Two Thumbs Down for Film Tax Credits

Jan 15, 2010 Nathan Benefield

The Tax Foundation released a report on movie production incentives (MPIs), such as film tax tax credits and film grants (full report here).

Forty-four states offer some sort of incentive, the largest categories being tax credits, sales tax exemptions, and lodging exemptions. (Pennsylvania has a tax credit, as well as a lodging exemption and fee-free locations). Twenty-eight states offer tax credits, and most of these - including Pennsylvania - allow credits to be transferred or refunded. That is to say, the tax credit can be larger than a film production actual owes in taxes.

But movie incentives by and large have failed as economic policy:

While broad-based tax competition often benefits consumers and spurs economic growth and development, industry-specific tax competition transfers wealth from the many to the few.

Movie production incentives are costly and fail to live up to their promises. ... Among these failures, the two most important are their failure to encourage economic growth overall and their failure to raise tax revenue.

Why don't film credits "create jobs"? The Tax Foundation outlines a number of reasons, including, that many of the jobs are merely shifted: "a hairstylist might go from serving the public to crimping and curling on film sets." Most important is the failure by film tax credit proponents to explain what would have happened without the incentives. The Tax Foundation notes, "for some film productions states are paying companies to do what they would have done anyway." Furthermore, a narrow tax incentive does little to improve the overall economy (emphasis added):

By committing tax dollars and state effort into securing film jobs, state officials miss the chance to use those resources instead for lowering tax burdens for all industries. Because MPIs are a field crowded with state competitors, committing huge resources may have little payoff.

Officials should acknowledge that moving 100 jobs from one state to another does nothing for the nation’s economy except enrich the film industry at the expense of other state taxpayers.

So why do most states still offer incentives for Big Hollywood? As the Tax Foundation notes, movie studies are leading the charge in lobbying for tax breaks. And movies are very popular with politicians:

From politicians’ point of view, bringing Hollywood to town is the best of all possible photo opportunities—not just a ribbon-cutting to announce new job creation but a ribbon-cutting with a movie or TV star.

Fortunately, a number of states have, or are considering, curtailing or ending their giveaways to movie makers.

More Commonwealth Foundation research on Pennsylvania's Film Tax Credit

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