The Twilight of Film Tax Credits?

July 7, 2011 at 11:40 am

State governments have acted like swooning fans toward the film industry for years, handing out tax subsidies to attract movie and TV productions, but they’re finally starting to take a more critical look.  And they don’t like what they see:  since January, 17 states have eliminated their film subsidies or pared them back.

As I wrote last fall, policymakers are quite right to view film tax credits with a more skeptical eye.

For starters, film tax credits are expensive, costing states over $1.5 billion per year.  At a time when states are cutting funds for schools, cops, and health care to help close recession-induced budget shortfalls, it’s impossible to justify large subsidies for an already profitable industry.

Moreover, film tax credits haven’t lived up to their Hollywood hype.  The film industry claims that they create jobs for local residents, but the most serious study of this issue found that out-of-state specialists — actors, writers, cinematographers, and so on — reap a disproportionate share of the benefits.  Residents get relatively low-paying jobs that disappear once a shoot is finished and the producer leaves town.

These credits are bad long-term investments, too.  Their die-hard supporters say that a state can use the credits to cultivate its own permanent film industry with a local, skilled labor force — like Los Angeles or New York City — then do away with the credits once it no longer needs them to attract productions.  But states like New Mexico and Louisiana have tried that approach, offering generous film subsidies for almost a decade, and it has yet to pay off.  Film production is so mobile, and so risky financially, that producers will always tend to go to wherever they can get the biggest subsidies.

Now, states are starting to wise up:

  • New Mexico, once the avatar of generous film subsidies, has capped its subsidies at $50 million a year, an estimated 24 percent below last year’s level.
  • Michigan, which last year spent an estimated $135 million in film tax credits, is gradually replacing its credit with a $25 million grant. (It’s often easier to hold an employer accountable for results with a grant program than a tax credit.)
  • Washington State has eliminated its small film tax credit, a $7 million biennial program, in large part because lawmakers were swayed by independent evidence that film subsidies are ineffective engines of economic development.

A few states, like Florida, Utah, and Virginia, are still following the tired old script of expanding film subsidies.  But the evidence is clear:  the idea that film subsidies can generate growth is a bigger bust than “Battlefield Earth.”  By eliminating them, states can free up scarce funds for schools, worker training, infrastructure, and public safety — proven building blocks of jobs and income for families from all walks of life.

That’s not a blockbuster fantasy, but it is reality.

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More About Robert Tannenwald

Robert Tannenwald

Robert Tannenwald is a Senior Fellow in the Center’s State Fiscal Project.

Full bio | Blog Archive | Research archive at CBPP.org

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