile the president up, as some of his outside advisers have been known to do.

Mr. Trump did not immediately trust her when she was hired at the White House. She had no prior relationship with the president, and according to “American Carnage,” a recent book by Tim Alberta, the chief political correspondent for Politico Magazine, she wept on election night at the fact that he won — an account confirmed by White House officials.

But she was immediately installed outside the president’s office. Mr. Trump, who was whipsawed and overwhelmed by his own surprise victory, has historically cared a great deal about who guards access to him; at Trump Tower, it was a role of considerable influence. With so much to learn and so many jobs to fill, Mr. Trump had little choice but to go along with the staff that was provided to him, according to current and former officials. He was told by Mr. Priebus that she could be trusted.

Mr. Priebus eventually left the White House but Ms. Westerhout developed her own relationship with her perennially suspicious boss. The president appeared happy to see her when she would pop her head into the Oval Office to try to interrupt a meeting that had dragged on too long, even if he shooed her away, according to White House aides.

The president had grown to trust her and grew fond of her. According to Mr. Alberta’s book, he would refer to her as “my beautiful beauty.” She was often at his side on trips to Mar-a-Lago, his Palm Beach, Fla., resort, where she would accept gifts on behalf of Mr. Trump and trade business cards with his supporters. Some of them knew that if they wanted to reach the president by phone, they could bypass his other gatekeepers and go directly to her.

But she also had a fairly large coterie of enemies, including some in the East Wing, the purview of the first lady, Melania Trump, which viewed her with suspicion. Some of the president’s friends counseled him over the last two years that she was, in the words of one, “immature,” and was blocking access to him from some people he’d known for years.

She had also raised suspicion with her indiscreet comments about the president, including openly complaining to aides that Mr. Trump had disrupted his own schedule because he had been late leaving the White House residence after his daily executive time sessions, according to one former official.

Inside the faction-split White House, Trump loyalists cheered Ms. Westerhout’s departure as a move that was long overdue, and said they hoped it served as something of a wake-up call for Mr. Trump to bring in more loyalists into the West Wing. But current and former officials also expressed alarm about what information Ms. Westerhout could share down the road, not just about the president, but her colleagues.

Adding to the concern was the fact that, unlike most other officials, Ms Westerhout was not thought to have signed a nondisclosure agreement, a document that Mr. Trump has frequently used in effort to tamp down on leaks.

At least one publishing house on Friday had discussions about trying to approach Ms. Westerhout for a book, according to one person familiar with the discussions.

Chris Whipple, who has written a book about White House chiefs of staff, said that Ms. Westerhout had broken a cardinal rule in discussing the president’s family.

“This is a unique presidency,” Mr. Whipple said in an interview. “But the idea that the first family is off limits is certainly not unique and that’s certainly something that White House staffers in the past have done at their peril.”

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Trump Denies U.S. Responsibility in Iranian Missile Base Explosion

Westlake Legal Group 30dc-missile-facebookJumbo Trump Denies U.S. Responsibility in Iranian Missile Base Explosion Trump, Donald J Satellites Rouhani, Hassan Missiles and Missile Defense Systems Iran Group of Seven Espionage and Intelligence Services Classified Information and State Secrets

A mysterious explosion on Thursday at an Iranian space center prompted speculation that it was American sabotage, rather than an accident, that was responsible for the third successive failure of Tehran’s efforts to show it could loft satellites into orbit.

As pictures from commercial satellites of a rocket’s smoking remains began to circulate, President Trump denied Friday on Twitter that the United States was involved. It was an unusual message because the Iranian government had neither acknowledged the accident nor blamed the United States. His tweet ended with an apparent taunt: “I wish Iran best wishes and good luck in determining what happened” in the fiery accident.

But Mr. Trump also included in his tweet a high-resolution image of the disaster, immediately raising questions about whether he had plucked a classified image from his morning intelligence briefing to troll the Iranians. The president seemed to resolve the question on Friday night on his way to Camp David when he told reporters, “We had a photo and I released it, which I have the absolute right to do.”

There is no denying that, even if it runs the risk of alerting adversaries to American abilities to spy from high over foreign territory. And there is precedent for doing so in more calculated scenarios: President John F. Kennedy declassified photographs of Soviet missile sites during the Cuban Missile Crisis in 1962, and President George W. Bush declassified pictures of Iraq in 2003 to support the faulty case that Saddam Hussein was producing nuclear and chemical weapons.

It was unclear if Mr. Trump was using the explosion and the lurking suspicions among Iranians that the United States was again deep inside their nuclear and missile programs to force a negotiation or to undermine one.

Mr. Trump’s comments came days after a Group of 7 summit at which France tried to organize talks between Mr. Trump and President Hassan Rouhani of Iran. Both Washington and Tehran seem to be maneuvering to restart some kind of contact, and perhaps reopen negotiations over Iran’s nuclear program. At the same time, the United States is ratcheting up sanctions and Iran is resuming nuclear activities it had suspended under a 2015 agreement with the Obama administration.

Commercial satellite photographs and the far more detailed image that Mr. Trump released showed devastating damage at the Imam Khomeini Space Center. The rocket itself appeared to have disintegrated. White House and intelligence officials declined to say whether the image Mr. Trump tweeted came from his morning intelligence briefing, but other officials conceded it bore all of the markings of a spy-satellite image.

