Motion Picture Association Attacks Tax Foundation Critique of Film Tax Subsidies

July 1, 2011

Last month, we reported that 37 states will offer film tax incentives in 2011, a drop from 40 states in 2010 and the first such drop since the trend began over a decade ago. The aggregate dollars paid out by states has also dropped, from $1.396 billion to $1.299 billion. I made the prediction that 2010 will remain the peak year, which was noted approvingly by, among others, The Economist magazine.

Within a day of our study’s release, the Motion Picture Association of America (MPAA) responded on their blog. This is not surprising, as most or all of the benefits of these film tax incentive programs accrue to the film and television production industry. Nevertheless, I respond one-by-one to their claims in this new commentary. Highlights:

  • While a Michigan study funded by state economic development officials found that the film credit program created new jobs, their own calculations show that the cost in credits paid out per new full-time equivalent (FTE) job was $91,593 in 2009 and $112,800 in 2010.
  • The MPAA points to a New York study funded by state economic development officials and the MPAA itself, which found that $1 in film tax incentives generates over $17 in economic activity and $1.88 in new tax revenue. However, the report uses an inflated “multiplier” to produce these numbers, and further mistakenly assumes that all film-related activity in the state would be idle but for the credit.
  • The MPAA is correct that subsidizing film production results in more film production, but they stop the analysis there. Good public policy means going further to determine whether those benefits are worth the costs, including a discussion of opportunity costs (alternative uses of resources).
  • Independent studies unconnected with state economic development officials or the MPAA uniformly find that film tax incentives offer a poor return in tax revenue for every dollar of credit spent.
  • Film tax credits do not pay for themselves. While some benefits accrue to in-state filmmakers and suppliers, on the whole they are a net transfer from taxpayers to out-of-state production company beneficiaries.

Read the whole commentary here.

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