Over the past couple of decades, state governments have been rolling out the red carpet for Big Hollywood by adopting film tax incentive programs. These programs are designed to entice motion picture production into their respective states at the expense of taxpayers.
North Carolina began to offer film incentives in 2005, making productions eligible for a 15 percent tax credit with a cap of $7.5 million. In 2010, state legislators increased the film tax credit to 25 percent with a cap of $20 million if the production spent at least $250,000 in the state. The current program is scheduled to run out at the end of the year, but legislation has been introduced that would remove the sunset, extending the program indefinitely.
Proponents of film incentive programs claim they create jobs and catalyze economic growth while bringing positive exposure to the state. They claim a thriving film industry can entice workers to the state, significantly benefit the tourism industry, and provide a boost to local businesses as film companies spend money at restaurants, hotels, and stores.
In practice, North Carolina’s film tax credit program is an example of cronyism that has left taxpayers potentially liable for nearly $235 million since the state began the program. That is a large cost for subsidizing an industry that creates temporary jobs with no discernible long-term benefit to local or state economies. A majority of the jobs the industry adds last only as long as the filming, and they require skills that are often not transferrable to other industries. Similarly, any economic boost local businesses may experience tends to be short-lived.
Not only do these programs fail to bring in extra revenue as advertised, they do not even recoup their original costs. A memorandum released earlier this year by the North Carolina General Assembly’s Fiscal Research Division concluded, “for every dollar North Carolina allocates to the state film production credit it loses 54 cents.” Any industry that produces that type of return on investment is detrimental to a state’s economic climate.
It is not a proper function of government to favor particular industries and businesses. States should refrain from implementing tax subsidy programs, especially for an industry unlikely to provide steady economic development. If film production in the state can remain viable only with government subsidies, it is not an efficient and worthwhile industry for North Carolinians. Instead, North Carolina lawmakers should follow the lead of states such as Arizona, Idaho, Indiana, Missouri, and Wisconsin, which have ended their incentive programs or removed funding for them in future budgets.
The following documents examine the economic impact of film tax incentive programs from multiple perspectives.
Research & Commentary: State Film Incentives
This Heartland Research & Commentary examines whether targeted film incentive policies contribute to the economic welfare of a state.
Film Tax Credits: Do They Work?
John Nothdurft, director of government relations at The Heartland Institute, examines the influence of film incentive programs on state economies and asks whether they are part of a sustainable fiscal policy.
Ten Principles for Improved Business Climates
Maintaining a good business climate has never been more important. Thanks to the Internet, the collapse of communism around the world, and advances in shipping and logistics, capital and labor are much more mobile than in the past. Businesses must bid for customers and workers against not only local competitors but also businesses in other communities, states, and countries. Small changes in taxes, regulations, and other cost-drivers may cost businesses customers and even cause them to fail or relocate.
N.C.’s Film Tax Incentives
State film incentive programs are the feel-good production of the year, or so state economic boosters would have you believe. In this paper, Jon Sanders of the John Locke Foundation concludes the winners are movie production companies that constantly shop for taxpayer handouts while providing only temporary jobs. Many states receive back only pennies for each dollar handed out.
Movie Production Incentives: Blockbuster Support for Lackluster Policy
In the past decade, state governments have “gone Hollywood,” or tried to, enacting dozens of movie production incentives (MPIs), including tax credits for film production. Hollywood might be expected to wield influence in the California state legislature, but it is surprising to see movie and TV executives throwing their weight around in states such as Louisiana, Massachusetts, Michigan, New Mexico, and South Carolina. All these states and most others have enacted MPIs. Those that were quickest and most generous landed productions; other states have been left empty-handed despite offering embarrassingly generous tax abatements to attract filmmakers.
Film Incentives No Winner for NC
Writing in the News & Observer, Donald Bryson, deputy state director for Americans for Prosperity’s North Carolina chapter, describes the economic damage in North Carolina caused by targeted incentives handed out to the film industry. Bryson concludes, “The film tax incentives are not proven job creators or overall government revenue enhancers, despite what proponents say.”
Preliminary Review of Handfield Film Study
The North Carolina Fiscal Research division conducted an analysis as a preliminary review of the findings made by the “Handfield Film Study” in early 2014. The analysis concluded the state’s film incentives program achieves a negative return on investment.
Bad Bill of the Week: Handout to Hollywood Cronies
The Civitas Institute designated as its “bad bill of the week” a piece of legislation that would extend North Carolina’s film tax incentives past their expiration this year. Civitas notes this type of handout to the film industry is a classic case of crony capitalism that will benefit the film industry at the expense of North Carolina’s taxpayers.
Lawmakers’ Hollywood Dreams Hurting Taxpayers: The Case Against Film Incentives
The South Carolina Policy Council examines the economic impact of the state’s film incentive program. The report notes, “When it comes to film incentives the results are clear. Taxpayers are losing 81 cents on the dollar to lawmakers’ Hollywood dreams.” The authors conclude this money would be better spent on core services and tax cuts.
Research & Commentary: State Tax Incentives
In an effort to strengthen their economies, states have relied heavily on tax incentives, including tax credits, exemptions, and deductions, to encourage businesses to locate, hire, expand, and invest within their borders. Popular examples include film production credits, renewable energy credits, and electric vehicle credits. However, state tax incentives often fail to live up to their promises to encourage economic growth and are usually given to businesses and industries with the most political clout instead of the best job-creating prospects.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at [email protected] or 312/377-4000.