American officials have often accused Iran of conducting the launches, under the guise of its space program, to simulate the technology involved in deploying a conventional or nuclear warhead — an effort American officials have vowed to stop. In February, The New York Times reported that the Trump administration had accelerated a secret American program to sabotage both Iran’s missiles and its rockets.

Two previous attempts at launching satellites — on Jan. 15 and on Feb. 5 — failed. More than two-thirds of Iran’s satellite launches have failed over the past 11 years, a remarkably high number compared with the 5 percent failure rate worldwide.

Mr. Trump’s denial and the satellite image he released seemed meant to maximize Iran’s embarrassment over the episode.

“The United States of America was not involved in the catastrophic accident during final launch preparations for the Safir SLV Launch at Semnan Launch Site One in Iran,” he tweeted. “I wish Iran best wishes and good luck in determining what happened at Site One.”

If the accident was linked to a covert action by the United States — one that Mr. Trump would have been required to authorize in a presidential “finding” — he and other American officials would be required by law to deny involvement.

The laws governing covert actions, which stretch back to the Truman administration, focus on obscuring who was responsible for the act, not covering up the action itself. Most American presidents have fulfilled that requirement by staying silent about such episodes, but Mr. Trump does not operate by ordinary rules — and may have decided that an outright denial was his best course.

Alternatively, the president may have been trying signal to the Iranians that the United States was not involved in order to keep the episode from derailing the odd dance underway between Tehran and Washington more than a year after Mr. Trump abandoned the nuclear deal. While in public, Iranian officials insist they would negotiate only if the United States re-enters the Obama-era agreement and lifts sanctions. In private, many Iranian elites now appear to be coalescing around a strategy of continued provocations, but also an openness to talks with Mr. Trump.

Many in Iran will suspect American involvement in the string of unexplained disasters striking the country’s space program. A decade ago, the United States and Israel were the prime players in a covert action, code-named “Olympic Games,” to sabotage Iran’s nuclear centrifuges using a hard-to-detect cyberattack at the Natanz nuclear enrichment plant. Changes in computer code being fed to the centrifuges caused them to speed up or slow down, and to spin out of control.

In 2011, a huge explosion destroyed a major missile-testing site near Tehran, killing the military officer who oversaw the Iranian program. Initially, the Iranians described that as an accident, but they later linked it to an Israeli program to assassinate nuclear scientists. Israeli officials have since hinted they were involved.

That explosion destroyed buildings at a vast development site; the explosion on Thursday appeared more isolated, limited to the launchpad, which was shown smoldering in satellite photographs released by Planet Labs.

But it was Mr. Trump’s release of a satellite photograph that attracted the most discussion among intelligence officials. Several former officials noted that the upper right-hand corner, where the level of classification of the photograph would normally be denoted, was blacked out before Mr. Trump tweeted the image. That suggested a rushed effort by the United States to declassify it, presumably at Mr. Trump’s command. A glare on the photograph suggested someone may have used a cellphone to take a picture of the image as it was displayed on a tablet computer, which is how classified images are often shown to the president during security briefings.

Daryl G. Kimball, the executive director of the Arms Control Association, said the image posted by Mr. Trump looked “far better than any commercial imagery” that has been released about the launch. Revealing the abilities of American satellite surveillance, he argued, does not advance American interests.

“This tweet is an excellent example of Trump’s aimless, impulsive thinking about many national security issues,” Mr. Kimball said. “Why tweet that the United States was not involved when it may have been? Why, apparently sarcastically, wish them good luck in finding the cause for the accident?”

Commercial satellite images by Planet Labs and Maxar Technologies showed a thick plume of black smoke rising from the launching pad on Thursday, as well as what appeared to be the burned remains of the launching tower.

It was the third disaster to befall a rocket launching attempt this year at the Iranian space center, a desert complex east of Tehran named for the nation’s first supreme leader. The site specializes in rocket launchings meant put satellites into orbit.

Tehran announced its January rocket failure but said nothing the one in February that was picked up by American intelligence officials. It has also said nothing officially about Thursday’s blast. Like many closed societies, Iran tends to hide its failures and exaggerate its successes.

While Tehran says the launchings are for peaceful purposes, American officials say the advancement of orbital rocketry can aid the development of intercontinental ballistic missiles — the kind that might one day threaten the United States with nuclear strikes.

David Schmerler, a senior research associate at the Middlebury Institute of International Studies, who closely examined the satellite imagery of Thursday’s blast, said there was no way to know if it was accidental or intentional.

“Something went wrong and it ignited the fuel,” he said. “It could be sabotage or an accident. There’s no way to tell.”

Mr. Schmerler added that the first images on Thursday seemed to imply the launching pad had suffered a catastrophic explosion associated with a failed launching. But later imagery and analysis, he said, suggested the billowing smoke and debris were the result of a fueling accident.

In an interview, Mr. Schmerler said the image in Mr. Trump’s tweet revealed many details that reinforced the idea of a fueling or final-preparations disaster. For instance, Mr. Schmerler said, the launching tower was clearly still in the middle of the launching pad rather than having been pulled back — the standard Iranian practice.

