California Film Tax Credit Faces Controversy, Delay

November 19, 2013

A recent FBI sting in California revealed that state Senator Ron Calderon may have taken up to $60,000 in exchange for pushing to lower eligibility requirements for California’s $100-million-a-year film tax incentive program. This isn’t the first time film incentives have been connected to corruption and scandal. Indeed, a scandal about misallocation of film tax credits ultimately led to the demise of Iowa’s program over the last few years.

Film tax incentives, like all highly-targeted incentives, create a more distortionary and unfair tax code. And, crucially, there is little evidence to suggest they even create any jobs. Especially given that movie filming is transitory with many out-of-state personnel, states often end up subsidizing short-term projects to the tune of several million dollars with few economic gains.

California’s tax incentive program is one of the largest in the nation, despite California playing host to Hollywood, affording it a natural advantage in the film industry. Indeed, with taxes such a burden on filming in California, it is strange that California doesn’t just cut taxes generally, instead of giving credits for exclusively the influential celebrities and studios of Hollywood.

We have given legislative testimony in California before about problems with the controversial film tax credit program. And, while some legislators seem unfazed by the corrupt politics surrounding the film tax credit, for many, the scandal has raised questions about the program. Indeed, one state Senator, Chairwoman Lois Wolk of the Committee on Governance and Finance, has called for a delay in plans to extend or expand the credit at least until studies of the program’s effects can be completed.

Narrow tax credits for select industries, even legacy industries that have defined a state’s economy for many years, are not smart tax policy, and represent a failure by state legislators to address serious problems in a state’s tax code. These incentives just result in more economic distortions and revenue losses, and make the tax code less transparent and simple.

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