Film Tax Credits: The Road to Nowhere

August 26, 2009

The AP reports that New Mexico Governor Bill Richardson wants to balance the state’s budget without repealing income and capital gains tax cuts enacted in 2003. He says the secret to fixing his state’s budget problem is to get rid of “tax incentives that maybe have outlived their usefulness.”

We couldn’t agree more. New Mexico should do its best to avoid damaging tax increases. And we would support eliminating distortionary tax incentives. Taxes should be used to raise revenue not micromanage individuals’ or firms’ decisions.

So where should they start? How about repealing that subsidy to film producers and movie stars, New Mexico’s film tax credit?

The governor did not specify any tax provisions that might be on the chopping block, but he quickly pointed to film production tax credits as an economic development incentive he wants to keep. The film credits have grown more than expected and could reach about $80 million this year.

Richardson wants to keep taxes low on the average New Mexican but continue subsidizing glamorous pet projects. He is obviously not serious about implementing sound tax policy. Film tax credits have no place in sound tax policy. They throw money at an otherwise unprofitable industry and every taxpayer who is not associated with movie productions is stuck with the bill. And as Richardson himself points out, they are costing more every year since free money is always popular, especially for the makers of such silver screen gems as Wild Hogs, a recent film shot in New Mexico. The tag line of that movie is “A lot can happen on the road to nowhere,” and in the case of film tax credits it couldn’t be truer. Film tax credits are a road to nowhere, and yet politicians are determined to do everything they can to speed up the trip. Film tax credits represent a race to the bottom, a bidding war between states with film makers reaping the benefits.

Film tax credits are really just subsidies masquerading as tax cuts and they should be eliminated. On the other hand, broad-based income tax cuts let people keep more of their money and spend, invest, or save it in whatever way they see fit, which has real long-term benefits for the economy.

Read more about film tax credits here, here, here, and here.

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