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Amid Recession Worries, Trump Points Finger at American Businesses

WASHINGTON — President Trump wants Americans to understand that the economy is doing great, thanks to him. But if in fact the economy sours, then it is someone else’s fault.

Mr. Trump’s Blame List is long. On top, of course, is Jerome H. Powell, the chair of the Federal Reserve — never mind that Mr. Trump was the one who appointed him. Then there are the Democrats, and not to mention the news media.

And on Friday, the president added American businesses to the list, arguing that struggling companies have only themselves to blame and are rationalizing their own mistakes by pointing to, just to name an example, Mr. Trump’s multibillion-dollar tariffs and America’s biggest trade war in generations.

“Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management…and who can really blame them for doing that?” Mr. Trump wrote on Twitter. “Excuses!”

He repeated his point later with reporters. “A lot of badly run companies are trying to blame tariffs,” he said. “In other words, they’re running badly and they’re having a bad quarter or they’re just unlucky in some way. They’re trying to blame the tariffs. It’s not the tariffs. It’s called bad management.”

The president’s search for economic villains comes amid signs of a slowdown, exacerbated by uncertainty from his showdown with China over the future of the relationship between the two largest economies in the world.

Consumer confidence, which increased significantly on Mr. Trump’s watch, fell by 8.6 percent in August, its largest monthly decline since 2012 when the government was on the edge of a so-called fiscal cliff. The University of Michigan, which measures confidence, attributed it to the trade war, reporting that one in three consumers cited Mr. Trump’s tariffs without being prompted.

The concern appears to be bleeding into the presidential race. For the first time since Mr. Trump was elected, more voters responding to a Quinnipiac University poll said the national economy is getting worse than better. Altogether, 37 percent saw the economy heading downward compared with 31 percent who thought it was improving and 30 percent who said it was the same.

To Mr. Trump’s benefit, most voters in the poll still rated the economy good or excellent, but the number of those detecting dark clouds was up by 14 percentage points since June.

The economy is crucial to any president seeking a second term, but few have wrapped themselves in the issue as tightly as Mr. Trump. Polls have shown that the economy has been his strongest asset going into next year’s election.

He has a politically compelling story to tell, with unemployment at nearly a 50-year low at 3.7 percent, average wages now rising and the Dow Jones stock index about 32 percent higher than when he took office. But overall growth has been much slower than he predicted, deficit spending is increasing and various signs point to trouble ahead.

“The historical lesson is whatever happens, the sitting president gets credit or blame,” said Douglas Holtz-Eakin, the president of the American Action Forum, a center-right economic group, and an adviser to Senator John McCain’s 2008 presidential campaign. “That’s always been true regardless of the merits. He is clearly trying to make sure he has some fingers to point.”

The president has increasingly expressed anxiety to advisers that a downturn would harm his re-election chances. He has lashed out repeatedly at Mr. Powell for not lowering interest rates further and faster, even calling him an “enemy,” and he has complained that his opponents and journalists are cheerleading for a recession to take him down.

ImageWestlake Legal Group merlin_159896784_26b40d25-1ebe-49f3-89c8-835698959de9-articleLarge Amid Recession Worries, Trump Points Finger at American Businesses White House Council of Economic Advisers United States Politics and Government United States Economy United States Chamber of Commerce Trump, Donald J Powell, Jerome H International Trade and World Market Holtz-Eakin, Douglas Furman, Jason Economic Conditions and Trends China

“We don’t have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem,” President Trump tweeted on Friday. “They don’t have a clue!”CreditDoug Mills/The New York Times

“We don’t have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem,” he wrote on Friday. “They don’t have a clue!”

But his attack on American businesses takes the blame game to a new level, faulting the very sector that he has sought to court with his moves to lower corporate taxes and lift the burden of regulations.

“Blaming businesses for the economic situation is silly since they respond to incentives and uncertainty,” said Jason Furman, who was chairman of the President’s Council of Economic Advisers under Barack Obama. “The job of a policymaker is to help create an environment for businesses to fuel economic growth, not to preemptively blame them for the potential lack of growth.”

Thomas J. Collamore, a former executive vice president of the United States Chamber of Commerce, said he would advise Mr. Trump “to charge his very able trade negotiators” to strike the best deal possible with China, which would allow businesses to expand and stimulate the economy.

“The uncertainty created by additional tariffs or threats of more is causing business to pause and sit on their hands, which could unwittingly lead to an economic version of Hurricane Dorian,” Mr. Collamore said.

The president’s outburst at businesses came a day after Americans for Free Trade, a coalition of industry groups, released a letter signed by more than 160 business associations asking him to postpone further tariff increases.

“Tariffs are taxes that cost American jobs and hurt consumers, creating a problem for the entire U.S. economy,” the group said in response to the president on Friday. “The fact that companies find extra taxes as high as 30 percent challenging is not an excuse, it’s an economic reality.”

A number of large American companies have struggled with life under Mr. Trump’s trade war and in recent days several have reported or projected slowing sales and profits that they attributed to the tariffs.

