Illinois Governor Rod Blagojevich, undoubtedly on his way out of office this week either by resignation or impeachment, continues to head into work and denies that he will be stepping down. Today, he plans to sign into law a bill expanding Illinois’s film tax credit. The new expanded credit will be a 30% credit for film productions, not far behind Michigan’s infamous and budget-draining 40% credit. It’s even more generous than the one Blagojevich signed into law back in May—the one designed to guarantee filmmakers a 15% to 20% return on investment.
Blagojevich probably wouldn’t listen to us (we’re not willing to give him anything but appreciation), just as he didn’t listen when he pushed his awful gross receipts tax idea two years ago. But 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. credits are poor tax policy, and as states increasingly outbid each other in their generosity, they become poor tax incentive policy as well. Here’s why: if no state had tax incentives, films would be made in places where other factors were optimal (wages, gorgeous and talented people, a capable workforce, scenery, and of course a good business tax climate).
Because lots of cash can overcome many of these shortcomings, some states began offering taxpayer dollars for film incentives and production shifted to those states. Other states offered even more generous credits, and now those original states are upping the bid once again. But because tax dollars used for film incentives are tax dollars that otherwise would go for other public services or kept with taxpayers, they come at a real cost. In Michigan, for instance, it’s hard to think that the film production there is worth $127 million in lost business tax revenue, in a state that perpetually cries governmental poverty. To get productions to move from states that are essentially handing out free cash, film tax credits must now be budget-bustingly generous.
We wrote back in 2006 about why film tax credits are bad tax policy in general:
Because the costs and benefits aren’t estimated and studied—either before or after implementation—tax incentives commonly end up channeling taxpayer dollars directly into the pockets of rent-seeking film companies, generating no corresponding economic benefits on a net basis.
Ultimately, the main beneficiaries are not taxpayers but lawmakers. Every incentive package that attracts a rent-seeking company allows lawmakers to make public announcements taking credit for “new jobs.” Location-based incentives can therefore be thought of as a market transaction between lawmakers and film companies. Lawmakers purchase favorable media coverage for themselves, film companies accept payment for filming in economically unprofitable places, and taxpayers finance the deal. It’s hard to see how that’s good policy.