On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- Maryland Film Tax Credits: A House of Cards
Maryland Film Tax Credits: A House of Cards
The Washington Post reported yesterday that the production company in charge of House of Cards, Media Rights Capital (MRC), doesn’t think they’re getting enough in film tax credits from the State of Maryland. Post Local made public a letter sent by the Senior Vice President of MRC to Maryland Governor Martin O’Malley:
We know that the General Assembly is in session, and understand legislation must be introduced to increase the program’s funding. MRC and House of Cards had a wonderful experience over the past two seasons and we want to stay in Maryland. We are ready to assist in any way possible to help the passage of the bill.
In the meantime I wanted you to be aware that we are required to look at other state in which to film on the off chance that the legislation does not pass, or does not cover the amount of tax credits for which we would qualify. I am sure you can understand that we would not be responsible financiers and a successful production company if we did not have viable options available.
We wanted you to be aware that while we had planned to begin filming in early spring, we have decided to push back the start date for filming until June to ensure there has been a positive outcome of the legislation. In the event sufficient incentives do not become available, we will have to break down our stage, sets and offices and set up in another state.
It’s like Frank Underwood wrote this letter himself.
MRC’s political ploy is perfect example of how film tax credits function: every state wants their own piece of Hollywood sparkle, and production companies can use this as a bargaining chip. They know that states will compete for their business and that they can pit states against one another to get extra funding.
The Post reported that MRC will rake in $26 million for the first two seasons of House of Cards. Maryland’s film credit program allows $25 million in incentives to be awarded in 2014 and $7.5 million each for 2015 and 2016. HB 0520 would increase the amount that could be awarded in 2015 from $7.5 million to $11 million. Another bill, SB 1051, would increase it to $18.5 million.
States mistakenly think film production will be a boon to the state’s economy. They’re wrong for multiple reasons:
- Film production only creates temporary jobs, and companies can leave at the drop of a hat. The Maryland Film Office estimated that House of Cards Season 1 “resulted in local hiring of 2,193 Maryland crew, cast, and extras” but it’s pretty clear based on the letter above that companies can bolt the second they get a better deal. And those jobs aren’t available once filming wraps up.
- Programs do not “pay for themselves” as is often touted. Proponents will argue that increased economic activity will create enough new tax revenue to make up for the initial loss of revenue from the credit. That’s not true. In fact, film tax incentives are a net loss to states, and there are plenty of studies demonstrating this.
- Estimates of economic impact should be taken with a grain of salt. As we noted a few years ago: “[a]dvocates rightly point out that one dollar of film spending trickles through the economy and creates more economic activity. For instance, if a film production spends one dollar on wages for a worker, that worker will take that income and spend it in the economy, creating income for others, and so on…But the fact that film productions impact the broader economy is not unique to this industry.” If those dollars from the State of Maryland weren’t spent on film production, they’d be spent on something else and still cycle through the economy. Those 2,193 employees the Maryland Film Office is touting likely would have happened anyway.
SPOILER ALERT! This following paragraph contains a few very minor Season 2 spoilers—nothing extreme, but read carefully if you’re not fully caught up.
On top of these compelling economic reasons for opposing film tax credits, there’s also a state pride issue going on here. For all of those that watch House of Cards, you’ll notice that Season 2 wasn’t kind to Maryland (with the exception of a shout-out to the Baltimore Orioles). The production company disguises the Old Line State to look like D.C. because Maryland film tax credits made it cheaper to film in fake D.C., rather than real D.C. just across the border. For example, the Washington Herald building is actually the Baltimore Sun building, just altered. In the opening episode of Season 2, a fake Washington D.C. metro station was created using an existing Baltimore metro station. They even make fun of Joppa, Maryland in Chapter 14.
States often hope being featured in a movie or television show will drive tourism to the state—but that won’t be the case with House of Cards. I wouldn’t doubt that the show drives visitors to our nation’s capital, but it’s unlikely that any will make a stop in Maryland.
I hope Maryland lawmakers will see that Mr. Goldstein’s threat is simply a ploy to get an additional handout. Film tax credits are poor tax policy—and not even Frank Underwood could spin it otherwise.
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