Connecticut has decided to temporarily suspend the state’s 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. benefit program for two years after aggressively handing out tax breaks for production studios over the past six years, at the cost of $137.4 million. Connecticut’s fiscal issues have played a substantial role in the decision to eliminate the 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. , as they face a $1.5 billion budget shortfall for the upcoming fiscal year.
State officials tout the tax credits as job and investment opportunities, but the credits have continuously failed to generate a revenue stream to justify their costs. Movie production incentives can be distributed in many different ways: as tax credits, rebates, grants, and exemptions, all of which cost the state a substantial sum of money.
Movie production incentives have become far less popular the last few years, as state officials across the country have realized that these programs provide few real benefits. Several cases of misuse of funds and corruption have also been reported, including one notable episode where filmmaker Daniel Adams pleaded guilty to multiple fraud charges in connection with films that he received tax credits from Massachusetts. Additionally, 37 states now have film tax credit programs; since these states are competing for limited resources, individual states are unlikely to gain much from the program.
Although Connecticut has suspended its movie production incentives, it continues to fund television production enterprises. The rationale for this is somewhat equivocal. The jobs associated with the film industry often require specialized skills, so production studios often bring their out-of-state workers with them. This means that movie production does not generate long-term economic growth. Meanwhile, television-production enterprises such as ESPN at least bring a more perpetual presence to the area.
Regardless, special carve outs for film and television production are distortionary, since they favor specific sectors of the economy over others. This leads to economic decisions being made based on how much the tax code can be leveraged, instead of what would be most efficient.
There are better ways to encourage industries to invest in a state. Since 1991, Connecticut has consistently had one of the highest tax burdens in the nation, and the state currently ranks 40th in our 2013 State Business Tax Climate Index. If the state wants to become a competitive state in the future, and the best way to do that is to have a tax system that rolls out the red carpet for all industries, not simply politically attractive options.
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