Debate on Film Tax Credits in Pittsburgh

April 13, 2009

I’m at the University of Pittsburgh right now, and will be walking over shortly to a debate hosted by the William Pitt Debating Union here. It’s part of a series of four debates on the future of Pittsburgh, and tonight’s installment is about Pennsylvania’s film tax credit. I’ll be debating a chief of staff for a legislative proponent of extending the credits, and I’ll also be quizzed by a panel of students and the audience as a whole. (If you want to watch, live or at home via webstream, the info is here: http://www.comm.pitt.edu/debate/news/Finegold09.html). It’s 6:30PM tonight eastern time and should be fun!

Film tax credits are sweeping the country; over 30 states have adopted them since 2002. Proponents say they create jobs, attract investment, and you get the added bonus of having awesome new TV shows and movies (and their stars) in your local community. So why is the Tax Foundation such a downer on one of the hottest new state tax ideas?

Three big reasons:

1. They lose money. Film offices like to talk about how tax credits create $4 (or thereabouts) of spending for every $1 of credit. But all economic activities have multiplier effects. If I handed out $100 to college kids to spend at bars, that $100 of income to them would become $100 in income to the bars, another $100 in income to suppliers, the workers, etc. But just because something has a high multiplier doesn’t answer the question of whether the state should subsidize it. And film production doesn’t even have that high of a multiplier: relatively internal production processes like auto manufacturing or nuclear power plants actually have higher multipliers. Also, benefit calculations usually don’t count alternative uses. That hairdresser who can charge $60 with the film in town would probably still charge $50 otherwise; film tax credit proponents would say they created a whole new job and generated $60. Finally, whatever marginal tax revenue new film production generates is usually dwarfed by the costs. Two of the most aggressive states in film tax credits report they get back less than 20 cents in taxes for every $1 in credits.

2. They don’t grow the economy. Proponents talk about job creation, but the good jobs in film production are filled by professionals who go from state to state with the crew. The jobs proponents mention are mostly low-skilled jobs with little upward mobility. This underscores the point that it’s not about numbers of jobs created, but about wealth generated. And film tax credits do little to help a state where no one wants to invest or produce. If a state has a burdensome tax system that suppresses economic activity, why remove that burden on just one industry in the form of corporate welfare? Cut everyone’s taxes, even the playing field, and create lasting wealth.

3. They lead to censorship. When public tax dollars are used for something as creative, and often distasteful or controversial, as films, people can understandably become offended that their tax dollars are being used for it. First to be enacted is a prohibition on depicting the state in a bad light. Then it snowballs. In Canada, there’s substantial pressure to deny funds to controversial movies. In New Mexico, R-rated movies cannot get credits unless a government committee finds that it is not “likely to outrage” people of different cultures. So it looks like Dogma, a movie filmed primarily in Pittsburgh without tax credits, might have a tough time getting them today, given the controversy of its message.

We’ve written several times on film tax credits, and a more thorough report will be forthcoming soon. Here are some past links:

Film Tax Credits: Lower Taxes for Celebrities, Higher Taxes for You

Canada Proposes Expanding Censorship for Film Tax Credits

Pennsylvania Considers Dropping Film Tax Credit; Nebraska Considers Adopting One

Canadian Film Tax Credits Lead to Censorship

Minneapolis Fed on Tax Incentives for Film Companies

Wisconsin Governor Proposes Eliminating Film Tax Credit

Film Tax Credits = Corporate Welfare

Michigan Hopes Tax Credits Will Move Hollywood to Detroit

Illinois Gov. Blagojevich Offers More Bad Tax Policy

Indiana Legislature Overrides Veto of Film Tax Credit

Arkansas Times Discusses Film Tax Credits, Uses Staff Economist Josh Barro’s Testimony before Legislature

(I’d like to thank Will Luther and Josh Barro, who have provided substantial research into this issue.)


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