Research & Commentary: Film Tax Credits: Do They Work? (A Heartland Institute Update)

I received the following information from the Heartland Institute, a Chicago-based free market think tank that works nationally. The data are coming in on film incentives in the various states and, not surprisingly, it is negative in terms of economic activity generated by states giving taxpayer dollars and interest-free loans to film production companies.

Despite massive budget deficits and threats to cut essential programs, states across the nation are continuing to extend subsidies to the film industry through refundable tax credits and sales tax exemptions. At least 44 states currently offer some form of film subsidy, some subsidizing upwards of 30 to 40 percent of a movie’s production costs.

These flashy attempts to bring Hollywood to legislators’ home states have consistently failed to create long-term economic growth and bring in permanent jobs.

According to Greg Albrecht, chief economist for Louisiana’s Legislative Fiscal Office, 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.”

Doling out taxpayer dollars to filmmakers is no substitute for sound fiscal policy. States should avoid manipulating the tax code to favor the movie industry, or any other industry, over existing businesses. Such “economic development” schemes–film tax credits, state-owned golf courses, publicly financed stadiums, and the like–are nothing more than pork projects.

Instead of pushing an increasingly inefficient film subsidy “arms race,” state governments should look to boost their economies the old-fashioned way: by reining in government spending and creating a tax code that is low, non-distorting, and broad-based.

The documents cited below provide further information on the economic impact of film subsidy programs.

States’ Film Production Incentives Cause Jitters

The New York Times reports on the expansion of film tax subsidies and how much they are costing taxpayers. Among other examples, the article notes Louisiana taxpayers were put on the hook for $27 million for the Brad Pitt film, The Curious Case of Benjamin Button.

Movie Production Incentives: Blockbuster Support for Lackluster Policy
http://www.taxfoundation.org/publications/show/25706.html
Will Luther of the Tax Foundation says film tax incentives are corporate welfare that creates a subsidy bidding war among states.

Tax Credits for the Motion Picture Industry
http://www.budgetandtax-news.org/article/24182
The Massachusetts Budget and Policy Center outlines how film tax credits work, to whom they are given, how effective they are, and how many jobs they actually bring to Massachusetts.

Roll the Credits … and the Tax Incentives
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=1309
Writing for FedGazette, a regional business and economics newspaper published by the Federal Reserve Bank of Minneapolis, Kathy Cobb analyzes the history of film tax credits and considers their effectiveness in producing real economic growth.

Hollywood East? Film Tax Credits in New England
http://www.budgetandtax-news.org/article/24181
Darcy Rollins Saas, a policy analyst for the New England Public Policy Center at the Federal Reserve Bank of Boston, examines the effect film tax credits have had in the Northeast. She finds, “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.”

Special Effects: Flawed Report on Film Incentive Provides Distorted Lens
http://www.budgetandtax-news.org/article/28093
Michael D. LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative, analyzes the state’s film incentives program and finds it has failed to produce the lofty economic results some have claimed for it.

Reviews for State’s Film Tax Credit Aren’t Good
http://www.projo.com/news/content/FILM_TAX_CREDIT_08-12-08_ALB5IV1_v12.412297f.html
The Providence Journal finds Hollywood is the real winner when states implement film tax credits. The story 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
http://www.indy.com/posts/10770
Indiana, where the legislature approved less-extravagant film subsidies compared with those in other states, has not seen an influx of movie production.