Deere & Co., which manufactures agricultural equipment, said last week that it was cutting its profit forecast for the second time this year, attributing it to farmers delaying purchases for fear that they will not have as much access to foreign markets.

Best Buy lowered its revenue forecast for the year on Thursday, with its chief executive noting that major products like televisions and smartwatches will be subject to new 15 percent tariffs ordered by Mr. Trump. Clothing retailers like J. Jill and Chico’s have also said they expect lower sales in the third quarter as the next round of tariffs go into effect on Sunday.

“He’s got a substantive problem,” Mr. Holtz-Eakin said of Mr. Trump. “He’s proud of his fulfilling campaign promises — that is a centerpiece of his re-elect and what he’s got with China is higher tariff walls on both sides, damage to both economies and the global economy and nothing to show for it.”

By hammering away at Mr. Powell, his opponents and now American businesses, aides say Mr. Trump wants Americans to know the impediments hindering the economy even as he continues to make the case that the country is still in good shape.

“The economy is doing great,” he said on Friday. “The economy is amazing actually.”

After wild fluctuations in recent days, the markets took his latest comments relatively calmly. The S&P and Nasdaq indexes were essentially flat on Friday, and the Dow Jones closed for the day up by about 1.5 percent.

But as tariffs continue to rise and the election year approaches, Mr. Trump will soon be left to make a calculation about how far he can go in staring down China before it puts his political future in jeopardy, no matter who else he plans to blame. The Chinese know that and they do not have an election to worry about.

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Michael Flynn’s Lawyers Escalate Attacks on Prosecutors

WASHINGTON — Lawyers for Michael T. Flynn, the president’s first national security adviser, escalated their attacks on prosecutors on Friday, recycling unfounded conspiratorial accusations in a last-ditch bid to delay his sentencing in a case in which he has twice admitted guilt.

The move could anger Emmet G. Sullivan, the federal judge who will sentence Mr. Flynn. The filings could magnify any doubts by Judge Sullivan about whether Mr. Flynn truly accepts responsibility for his crime of lying to the F.B.I. and whether he fulfilled his cooperation agreement with the government in one of the lingering cases brought by the special counsel, Robert S. Mueller III.

In a pair of filings, Mr. Flynn’s lawyers made clear that they view him as a victim of prosecutorial misconduct, amplifying right-wing theories about a so-called deep state of government bureaucrats working to undermine President Trump. The defense lawyers accused prosecutors of engaging in “pernicious” conduct in Mr. Flynn’s case, saying they had been “manipulating or controlling the press to their advantage to extort that plea.”

Mr. Flynn’s abrupt change of course has heightened speculation that he could be making a bid for a pardon by playing up accusations of government corruption that the president has also embraced. A former personal lawyer for Mr. Trump broached the prospect of a pardon with a previous lawyer for Mr. Flynn two years ago as the special counsel was closing in on charging him, raising questions about whether the president’s lawyer was trying to influence Mr. Flynn’s decision to cooperate with the special counsel.

Prosecutors had previously recommended a punishment of probation without prison time for Mr. Flynn, but the judge could decide to sentence him to prison if he believes that Mr. Flynn lacked contrition and failed to live up to his obligations. Judge Sullivan had said he was disgusted that Mr. Flynn illegally lied to F.B.I. agents questioning him in January 2017 in the Russia investigation and did so in the White House.

“This is a very serious offense,” Judge Sullivan said at a December hearing. “A high-ranking senior official of the government making false statements to the Federal Bureau of Investigation while on the physical premises of the White House.”

In a separate joint filing submitted to the judge on Friday, Mr. Flynn’s new lawyers said he had fully cooperated with the government but argued that the case was not ready to be sentenced because they required more time to review all the information they received from his previous lawyers. They asked for an additional 90 days before the next status hearing, but prosecutors said they were ready to schedule one sooner.

Westlake Legal Group mueller-report-document-promo-1555353284901-articleLarge-v9 Michael Flynn’s Lawyers Escalate Attacks on Prosecutors United States Politics and Government Trump, Donald J Sullivan, Emmet G Special Prosecutors (Independent Counsel) Russian Interference in 2016 US Elections and Ties to Trump Associates Justice Department Flynn, Michael T

Read the Mueller Report: Searchable Document and Index

The findings from the special counsel, Robert S. Mueller III, are now available to the public. The redacted report details his two-year investigation into Russian interference in the 2016 presidential election.

Judge Sullivan agreed to hold a hearing on Sept. 10, apparently dismissing the arguments of Mr. Flynn’s lawyers. After Judge Sullivan’s decision to move forward, Mr. Flynn’s lawyers fired their latest salvo at prosecutors.

Mr. Flynn hired his new lawyers in June, including Sidney Powell, who has repeatedly attacked the special counsel’s prosecutors in appearances on Fox News. A day before submitting the latest court filings, Ms. Powell retweeted a message that both accused F.B.I. officials of entrapping Mr. Flynn and tried to raise money for his defense fund.

Ms. Powell told the judge, as she had earlier, that she also requires a security clearance and access to classified material related to Mr. Flynn’s conversations with the Russian ambassador, Sergey I. Kislyak, in the month after Mr. Trump’s election. The lies Mr. Flynn told to F.B.I. agents came in response to questions about whether he and Mr. Kislyak discussed sanctions that the departing Obama administration had just imposed on Russia.

