More Film Tax Incentives Not a Solution for California

April 21, 2014

The LA Times editorial board has endorsed a move for an expanded film tax credit in the Golden State, arguing that “To not nix pics, California must use tax trix.” Given that California’s historical command of the film production industry puts it, and especially Los Angeles, in a unique position to suffer from other states’ distortionary tax policies, it’s understandable that the state would be scrambling to defend one of its signature industries.

We’ve written previously on the debate about California’s film tax credit program, arguing that it is a distortionary tax-carve-out, and noting that the program (like Iowa’s in previous years) has attracted criminal behavior. We’ve also given legislative testimony in California offering policy solutions like moving film subsidies out of the tax code and onto the spending side, improving transparency of the program, and carrying out realistic economic studies of the program.

Ultimately, there’s a key question that California’s policymakers need to be asking. If the film industry can’t survive in California without tax credits, despite its storied history there and California’s numerous natural advantages, how many other industries without such favorable tax preferences are being stifled? The same truth the film industry (or SpaceX, asking for personal property tax exemptions) articulates applies to many industries: California’s high taxes make it difficult for businesses in the state to compete in many highly mobile industries.

The solution, however, isn’t tax incentives. More carve-outs for big production companies won’t help Californians because, as we’ve explained before, “At some point you accept that Louisiana is determined to pour its treasure into Hollywood’s pockets, and you let them do it.” Louisiana, New York, Georgia, or the myriad other states with film tax incentives seem prepared to go tit-for-tat on lose-lose tax policy.

Rather than competing in that losing game, California can focus on reforming the actual taxes that motivate companies to leave. Personal property taxes, such as those SpaceX has complained about, are one such archaic and damaging tax. California’s 13.3 percent top individual income tax rate and 8.84 percent top corporate income tax rate are also no doubt concerns for businesses of all shapes and sizes, not just Hollywood. If California policymakers, or the LA Times editorial board, have come around to thinking that cutting taxes can support economic competitiveness and growth, then they should focus on broad measures that help all Californians, not just narrow carve-outs for one industry.

Read more on film tax credits here.

Read more on California here.

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