State Lawmakers Should Leave Hollywood in California

February 26, 2008

A recent article on Stateline.org provides a detailed explanation of the growing trend of state tax incentives for the movie industry:

Along the desert outskirts of Albuquerque sits a collection of cavernous buildings the size of airplane hangars, some more than six stories tall. Built for $75 million, with another $15 million expansion in the works, they house make-believe worlds-city streets, basketball arenas, stately mansions or even mountainsides (complete with trucked-in snow). Anything a movie producer might desire.

In short, Albuquerque Studios, which opened in June, is the crown jewel in New Mexico’s efforts to attract big money from the film industry. New Mexico’s top politicians and film experts lured the facilities with what the developer called “visionary” incentives, including tax rebates, no-interest loans and training credits. Now, the studios will play a key role in the state’s strategy for making sure the industry keeps coming back to New Mexico for a long time.

. . .

Michigan Gov. Jennifer Granholm (D) suggested during her Jan. 29 State of the State speech that Michigan offer “the most robust incentives in the nation,” perhaps as high as 40 percent.

. . .

There’s one fan who’s clearly reveling in New Mexico’s film heyday: recent presidential candidate Gov. Bill Richardson (D). The governor, who’s in Hollywood talking to TV executives this week, ran a Western-themed TV ad during his 2006 re-election bid that highlighted the movie boom. As he rode off into the sunset on horseback, he told his companions, “Next time, let’s make a space movie.”

As we have written before (here, here and here), many legislators see these tax give-aways as a way to attract business to the state, taking credit for creating new jobs but ignoring the tax policy implications. Tax breaks for any industry make the tax base smaller and the tax code less neutral.

In 2006, we summed up the troubling trend like this:

Ultimately, the main beneficiaries are not taxpayers but lawmakers. Every incentive package that attracts a rent-seeking company allows lawmakers to make public announcements taking credit for “new jobs.” Location-based incentives can therefore be thought of as a market transaction between lawmakers and film companies. Lawmakers purchase favorable media coverage for themselves, film companies accept payment for filming in economically unprofitable places, and taxpayers finance the deal. It’s hard to see how that’s good policy.

The glamour of movie-making may be hard for policymakers to resist, but they could better serve their constituents by simply watching a movie at the local movie theater and leaving Hollywood in California.


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