Illinois has joined the chorus line of states auditioning for the film industry with subsidies and tax credits, hoping to win a role in Hollywood’s production schedule and boost the local economy with new jobs.
Although at least 30 other states are facing budget deficits besides Illinois, legislators have been pushing to subsidize some of America’s most affluent businesspeople at the expense of taxpayers. At least 40 states currently offer film subsidies, some offering upward of 30 percent to 42 percent of a movie’s production costs.
These tax credits do not pay for themselves, much less bring in extra revenue. Greg Albrecht, chief economist for Louisiana’s Legislative Fiscal Office, estimated in 2004 “that for every dollar of revenue lost to film tax credits,” only 15 to 20 cents “of revenue would be recovered from tax receipts generated by stimulated economic activity.”
According to Albrecht, even the most “successful” film subsidy programs bring little value. In Louisiana, he found, “even if 100 percent of the reported production budget amounts were being spent purchasing goods and services from Louisiana suppliers, the economic benefits would not be sufficient to provide tax receipts approaching a level necessary to offset the costs of the tax credits.”
The jobs and economic growth created by film productions with the help of such tax incentives are often overstated. The New England Public Policy Center at the Federal Reserve Bank of Boston found that “when film tax credits do hit their mark and induce more local film production, the resulting stimulus to overall economic activity appears to be rather modest.”
Rolling out a red carpet full of taxpayer dollars in exchange for the fleeting glitz and glam of Hollywood is no substitute for sound fiscal policy. Rather than pushing an increasingly inefficient film subsidy “arms race” among states to attract jobs, state governments should look to boost their economies the old-fashioned way: by reining in government spending—starting with wasteful economic development schemes—and then by implementing a low and broad-based tax system.
John Nothdurft is a legislative specialist in tax and budget issues at The Heartland Institute in Chicago.
This op-ed was originally published in the Chicago Tribune .