Off the Charts Blog | Center on Budget and Policy Priorities

Before releasing one of his movies, Mel Brooks gathered his cast and crew to thank them for their hard work.  When asked how he thought the film would do, he quipped, “This movie will make millions.…  Unfortunately, it cost millions.”

The same is true of the tax subsidies for film and TV productions that nearly every state has adopted in recent years in an effort to boost jobs and incomes, as I explain in a report released today.

These subsidies are quite lucrative to producers — and costly to states.  Forty-three states spent $1.5 billion on them in fiscal year 2010, as much as the salaries of tens of thousands of teachers and police officers.  The median state gives producers a credit worth 25 cents per dollar of subsidized expense.  In some states, if the credit exceeds the producer’s tax liability, the state will write the producer a check for the difference; other states allow producers to sell their credits to other companies that owe taxes to the state, like banks and insurance companies.

And what do states get in return?  Not much:

• The best-paying jobs that film and TV productions generate go to non-residents. Residents tend to get temporary, part-time work that disappears once the producers leave town
• Contrary to claims by film and tourism agencies, the subsidies don’t come close to paying for themselves — a Massachusetts study found that the state gained only 16 cents in revenue for every dollar of film tax credits awarded, for example.   Thus, the subsidies deprive states of revenue that would otherwise help fund public services for residents. These services— like education, public safety, healthcare, and infrastructure—keep state economies vibrant and competitive.
• States have no way of limiting subsidies only to productions that otherwise wouldn’t have come to their state, so at least part of the money ends up rewarding producers for something  they would have done anyway.

With states facing more than $130 billion in shortfalls next year resulting from weak revenues and shrinking federal assistance, costly tax giveaways like these aren’t worth a few celebrity sightings.

Yesterday’s Agriculture Department report finds that the share of U.S. households that lacked access to adequate food at some point in the year remained roughly unchanged in 2009, despite sharp increases in unemployment and poverty.

In 2008, as the recession took hold, the “food insecurity” rate jumped from 11 percent to almost 15 percent, and in 2009 it remained at the highest level since USDA began collecting these data in the mid-1990s.  Still, the fact that food insecurity didn’t worsen further in 2009 partly reflects the effectiveness of the federal safety net — and the investments through the 2009 Recovery Act — in responding to increased need.

In particular, the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) has stepped in to help more families afford adequate food during hard economic times, as it is designed to do.

According to yesterday’s release, some 17.4 million households (about one household in seven), containing more than 50 million people, lacked access to adequate food at some point in 2009 because they didn’t have enough money for groceries.  About 6.8 million of those households reported having to skip meals or take other steps to reduce their food intake because of lack of resources.  Yet the food insecurity rate was essentially unchanged from 2008, even though the unemployment rate rose from 5.8 percent to 9.3 percent in 2009 and the poverty rate rose from 13.2 percent to 14.3 percent.

A slight fall in food prices in 2009 contributed modestly to keeping food insecurity in check for the year.  But the federal food assistance safety net — SNAP in particular — likely deserves most of the credit:

• The number of households receiving SNAP benefits grew by 25 percent over the course of 2009, from 14 million to 18 million.  Some of the largest caseload increases occurred in states with the largest increases in unemployment.  Because SNAP is available to almost any family whose net income is at or below the poverty line, it responds quickly to support families and communities hit hard by economic downturns:  enrollment expands automatically when the economy weakens and contracts when the economy recovers.
• The Recovery Act increased the maximum SNAP benefit by 13.6 percent beginning in April 2009, providing an additional $20 to $24 per person per month to help families buy groceries.  In total, the Recovery Act increased food stamp benefits by about $7 billion in 2009.

So, while it’s deeply troubling that one in every seven households had trouble affording food last year, we shouldn’t overlook the fact that government policies have pushed back effectively against rising hardship during the recession.

As Congress decides whether to extend the 2001 and 2003 tax cuts, we thought it might be useful to keep in mind what the federal debt would be with and without an unpaid-for extension.

Clearly, extending the tax cuts without offsetting the cost would add significantly to federal debt in the long term.  By 2050, in fact, it would increase the debt by an amount roughly equal to the size of the economy, according to our long term projections.

Stabilizing the debt as a share of the economy will require both spending reductions and revenue increases.

We issued a major analysis today of the November 10 proposal by the co-chairs of President Obama’s fiscal commission, former Clinton White House Chief of Staff Erskine Bowles and former Republican Senator Alan Simpson.

