State governments across the country have been rolling out the red carpet for Big Hollywood on the taxpayer’s dime, adopting film incentive programs designed to entice motion picture production into their respective states. Most of those incentives have come in the form of tax credits and exemptions, cash rebates, and grants.
In 1992, Louisiana became the first state to adopt this type of program, and since then 44 states have authorized their own. There are now 39 states with film incentive programs on the books for 2014, down from a high of 44 in 2009, according to the National Conference of State Legislatures.
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 a state’s tourism industry, and provide a boost to local businesses as film companies spend money at restaurants, hotels, and stores.
In practice, these programs have left taxpayers footing the bill 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 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.” The South Carolina Policy Council noted in 2011, “For every dollar South Carolina invests in film incentives, the state’s general revenue fund loses $.81. In other words, we make 19 cents on every dollar invested.” This is a common effect experienced across the country, including states such as Michigan, Massachusetts, and Louisiana.
It is not a proper function of government to favor particular industries and businesses. States should refrain from using tax subsidy programs, especially for an industry unlikely to provide steady economic development. Over the past few years, Arizona, Idaho, Indiana, Missouri, and Wisconsin have ended their incentive programs or removed funding for them in future budgets. States with similar programs should follow their lead.
Instead of facilitating an increasingly wasteful film subsidy “race to the bottom” among states to attract jobs, state governments should improve their economies the traditional way: by reining in government spending—starting with wasteful economic development schemes—and then implementing a system of low, broad-based taxes that attracts all types of industries.
The following documents examine the economic impact of film tax incentive programs from multiple perspectives.
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.
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.
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.
Michigan’s Film Incentive Program Has Been a $450 Million Bust
Michigan has spent $444.7 million on its film subsidy program since 2008 with little to show for it, writes James Hohman of the Mackinac Center for Public Policy.
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.
Louisiana Film Tax Credits: Costly Giveaways to Hollywood
The Louisiana Budget Project takes an in-depth look at the costly giveaways created by the state’s film incentive program and suggests ways the legislature could improve the program. “People are getting rich on this deal, and it isn’t Louisiana taxpayers,” writes report author Tim Mathis.
A Report on the Massachusetts Film Industry Tax Incentives
In accordance with Massachusetts statutory requirements, the Department of Revenue’s annual report of the Massachusetts film industry tax incentive program provides an estimate of the economic impact of the incentives.
Research & Commentary: State Tax Incentives
In an effort to strengthen their economies, states have continued to rely 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.