“We must have access to that information to represent our client consistently with his constitutional rights and our ethical obligations,” Mr. Flynn’s lawyers wrote.

The classified transcripts of the calls make clear that the two men discussed sanctions at length and that Mr. Flynn was highly unlikely to have forgotten those details when questioned by the F.B.I., several former United States officials familiar with the documents have said. It was clear, the officials said, that sanctions were the only thing Mr. Flynn wanted to talk about with Mr. Kislyak.

Mr. Flynn’s lawyers also suggested in the filing that the government had exculpatory material, but it is not clear if they consider the transcripts to be that material. Some conservatives have embraced a theory that Mr. Flynn’s nonchalance in the F.B.I. interview, which agents documented because it seemed at odds with how blatantly he was lying, was exonerating.

In court papers, Mr. Flynn’s lawyers asked the judge to compel the production of potentially exculpatory information.

His lawyers also compared the prosecution of Mr. Flynn to the trial of Senator Ted Stevens of Alaska in an apparent bid to raise the sympathies of Judge Sullivan, who presided over it and overturned Mr. Stevens’s conviction because prosecutors withheld evidence. Judge Sullivan also named a special prosecutor to investigate whether the government’s lawyers had committed misconduct.

Westlake Legal Group mueller-report-citations-promo-1555718437298-articleLarge-v3 Michael Flynn’s Lawyers Escalate Attacks on Prosecutors United States Politics and Government Trump, Donald J Sullivan, Emmet G Special Prosecutors (Independent Counsel) Russian Interference in 2016 US Elections and Ties to Trump Associates Justice Department Flynn, Michael T

See Which Witnesses the Mueller Report Relied on Most

A partially redacted report of the special counsel’s findings released on April 18 cited interviews with 43 individuals at least 10 times.

Mr. Flynn’s lawyers said prosecutors are in “possession of evidence favorable to the defense, but they have steadfastly refused to produce the actual evidence” as well as “information specifically exonerating Mr. Flynn.”

Mr. Flynn’s lawyers also laid out a constellation of theories that have taken hold among Mr. Trump’s allies as signs of corruption among law enforcement and intelligence officials. The lawyers suggested without evidence that the government used an F.B.I. informant who had done work for the Pentagon to smear their client as an “agent of Russia.”

They also cited possible abuses of electronic communications intercepted by the National Security Agency, and they tied prosecutors and a senior F.B.I. agent on the case to Bruce Ohr, a senior Justice Department official whom Mr. Trump and his allies have targeted over his minor role in the Russia investigation. Mr. Ohr played no part in the prosecution of Mr. Flynn.

In their terse response to Mr. Flynn’s defense lawyers, prosecutors said in a filing that Mr. Flynn’s cooperation was over and dismissed requests for more information.

Prosecutors added that they are “not aware of any issues that require the court’s resolution prior to sentencing,” and “the government is not aware of any classified information that requires disclosures to the defendant or his counsel.”

Judge Sullivan already rebuked Mr. Flynn for suggesting in earlier court papers that the F.B.I. had tricked him into lying to the agents who questioned him. The judge then delayed Mr. Flynn’s sentencing last December so he could testify for the government against a former business partner, Bijan Kian, to maximize the help that Mr. Flynn was providing to prosecutors.

But Mr. Flynn changed his story on the eve of Mr. Kian’s trial on charges of violating foreign lobbying laws. Mr. Flynn had previously admitted that he too lied on foreign lobbying disclosure forms submitted to the Justice Department but then, in an unusual turn of events, blamed his former lawyers for filing inaccurate forms without his knowledge.

Prosecutors declined to use Mr. Flynn as a witness in the trial of Mr. Kian, who was convicted in July, prompting questions about how Judge Sullivan would determine whether Mr. Flynn had fulfilled his obligations to help the government in exchange for a more lenient sentence.

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Tensions Flare Between Trump and Fox News

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Tensions between the White House and Fox News ratcheted up this week after President Trump declared that the network was letting his supporters down and two on-air personalities said they “don’t work” for him.

The back-and-forth began Wednesday when Mr. Trump took to Twitter to rebuke the network for airing an interview with Xochitl Hinojosa, a spokeswoman for the Democratic National Committee.

Mr. Trump said Ms. Hinojosa was “heavily promoting” Democratic candidates with “zero pushback” from the anchor, Sandra Smith.

“They should go all the way LEFT and I will still find a way to Win – That’s what I do, Win,” he wrote.

Referring to the network as “the new Fox News,” he continued by saying the network “is letting millions of GREAT people down!”

“We have to start looking for a new News Outlet,” he added. “Fox isn’t working for us anymore!”

This was not the first time that Mr. Trump had expressed frustration with Fox News, but it was eye-opening. The president has good relationships with many of Fox’s on-air personalities, including the hosts of “Fox & Friends,” Sean Hannity, Jeanine Pirro and Laura Ingraham. His former spokeswoman, Sarah Huckabee Sanders, signed on as a Fox News contributor last week.

But whether this is a sign of genuine deterioration in relations between the president and his preferred cable channel or a short-lived dust-up will be closely watched by news executives and throughout the Beltway.

