Tax Foundation Study: Film Tax Credits, Production Incentives Fail to Spur Economic Growth

January 14, 2010

All eyes in Hollywood may be focused on Sunday’s Golden Globe Awards, but a new Tax Foundation report highlights a different kind of red carpet: the preferential tax treatment given to film production companies by state governments. Movie production incentives (MPIs)—such as film tax credits, cash rebates, grants and select tax exemptions—fail to spur economic growth or raise tax revenue, according to the study.

The key findings:

  • Forty-four states now offer significant movie production incentives (MPIs), up from five states in 2002, and twenty-eight states offer film tax credits.
  • In the face of state budget pressures and preposterously generous incentives in Louisiana and Michigan, states may curtail or even terminate their MPI programs. Kansas and Iowa have suspended theirs, Kansas for two years to save revenue and Iowa briefly to investigate corruption.
  • MPIs have often escaped routine oversight about benefits, costs and activities.
  • Spurious research is common in campaigns for film tax credits, often featuring dramatic job creation claims. A recent study concluded that Pennsylvania’s film tax credit produces net benefits of $4.5 million by assuming that any business interacting with the film industry would not exist but for the credit. MPIs create mostly temporary positions with limited options for upward mobility.
  • The MPI experience demonstrates that a politically connected industry can grow if the state greatly reduces its taxes, but states should have a tax system that operates as a welcome mat to all industries, not just those politicians have picked.

Read Tax Foundation Special Report No. 173, “Movie Production Incentives: Blockbuster Support for Lackluster Policy.” More on film tax credits is available here.

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