States are increasingly interested in expanding subsidies to the film industry through the use of refundable tax credits and sales tax exemptions. These efforts attempt to bring “Hollywood” to legislators’ home states, boost the economy, and bring in new jobs.
Although at least 31 states are facing budget deficits, legislators have been pushing to subsidize some of America’s most-affluent businessmen at the expense of taxpayers. At least 40 states currently offer film subsidies, some offering upwards of 30 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, between 15 cents and 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% 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, “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.
The documents cited below give further information on the economic impact film subsidy programs have on taxpayers and the economy.
States’ Film Production Incentives Cause Jitters
The New York Times takes a look at the expansion of film tax subsidies and how much those subsidies are costing taxpayers. The article notes, for example, that Louisiana taxpayers on the hook for $27 million for Brad Pitt’s newest release, “The Curious Case of Benjamin Button.”
Tax Credits for the Motion Picture Industry
The Massachusetts Budget and Policy Center outlines in this paper how film tax credits work, who they go to, how effective they are, and how many jobs they actually brought into Massachusetts.
Roll the Credits … and the Tax Incentives
Writing for FedGazette, a regional business and economics newspaper published by the Federal Reserve of Minneapolis, Kathy Cobb analyzes the history of film tax credits and considers how successful they have been in producing real economic growth.
Hollywood East? Film Tax Credits in New England
Darcy Rollins Saas, a policy analyst for the New England Public Policy Center at the Federal Reserve Bank of Boston, examines the impact film tax credits have had in the Northeast. She finds that “revenue losses are exacerbated by the tendency of these tax credits, like almost all tax credits, to subsidize activity not originally targeted and to provide more incentive than needed to induce the desired response.”
Film Tax Credits: Lower Taxes for Celebrities …
Joseph Henchman of the Tax Foundation argues that such incentives are corporate welfare, which creates a subsidy bidding war among states.
Legislators’ Hollywood Dreams Defy Economic Reality
Jack McHugh, a senior legislative analyst, and James Hohman, a fiscal policy research assistant for the Mackinac Center for Public Policy, look at how big the film production economic pie is and how much a given state would need to take in order to show a substantial growth in GDP.
Reviews for State’s Film Tax Credit Aren’t Good
The Providence Journal finds that Hollywood is the real winner because of these tax credits. It cites a report by the Rhode Island Department of Revenue, which found, “The state gets back 28 cents for every dollar it gives up to the production companies.”
Indiana Film Incentives Fail to Attract Filmmakers So Far
Indiana, where the legislature approved less-extravagant film subsidies compared to other states, has not seen an influx of movie production.
Hollywood East: How Your Tax Dollars Are Subsidizing a Film Industry that Doesn’t Need the Help
This article asks why taxpayers are being forced to subsidize an industry that doesn’t need the help. The author contends the flood of Hollywood stars to the state does not make up for wasting taxpayer money.
For further information on the subject, you can visit The Heartland Institute’s Web site at www.heartland.org, where you will find articles on the issue available through PolicyBot, Heartland’s free research database.
Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].