On Thursday, two on-air personalities responded to Mr. Trump’s tweets.

Neil Cavuto, an anchor for Fox News and Fox Business Network who has been critical of Mr. Trump in the past, said on the air: “Mr. President, we don’t work for you. I don’t work for you. My job is to cover you, not fawn over you or rip you. Just report on you — to call balls and strikes on you. My job, Mr. President — our job here — is to keep score, not settle scores.”

“You’re entitled to your point of view, Mr. President,” he continued. “But you’re not entitled to your own set of facts.”

Brit Hume, a senior political analyst for Fox News, echoed Mr. Cavuto’s comments and tweeted, “Fox News isn’t supposed to work for you.”

“We have tried to be fair to him in our news coverage,” Mr. Hume said in another tweet responding to someone who had asked why Mr. Trump thought Fox worked for him. “Best example: we didn’t fall for the Russia conspiracy theory that ended in such a fiasco for other outlets. Plus, some of our opinion hosts support Trump. (Others don’t.)”

Fox News declined to comment for this article. The White House declined to comment on Mr. Trump’s complaints about Fox News or Mr. Cavuto’s retort, preferring to leave the sparring to the president himself.

While in office, Mr. Trump has reserved his most cantankerous barbs for other news outlets. This week alone, he has attacked The New York Times, The Washington Post, Axios and NBC.

But the president has increased his criticism of Fox News in recent months. On Sunday, he said the network was “not what it used to be” when he expressed unhappiness with a poll. He has also attacked the Fox News contributor Donna Brazile, the anchors Shepard Smith and Chris Wallace, and the Fox analyst Juan Williams.

Early this month, Mr. Trump said that “watching Fake News CNN” was better than watching Mr. Smith’s show and that “whenever possible” he turned to the One America News Network. When Mr. Wallace interviewed the Democratic presidential candidate Pete Buttigieg in May, Mr. Trump said Fox News was “moving more and more to the losing side.”

By Friday afternoon, it appeared that Mr. Trump had other targets on his mind.

Over the course of two hours, he had tweeted four videos on the Justice Department’s critical inspector general report regarding the former F.B.I. director James B. Comey. All four clips featured guests criticizing Mr. Comey, and all four clips were from Fox News.

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Will America Talk Itself Into a Recession? Trump’s Advisers Are Worried

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President Trump’s economic advisers do not see a recession on the horizon, but they worry that gloomy news reports and a drumbeat of recession warnings could turn fear of one into reality.

In an interview on Thursday, the acting chairman of Mr. Trump’s Council of Economic Advisers, Tomas Philipson, said that reporters who had fixated on possible signs of a recession in bond markets this month appeared “to want people to lose jobs” and “become not economically self-sufficient.”

“As an American,” Mr. Philipson said, “you should not want a recession, no matter your political views.”

Mr. Trump’s escalating trade war is the reason economists, traders and the American public are increasingly worried about the possibility of recession. As the president punishes China with higher tariffs — and Beijing retaliates — the fight is exacerbating a global growth slowdown while dragging on investment and business confidence in America.

Investment has slowed this year, and actually contracted in the spring, and manufacturing output has slumped. Global growth is cooling, and the Federal Reserve has cut interest rates, partly out of concern over tariff-driven uncertainty. The overall growth rate has fallen, compared with last year.

Through all that, Americans have kept shopping, continuing to power economic growth. Consumer spending increased at an annualized rate of 4.7 percent in the spring, the Commerce Department said on Thursday, its fastest quarterly increase in nearly five years.

But one measure of consumer sentiment slipped by the most since 2012, data Friday showed, seemingly on tariff concerns: One in three respondents spontaneously mentioned the trade war.

Administration officials want to keep confidence high and are increasingly shifting blame for any slowdown on the media, Democrats and the Fed, which Mr. Trump has accused of putting the United States at a disadvantage to other countries by keeping interest rates too high.

“The way the media reports the weather won’t impact whether the sun shines tomorrow,” Mr. Philipson said. “But the way the media reports on our economy weighs on consumer sentiment, which feeds into consumer purchases and investments.”

Mr. Trump himself has raised similar concerns but has dismissed any talk of recession as improbable given the “strong” economy.

On Friday, Mr. Trump continued his attack on the Fed as the main culprit in any slowdown, saying on Twitter, “The Euro is dropping against the Dollar ‘like crazy,’ giving them a big export and manufacturing advantage … and the Fed does NOTHING!”

He also rejected the idea that his tariffs are hurting American companies, saying any corporate pain is self-inflicted. “Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management … and who can really blame them for doing that? Excuses!”

Even as signs of nervousness surface, official White House forecasts, issued as recently as this summer, continue to call for growth to accelerate in the second half of this year. While bond traders, business economists and poll respondents are expressing rising concern over the health of the economy, economists independent of the White House say there is no reason to believe a recession is inevitable in the United States over the next year or so. Independent forecasts predict that economic growth in July, August and September will be about where it was in April, May and June: around 2 percent, slow and steady.

“There really is no reason why the expansion can’t keep going,” Jerome H. Powell, the chair of the Fed, said at his last news conference.

