Michigan Hopes Tax Credits Will Move Hollywood to Detroit

Taking cues from its Midwest neighbor Illinois, Michigan last month raised its movie tax credit to 42 percent. This break is now the highest in the nation, highlighting a trend of states offering tax breaks to attempt to attract directors and producers of movies to film within their state lines. As we have stated before, film tax credits like the one offered by Michigan are poor tax policy for several reasons.

First, while there is certainly value in having the picturesque Michigan landscape in the background of the next romantic comedy, it’s only so much. Yes, citizens of Michigan can stand tall as the rolling landscape of their state is flashed upon the big screen, taking pride that a director made the decision to choose Michigan’s natural beauty over a computer-generated backdrop. I think the warm fuzzy feeling is going to wear off after several movies.

Second, the legislation gives wide powers to the Michigan Film Office to approve or reject projects, virtually ensuring some amount of censorship and litigation over content. Specifically, the director of the Michigan’s Film Office is charged with screening movies that might be viewed as inappropriate under Michigan law before the state Treasury hands out the rebates, with the only legislative guidance being that the Office consider “the extent to which the project will promote economic development and job creation, attract other productions and investment to Michigan, and help develop the movie industry here.” While Michigan ultimately has the final say in what movies are provided the credit, the vague nature of the law suggests that interpretation could change based on who is the director of the Michigan Film Office.

Third, Michigan taxpayers are on the losing side of this deal with Hollywood. While the state hopes that in-state filming will boost sales and property tax revenue by $17 million in 2009, the credits themselves will cost $127 million in lost business tax revenue. Because the credits are refundable (if a company receives more credits than taxes owed, it gets a rebate check), taxpayers are providing funding for a short-term project providing no long-term economic growth for the state of Michigan. While movie production in Michigan might create jobs, these jobs are temporary. There is no guarantee that the individuals hired for one movie will have the same luck with employment with another movie set in Michigan. Michigan lawmakers are dreaming if they think that Hollywood will relocate to Detroit in the near to immediate future.

Hopefully, other states will not follow Michigan and Illinois in their race to the bottom.

More on film tax credits here, here, and here.