The plan helps move the budget debate beyond misguided claims that policymakers can tame deficits simply or primarily by eliminating earmarks and “waste, fraud, and abuse.”  It also wisely subjects all parts of the budget to review and outlines an array of hard choices.

Unfortunately, the plan does not represent a truly balanced approach to bringing deficits under control.  Bowles and Simpson describe a real problem of deficits and debt that will grow to unsustainable levels, and they propose a number of policy changes that should be part of any serious debate on the budget.  Yet, as a whole, their package falls far short of an appropriate or equitable plan for the federal budget in the years and decades ahead, as a careful analysis of it shows.

Specifically, the plan starts to take effect in fiscal year 2012, which could threaten the fragile economic recovery; it proposes policy steps that would prove a serious hardship for some of the nation’s most disadvantaged individuals; it relies far too much on spending cuts as opposed to revenue increases (both as a whole and, in particular, in its proposals to strengthen Social Security’s finances); and it calls for adopting policies that will hold annual revenues and spending to 21 percent of Gross Domestic Product (GDP) in future decades, which is both unrealistic and unwise.

Bowles and Simpson presented their plan as a “starting point” for the commission’s deliberations.  Our new analysis focuses on the areas where their plan poses the most serious problems; it identifies the aspects of it that the commission most needs to change if the “starting point” is to become a balanced plan that would help to put the federal budget on a sound course without causing substantial damage in the process.  The chart below lists what we regard as six most important changes needed.

In this podcast, we’ll discuss the key issues facing Congress during the lame duck session that began yesterday. I’m Michelle Bazie and I’m joined by Jim Horney, the Center’s director of Federal Fiscal Policy.

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Jim, what are the key policy decisions at hand now that Congress is back in session?

Michelle, there are three big issues they’re facing. First, the tax cuts that were enacted in 2001 and 2003 will expire at the end of this year if Congress doesn’t do anything. So they’re going to be looking very carefully at what to do about the tax cuts. Number 2, unemployment insurance benefits; extended benefits that go beyond just the normal benefits when the economy is doing well, will expire at the end of November, and Congress will consider whether to extend those benefits or not. And then finally, Congress will need to at some point enact appropriations that provide funding for agencies through the end of the fiscal year, which is next September.

Well let’s start with the issue of extending the tax cuts that are scheduled to expire as we toast the New Year, particularly extending the tax cuts for family income above $250,000. What should Congress do?

Michelle, the question about what to do for the tax cuts for people with incomes over $250,000 is the key question. There is near unanimity that the tax cuts for people with incomes below $250,000 should be extended, at least right now, because letting those expire could be very harmful to the economy. But the question about above $250,000 is right up front, and what should happen there is we should let those tax cuts expire. Continuing tax cuts for people with incomes that high really doesn’t do very much for the economy at all, because people with incomes like that are going to save most of the extra money they get from the tax cuts. And we simply can’t afford to extend those tax cuts. If we end up making those tax cuts permanent, that’s a cost of $700 billion over the next ten years. When we’re facing large deficits, it just wouldn’t make sense to extend them.

The second issue you mentioned was unemployment insurance. How important is it for Congress to extend emergency unemployment insurance benefits before they expire at the end of this month?

It’s absolutely crucial to do that, both because we have about 5 million people who would really suffer if those benefits expire or they’re not extended. Also we are facing a situation where we have very high unemployment, more than nine and a half percent. The economy is growing very slowly at this point. Extending those benefits puts money in the hands of those people, which they then spend, which then helps to boost economic growth, and actually creates jobs, so that we will start getting that unemployment rate down. In recent decades, we have never let the extended benefits expire when unemployment was above 7.2 percent. Right now it’s at 9.6 percent, and yet we have people saying we should let these benefits expire. It’d be harmful both for the families that will not get the benefits and for the economy.

What about the upcoming appropriations process?

Big programs like Medicare, Social Security, the funding for that doesn’t come through annual appropriation, but the basic money to run the operations of government, to run the Defense Department, FBI, and so on, comes from annual appropriations. Those appropriations for this fiscal year, that started October 1^st, have not been provided for the full year, they’re simply being provided on a temporary basis. And that temporary funding runs out December 3^rd. At some point, Congress is going to have to provide the appropriations to run the government through next September. The fear is that in this lame duck, they may not be able to reach agreement on that full-year funding level, and it’s all too likely they’re simply going to extend the so-called continuing resolution over until next February and let the next Congress worry about that.

Thanks for joining me, Jim. Of course, the Center will continue following what goes on in this lame duck session, and in the next session.