A couple of North East states may be starting to think a little clearer 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. Among other proposals, Rhode Island Gov. Don Carcieri has proposed eliminating the state’s credit in the 2010-2011 budget. We applaud Gov. Carcieri for this sensible move. This would save the state $1.9 million annually.
Massachusetts Gov. Deval Patrick has come out with a less ambitious proposal to temporarily limit the state’s tax credit program to $50 million for each of the next two fiscal years, saving the state $75 million a year. Patrick apparently believes that funneling 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. payer money to film producers and movie stars is great for the state, except when the budget is tight. But if the credit pays for itself, as is so often claimed of film tax credits, how can Massachusetts afford to not keep the credit? Don’t be fooled by these broken window fallacies, the seen versus the unseen; the answer is that the credits don’t pay for themselves.
Film credits have become so popular among lawmakers that it has essentially created a national bidding war between states. As film credit programs spread to new states and increase in value, lawmakers must keep bumping up their state’s credits to even maintain the same level film production in their state. There is no real job creation going on, just jobs being shifted from one state to another. The same is true for the often cited economic benefits flowing into the small towns where filming takes places. The big winners here are film makers and movie stars, who have learned to leverage states against one another to maximize their subsidy. As the video at the Massachusetts Film Office so eagerly points out, it feels great to have movie stars hobnobbing around your town. But when you get down to the economics, film credits are a bad idea.
A much better policy would be to eliminate the credit altogether and instead cut taxes for all Massachusetts businesses regardless of how glamorous their industry may be. Check out our Special Report No. 173 for more information on film incentives.Share