We pick on bad 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. ideas on this blog, and we’ve done our share of picking on those from Wisconsin Gov. Jim Doyle (pictured right). Doyle has in the past infamously proposed a destructive windfall profits tax and raising taxes by 50%, and is a big proponent of using the tax code to pick winners and losers. But we have to give him props for calling for repeal of the state’s 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. . John Buhl reports in Tax Analysts:
Getting rid of the film tax credits would save the state an estimated $10 million in the fiscal 2010-2011 biennium. Under current law, the state offers a 25 percent tax credit for qualifying film production investments in Wisconsin.
According to an auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. by the Department of Commerce, the film Public Enemies, starring Johnny Depp, received $4.6 million in tax credits but generated only $5 million in economic activity in the state, the Associated Press reported.[…]
“Can anybody seriously justify that we should be laying out $4 million for one movie that comes here that doesn’t produce any long-term jobs in this state, where we end up paying portions of the director’s salary? You know, I’d like to see what that movie finally makes. I think most of us could figure out a better place to put $4 million right now.”
He’s right: there probably are better uses for that money now and it’s not creating a lot of jobs. Lest we congratulate Doyle too much, however, he wants to replace the program with a $500,000 grant program for creation of permanent jobs.
The sponsor of the credits responds:
Sen. Ted Kanavas (R), the main sponsor of the film tax incentives, told Tax Analysts that the incentives had an “overwhelming” level of support in the Legislature in 2006 and that he hoped for a similar level of support to block Doyle’s plan to eliminate the credit program. Film productions would “undeniably” locate or relocate to different states without the incentives, Kanavas said.[…]
Eliminating the credits would save little money to balance the budget, but the economic benefits from the incentives would increase as the industry developed in the state, Kanavas said.
If Kanavas et al. are after long-term economic growth, film tax credits and other economic incentives are the wrong way to do it. Bribing companies to bring economic activity to your state means one of two things. Either they were going to come anyway and you’re just wasting tax dollars for no benefit, or they weren’t because something about your state isn’t attractive to business. Picking a handful of industries to shower benefits on undermines the creation of a broad-based welcome mat for all types of business.
For instance, that Johnny Depp movie? It’s one of very few studies of where the money went:
Zach Brandon, executive assistant to Commerce Secretary Dick Leinenkugel, said the department agrees that the “Public Enemies” crew spent more than $18 million while in production in Wisconsin, but most of that money went to out-of-state workers and for out-of-state services. Wisconsin’s real economic impact — money spent here, wages to Wisconsin employees and tax revenue from those wages — equated to $5 million.
More on Wisconsin here.Share