Last Wednesday, Governor of Connecticut Dannel P. Malloy (D) announced that the primetime game show Who Wants to Be a Millionare? had moved its production to Connecticut from New York to take advantage of film taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentives. Although this seems like a win for Connecticut, the gains are small compared to the overall cost of the tax incentive program.
Since 2007, Connecticut has spent an average of $62 million per year on film tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s, the 8th highest in the nation. But it is unclear whether Connecticut’s long-time residents and taxpayers benefit from this incentive program.
The move of Who Wants to Be a Millionaire? is lauded thanks to the 150 new above-average-wage jobs which are expected to accompany the show. While it’s true that average wage incomes of film and television production jobs are higher than the national average private sector job, these employment gains are restricted to Stamford, a city in southwest Connecticut. It’s hardly fair that all of Connecticut’s citizens will have to subsidize employment gains from which most will derive no benefit. Plus, 150 jobs is a vanishingly small economic impact considering that Connecticut has over 1.6 million private sector workers. Such narrowly-targeted incentives are unlikely to drive broad-based economic prosperity for the whole state.
Putting localized economic benefit to the side, Connecticut’s film tax incentive program is simply bad policy. Out of all industries, why should film and television be subsidized? While it may be a “landmark” industry that is important to Connecticut’s citizens, there are other landmark industries like oyster harvesting or firearms manufacturing that do not receive such generous treatment, and yet oyster harvesters loyally remain in the state. Second, the tax incentives tend to disproportionally benefit new firms which make new investments, like Disney-ABC currently. This breeds a cycle of new firms making investments and receiving credits, while mature pay the whole cost of the tax bill. Third, the tax credits decrease the costs of production for shows like Who Wants to Be a Millionaire?, encouraging companies to spend more making these shows than they otherwise would have. These companies make excessively risky investments in worker training and infrastructure, knowing that they will fully benefit from the success of these investments while their failure will be partially subsidized. This is both economically unsound and unfair to other industries that bear the full cost of their mistakes.
Finally, and perhaps most significantly for a state like Connecticut with a large film and media industry, the tax credit program creates distortions within these industries. In defining “qualified recipients,” the legislation discriminates between certain programs, excluding programs such as news, weather, and financial reports. Although these programs may not be as popular as Who Wants to Be a Millionaire?, excluding them from benefiting from the credits is simply arbitrary and eventually leads to a suboptimal amount of these kinds of programs.
Even if Connecticut understands the weakness of this policy, its policymakers could be reluctant to scale back or eliminate it because of national competition. Many states provide generous film tax credits, and the cutting of subsidies might put Connecticut in danger of losing film production companies to these states. However, there are ways of mitigating this hazard other than an incentives-driven race to the bottom. Lowering Connecticut’s overall high business tax burden instead of providing carve-outs for special interests would allow the state to retain and even attract valuable establishments. Lower rates and broader bases can help support broad economic growth benefiting all Connecticut residents, not just a few select firms.
When states like Connecticut unhealthily compete for transient benefits that end up bettering only select companies at the expense of everyone else, the entire nation loses. This kind of lose-lose interstate competition is actually why the Constitution provides Congress the power to regulate interstate commerce. But by replacing a system of high rates and numerous carve-outs with broad tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. s and low tax rates, Connecticut could create a more conducive climate for all businesses, not just film production.
Read more on film incentives here.
Read more on Connecticut here.
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