Many economists say that if a recession does arrive, cratering consumers will not be the root cause — and that Mr. Trump’s trade policies and the uncertainty they are stoking are the more likely culprit.

But some forecasters agree that fear itself could become a problem. Consumers drive about 70 percent of economic activity in America, and if they become spooked and pull back on purchases, growth could slow more sharply. Stock market losses could unsettle Americans and cause them to clamp their wallets shut.

“If headlines about trade wars and currency wars dominate the media and the airwaves,” then “you could get in this spiral where people lose confidence and stop spending,” said Megan Greene, a senior fellow at the Harvard Kennedy School. Still, she does not expect an outright recession until 2021 in part because the labor market remains strong, making an imminent consumer pullback avoidable.

By several measures, the American economy continues to thrive, particularly when compared with other rich countries. Unemployment is hovering around its lowest level since 1969, the job market is growing faster than many economists had thought possible, and wage growth is picking up as companies compete for workers. That is leaving average Americans with more money in their pocket and greater wherewithal to spend.

Despite recession chatter, consumers are likely to remain strong as long as their paychecks are growing, said Seth Carpenter, the chief United States economist at UBS.

“If somebody gets a raise and their spouse gets a new job, they’re still going to be spending,” he said.

Households could keep the economy chugging along even as trade uncertainty drives companies to behave cautiously, if recent precedent holds. When growth slowed down in 2016, thanks in large part to an oil price slump that caused a drop-off in business investment, America kept shopping — and the expansion continued.

For all of its importance to growth, consumers’ behavior is historically a poor indicator of where the economy is headed. Shopping habits change quickly and often pull back only after a broader slowdown has taken hold.

“When the American consumer is strong, the expansion will have at last some momentum,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and previously an economic adviser to Vice President Joseph R. Biden Jr. But “it’s harder to see around any more distant corners.”

That is why economists monitor forward-looking economic indicators, some of which are showing cracks.

Interest rates on short-term government securities exceeded those on longer-dated bonds — a reliable recession indicator that suggests investors are pessimistic about the economic outlook. Trade tensions and slower global growth are weighing on business sentiment and investment, and measures tracking both factory and service industries have slowed down.

Tariffs are set to ramp up in the coming months, which could further restrain business activity. Mr. Bernstein expects the escalation that is already planned to help slow growth to 1 percent by the second half of next year. That weakening could be painful even if it stops short of a recession, which is usually defined as two or more quarters of outright economic contraction, leading to higher unemployment and slower wage growth for everyday Americans.

“Crossing zero obviously catches everyone’s attention,” Mr. Bernstein said. “But a deceleration can feel just as bad to a lot of people.”

There is a way to keep the current jitters from taking a turn for the worse, many economists say: Stop ramping up the trade war.

“The trade war is categorically the single biggest risk,” Mr. Carpenter said. He did not expect the tensions to cause a recession next year, but said they would slow the economy down, increasing the risk that any surprise shock would tip off a downturn.

If growth does start to sour, walking back the tariffs could provide some relief. But once pessimism becomes entrenched, even that may not offer a quick fix.

“Just taking them off absolutely is helpful in some regard,” Mr. Carpenter said. But businesses may be slow to believe that tensions have eased, so their investment may take time to recover. “Most of the damage will have been done.”

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Beijing’s Hong Kong Strategy: More Arrests, No Concessions

HONG KONG — The arrests on Friday of prominent democracy activists in Hong Kong reflect a tactical escalation by China’s leaders, one that they hope will curb the escalating street violence of recent weeks, but which could run the risk of prolonging protests in the city for many more months.

Officials in Beijing, along with the Hong Kong government that answers to them, have decided on a policy of stepped-up arrests of demonstrators, who would be publicly labeled the most radical of the activists, according to Hong Kong cabinet members and leaders of the local pro-Beijing establishment.

In interviews over the past two weeks, these local political figures stressed that China wants the Hong Kong police to carry out the arrests — not Chinese soldiers, whose intervention in the city’s affairs would be unprecedented.

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For more than two months, antigovernment protests have gripped Hong Kong, with anger rising over China’s growing influence. Here are tactics the Chinese government is using to frame the narrative.

Beijing has also ruled out making concessions to the demonstrators, they said. With protest leaders also vowing not to back down, the officials acknowledged that the price of the strategy could be months of acrimony, possibly stretching into 2020.

“I hope we can start the process of reconciliation before the end of the year,” Ronny Tong, a member of Hong Kong’s Executive Council, or cabinet, said in an interview last week.

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Police officers drew guns Sunday on protesters who charged at them with sticks. One officer fired a warning shot.CreditLam Yik Fei for The New York Times

Beijing and Hong Kong officials are betting that the protests will gradually die down as the police detain the most hard-line demonstrators, and that public opinion will turn more decisively against the use of violence, said Lau Siu-kai, a longtime adviser to the Chinese government on Hong Kong policy.

The Hong Kong police said on Friday that they had arrested more than 900 people this summer in connection with the protests. Some of the local political figures estimated that as many as 4,000 protesters were seen by the authorities as radicals, but that it was unclear how many would eventually face legal action.

