California should ‘cut!’ film tax credits

By Daniel Takash

Gov. Jerry Brown last month agreed to a deal that would increase California’s film tax credits to $330 million per year, up from its previous $100 million.

This attempt to save the Golden State’s “crown-jewel industry” is a story fit for Hollywood, unless other state legislatures offer subsidies to have the story filmed in their home state.

Thirty-nine states have a film tax credit program or other subsidy to the film industry. The number of states with credits are up dramatically from 2000, when only a handful of states offered them. New York offers up to $420 million in some form of subsidy to film productions, with other states like New Mexico, North Carolina, Georgia and Michigan offering smaller subsidies.

The most notable example of these subsidies comes from Louisiana, nicknamed “the Hollywood of the South,” a state with an annual budget of $25 billion that issued $251 million in tax credits in 2013.

States offer these subsidies because they know that, in true Hollywood fashion, if you build it, they will come. What states ignore are the negligible economic benefits of these tax breaks at tremendous cost to states and municipalities.

Industry executives also know that they are in demand.

Linden Nelson, the founder of the Michigan Motion Picture Studio has said, “It’s a very competitive landscape … It’s an industry that’s fought after.”

Nelson isn’t the only one who knows how to play this game. In a letter to Maryland Governor Martin O’Malley, the production company in charge of House of Cards wrote in “the event sufficient incentives do not become available, we will have … set up in another state.” Frank Underwood would be proud.

Though film studios are rational to fight for incredibly lucrative subsidies, state and local governments are the ones left footing the massive bill. According to a report by the LA Times, Louisiana’s program cost the state more than $170 million last year, or $12,000 per job created. Between 2006 and 2011, Massachusetts received only 13-cents back for every dollar spent on the subsidies, costing the state an average of $128,000 for each job created.

The limited benefits received from these programs do not even help the average people of the state. According to Eileen Norcross of the Mercatus Center, two-thirds of the $175 million in economic activity that came from the Massachusetts film subsidies went to out-of-state workers and $53 million of the wages generated went to those earning $1 million per year.

These expenses have very real consequences, especially in poorer localities and states drawn in by the prospect of jobs and new industries. Pontiac, Mich., home to the Michigan Motion Picture Studio, already faced a $7 million deficit before offering subsidies, which diverted public money from essential services like police and fire.

The only groups that seem to believe the tax credits are doing good for local economies are those that benefit from them the most, namely the Motion Picture Association of America.

The MPAA commissioned studies that tout the increases in employment and spending on local economies and can point to increases in spending that result from these programs. However, such arguments ignore the costs these programs burden taxpayers with, both in the form of higher taxes and opportunities for how the money could have better been spent.

While most of the argumentation for film tax credits is seriously flawed, supporters are correct in their claim that states that offer tax credits are seeing an increase in employment for film-related industries while California is seeing a decline.

According to the same LA Times report, California saw a 12-percent decline in film-related employment during the past 10 years, while Louisiana and New York have seen a 73-percent and 23-percent increase, respectively, though these relative gains are the result of a small initial workforce size in these states.

Producers know exactly what they’re doing when they lobby for more tax credits. They believe they can sell states on some limited economic benefits, or, if not, scare them into believing the jobs will go elsewhere if legislatures don’t cough up the tax credits.

Film tax credits are a waste of money that only benefit film production studios at the expense of taxpayers. If producers continue to scaremonger about what will happen if the film industry doesn’t receive its tax breaks, state legislatures need to be willing to resist temptation to respond, “Hey, that’s show business.”

Daniel Takash is a Young Voices Advocate studying applied mathematics at Johns Hopkins University.