FilmWorks Blog Criticizes Tax Foundation on Industry’s Dependence on Film Tax Credits

April 26, 2011

California is one of the most recent states to offer subsidies to their film industry. The home of Hollywood has seen film productions flee to states more determined to pour their citizens’ money into the pockets of highly profitable film and television production companies. Determined not to lose what they still have, California began offering credits too. A year’s worth were exhausted on the first day of applications, suggesting that the credit is far too generous than what is needed to convince productions actually on the fence about going or staying, but there it is.

My colleague Mark Robyn testified in California recently, one of two witnesses critical of the program in a room full of supporters (including the legislators). A film industry blog this week offered a rebuttal of his points. It’s hard to let go of something that’s disappearing, as any long-time businessman can tell you. (I’m sure it’s a very hard month for the producers of Atlas Shrugged, which has had a terrible box office performance.) But at some point, you’re throwing good money after bad and it’s better if you use your resources for more productive things. The worst thing to do, in my opinion, is cozy up to government for ongoing subsidies that aren’t even building permanent infrastructure. That just guarantees continual decline and dependence.

It cannot be understated how transient the film industry is. A generous tax credit may lure a production, but a more generous credit offered by another state will lure the next one. Since the likes of Michigan, Louisiana, Hawaii, etc. seem determined to spend money on it anyway, everyone bids it up. So rather than spending the money on something permanent, or leaving it in the hands of the taxpayer to invest or spend as they see fit, it’s wasted on businesses that mostly bring their employees with them and leave as soon as they get a better offer. (The second-order positive effects on local caterers, hairdressers, prop suppliers, etc., are often cited, but that understates the opportunity costs of their time and labor as well.)

The tax credit dollars spent per full-time equivalent (FTE) job created are abysmal. They’re so terrible that most state film authorities won’t publicize the number. They ought to, to permit genuine comparison of these programs versus other priorities. The film blog’s rebuttal is just evidence that many productions are no longer in California. Many people and their incomes are no longer in California, either (from 2000 to 2008, 346,000 tax returns representing 1.1 million exemptions and $26.3 billion in income left the state). Perhaps the state should look at the whole crush of the tax and regulatory system, rather than just lining the pockets of one particularly vocal and connected industry?


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