Alaska Film Incentives a Case Study in Poor Tax Policy

April 26, 2012

Tax Credits Have Become Welfare for Movie Producers

Washington, DC, April 26, 2012—Reflecting many of the problems with film incentive programs nationwide, the state of Alaska’s Film Industry Tax Credit program subsidizes already profitable production companies while delivering little tangible benefit to taxpayers, according to a new study by the Tax Foundation.

The study argues that much of the money spent by film productions ultimately flows to out-of-state beneficiaries, including industry specialists that must be brought in to handle technical aspects of production. In addition, the ostensible goal of the subsidy program – to establish Alaska as the center of a self-sustaining film industry – seems unlikely in an era when even Hollywood itself is being confronted with the reality of an increasingly dispersed marketplace for film production.

Perhaps the biggest fallacy of film incentive programs, both is Alaska and other states, is the argument that by stimulating greater in-state economic activity, they “pay for themselves” when the state taxes the sales and income thus generated. Not only do many recent economic studies question that general premise, but it is particularly inapplicable to Alaska, which has no statewide sales tax or individual income tax.

“As in many states, film subsidies in Alaska have been credited with bringing to the state the economic activity spurred by several productions,” said Tax Foundation economist Mark Robyn. “However, the commonly cited benefits of film subsidies are often overstated and fail to take into account offsetting economic effects.”

The best evidence shows that film incentives cost state treasuries more than they recoup from taxes on induced economic activity. A study in South Carolina found that film incentives returned 19 cents for each dollar paid out in tax rebates. Aside from studies paid for by economic development authorities and the Motion Picture Association of America, an industry trade association, almost every other study has found film tax credits generate less than 30 cents for every $1 of spending.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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