The police, who have been accused by demonstrators and international rights groups of using excessive force, have “not used their capacity to suppress the protests” until very recently, said Mr. Lau, who ran the city’s policy planning agency for a decade until 2012.

With broad public backing from mainland China, “the mood of the police was lifted up and they became even more ferocious in putting down the protests,” said Mr. Lau, who is now vice chairman of the Chinese Association of Hong Kong and Macau Studies, a semiofficial advisory body set up by Beijing.

With China’s hard-line leader, Xi Jinping, dealing with a trade war with the United States, a strategy of attrition in Hong Kong could be seen as preferable to a rash approach that might risk spiraling into a major crisis.

But it is far from clear how much success the authorities will have with their strategy of arresting protesters, resisting concessions and delaying negotiations. The arrests have begun to draw criticism from around the world.

Hundreds of thousands of protesters marched on Aug. 18, defying a police ban.CreditLam Yik Fei for The New York Times

The handful of democracy activists who were arrested on Friday have relatively moderate reputations. They include Joshua Wong, who rose to global prominence with the so-called Umbrella Movement protests in 2014, and who has publicly called this summer for protesters not to use violence. Mr. Wong and another activist, Agnes Chow, were later released on bail.

Demonstrators have contended that at least some of the violence attributed to them may have been instigated by undercover police agents. The police have acknowledged infiltrating the protests with officers dressed to look like demonstrators.

Protesters also suspect the authorities of involvement in a spate of attacks on democracy activists by men armed with sticks, baseball bats and even meat cleavers. Similar incidents in Hong Kong over the years have been linked to organized crime groups, which have a history of ties to Beijing.

The mutual distrust has become so great that not only are the authorities and pro-democracy activists not holding talks, but the informal contacts that once existed between the government and the older generation of activists — who, themselves, are mistrusted by many of the younger protesters — have essentially come to a halt.

Each side has worried that any effort to quietly negotiate a deal would be torpedoed by leaks, embarrassing anyone who might try to strike a compromise. From the government’s point of view, those fears were realized when Carrie Lam, the chief executive, met with local young people this week, only for a recording to be leaked to Apple Daily, a pro-democracy media outlet.

Democracy advocates consider Mrs. Lam a puppet of China’s leaders, but they have also ruled out talks with the Liaison Office, which represents Beijing’s interests in Hong Kong.

Joshua Wong and Agnes Chow, two prominent pro-democracy activists who were arrested on Friday, spoke to the news media after being released on bail.CreditLam Yik Fei for The New York Times

“This is the situation we are in: absolutely no back channel and total distrust between the two sides,” said Alan Leong, the leader of the Civic Party, one of Hong Kong’s largest pro-democracy parties.

“How would I in my right mind walk into the Liaison Office — that would upset the whole unity” of the democracy movement, he added.

The democracy advocates have agreed not to criticize the violent tactics of some of the younger protesters — a turnaround for many of the older activists, who have shunned violence since Britain returned Hong Kong to Chinese rule in 1997. Some pro-democracy lawmakers with decades-long track records of opposition to Beijing say they have been characterized as sellouts by hard-line protesters when they suggested compromising or refraining from violence.

“They will not listen to us, they think we are all outdated,” said Anson Chan, a longtime campaigner for democracy who was Hong Kong’s second-highest official in the years immediately before and after the 1997 handover.

On Tuesday, Mrs. Lam announced plans for a “platform for dialogue” to find a way out of the political quagmire. But she has sought to meet with neutral community leaders, not the opposition, and she has already ruled out accepting any of the protesters’ five demands, which include universal suffrage, amnesty for protesters and an investigation of the police’s conduct.

Given how polarized the city is now, it has been hard to find neutral figures with whom Mrs. Lam could meet, said Mr. Tong, the cabinet member, who is working on the matter for the chief executive.

Chinese military vehicles this month in Shenzhen, which borders Hong Kong. An adviser to Beijing said military exercises in the city were not a prelude to a deployment in Hong Kong.CreditLam Yik Fei for The New York Times

Mr. Lau, the adviser to Beijing, said that democracy advocates were overestimating the extent to which Chinese leaders worried about being embarrassed internationally by the protests.

He said they paid more attention to how events in Hong Kong were seen within mainland China, adding that public perceptions there of disorder in Hong Kong had led to a nationalistic wave of support for Beijing.

The Chinese government has pushed those perceptions itself, through the state media’s misleading coverage of the protests.

The Chinese military’s police conducted large exercises just across the border from Hong Kong this month as a show of force. But those exercises were aimed at showing that China is prepared for any contingency, and were not a preamble to any plan for actual deployment in Hong Kong, Mr. Lau and others familiar with the exercises said.

The maneuvers followed plans, drafted years ago, for clearing hostile crowds who establish prolonged control of large urban areas — a tactic that Hong Kong protesters used for months in 2014, but have largely avoided this year.

Martin Lee, a veteran pro-democracy campaigner and founder of the Hong Kong Democratic Party, said that Beijing did not want anything to mar its Oct. 1 celebration of the 70th anniversary of the founding of the People’s Republic of China. Beijing “won’t allow bloodshed to happen in Hong Kong before then — after Oct. 1, beginning on the 2nd, I don’t know,” Mr. Lee said.

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