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Film Tax Credits Are a Bad Deal: Massachusetts Edition

2 min readBy: Mark Robyn

A new report on film industry tax incentives, conducted by the Massachusetts Department of Revenue, was released this month. The report finds that the state’s $82 million 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. program generated $10 million in new state 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. revenue in 2009. That is equal to about 13 cents of incoming tax revenue per dollar of tax credit awarded, an unimpressive number which even includes tax revenue gained from the increased economic activity as money spent by the film makers makes its way through the local economy (known as the “multiplier effect”).

The report also finds that the credits brought 222 net jobs for Massachusetts residents in 2009, at a cost of nearly $325,000 per in-state job. The cost per job has been rapidly increasing since the credit was enacted in 2006, when the cost per in-state job was $53,000, and in most cases film production jobs are temporary. What is more, these types of analyses seem to ignore the fact that many of those temporary jobs are likely to be shifted from other industries or uses. For example, a carpenter employed by a film production to build sets would be counted as a new job. But it is likely that this individual would be working as a carpenter elsewhere in the Massachusetts economy in the absence of the film. Counting such a worker as a net new job is misleading.

Recently an excellent study of the Michigan film tax credit program came to the conclusion that many studies that purport to show that film credits are a good deal for states actually overestimate the benefits and fail to take into account all the costs of film tax credits. The Tax Foundation and the Center on Budget and Policy Priorities disagree on many issues, but we (and most public policy experts) agree that film tax credits are poor policy, for a host of reasons.

Film tax credits continue to get a lot of attention from lawmakers. New Mexico Governor Susana Martinez wants to reduce the state’s subsidy for movie productions from 25% to 15% to help shore up the state’s budget, but the film industry and some lawmakers are putting up a fight. In New Jersey the legislature is trying to reinstate and expand the state’s $15 million movie tax credit program that was suspended last year by Governor Christie. When the program was suspended a study was ordered to determine the costs and benefits of the state’s credit but it has not yet been released. Bills to expand film tax incentives have also been introduced in at least four other states: Oregon, New York, Connecticut, and Indiana.

The Massachusetts report found that about a quarter of the $330 million in qualifying film expenses, $82 million (almost exactly the amount paid out in film tax credits), paid for salaries for non-resident actors making over $1 million per production. States are currently locked in an unproductive incentives battle the ultimate beneficiaries of which are the movie makers themselves. This corporate welfare for film makers and actors needs to stop.