In this second part of the halftime report for Tax Foundation Forum: Making Sense of Profit Shifting, we discuss the key takeaways from the first half of our series on profit shifting (read part I here). In this post, we...
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- 29 Members of Congress Ask California to Boost Film Tax C...
29 Members of Congress Ask California to Boost Film Tax Credits
29 Democratic members of Congress from California today urged California to make its film tax credit more generous. A bill to do so, AB 1839, has passed the state Assembly and is pending in the Senate.
California has seen billions of dollars of film and television productions flow out of Hollywood to Canada, New York, Louisiana, Georgia, and other places, due to these governments providing some $1.5 billion annually in refundable and transferable tax credits (direct subsidies in all but name).
The bill would loosen current requirements to access the present $100 million per year tax credit program, and raise the current cap. Although everyone says a cap will be in the final legislation, it’s not in the current form and no one seems willing to commit to a number. I’ve heard $400 million floated around – a lot of tax money to commit to subsidizing film production for a state with many important needs.
- In return for hundreds of millions of dollars of tax subsidies, the film industry promises to… what, exactly? The bill has very little in the way of commitments to keep productions in the state. Is it too much to ask that a film studio that accepts taxpayer subsidies intended to keep productions in California actually promise that, say, 50% of all production activity by that studio be in California? (There is a real danger that the studios will take California’s sweetened deal and leverage it with New York and Louisiana and so forth to demand more subsidies from them.) Or have an average of so many thousand jobs in the state? Other tax credit programs require recipients to meet specified job and production numbers or else they don’t get the tax subsidy. Why should this be different? To lure back productions that have proven to be disloyal to California, more is needed than giving them more money and hoping for the best.
- The 29 members of Congress who signed this letter speak only of how California should spend more, and are silent on what they can do. Other states are disrupting interstate commerce since productions are just moving from one state to another without any net national increase. Just as Congress has used its power to stop states from taxing interstate travel into oblivion, Congress has the power to stop other states from doing this. Have the letter's authors - Adam Schiff, Judy Chu, Karen Bass, Julia Brownley, Tony Cárdenas, Lois Capps, Anna Eshoo, Sam Farr, John Garamendi, Janice Hahn, Mike Honda, Jared Huffman, Barbara Lee, Zoe Lofgren, Alan Lowenthal, Doris Matsui, George Miller, Jerry McNerney, Grace Napolitano, Lucille Roybal-Allard, Linda Sanchez, Loretta Sanchez, Brad Sherman, Eric Swalwell, Mark Takano, Mike Thompson, Juan Vargas, Maxine Waters and Henry Waxman - proposed a bill to stop states from offering film tax credits that disrupt the interstate market without helping the national economy as a whole? Held a hearing? Discussed solutions aside from throwing more money at the problem? The studios obviously like the monetary race to the bottom since it lines their pockets, and California's options are limited, but Congress can come up with an actual solution that solves the real underlying problem.
- The letter misleads the reader on research findings. It cites just two studies – one by the Los Angeles Economic Development Corporation and the other by the Headway Institute – for the argument that “for every dollar allocated to the film tax credit, the state and local governments saw a net positive impact in their tax revenues.” They don’t mention that the Los Angeles EDC study was funded by the Motion Picture Association of America (MPAA) and that its finding (every $1 of film tax credits leads to $20 of new economic activity) is unbelievably high and wildly out of line with every independent study on the subject. As for the Headway Institute, that does not exist – the authors likely meant the Headway Project, a self-described progressive group that seems to have only ever produced this one study calling for more film credits. The study itself, by UCLA researchers, actually found the Los Angeles EDC study overstated benefits and that more research is needed.
As I noted to Bloomberg BNA earlier this month, it’s tough to say no to Hollywood. They want the state to write a blank check to them, and it’s hard to really blame them. I hope the legislators will keep in mind that this needs to be a good deal for all Californians, not just those working for the film industry.
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