Study: Film Tax Credits, Production Incentives Fail to Spur Economic Growth
State Tax Codes Should Provide Welcome Mat for All Industries, Not Hollywood Handouts Washington, DC - All eyes in Hollywood may be focused on Sunday's Golden Globe Awards, but a new Tax Foundation report highlights a different kind of red carpet: the preferential tax treatment given to film production companies by state governments. Movie production incentives (MPIs) - such as film tax credits, cash rebates, grants and select tax exemptions - fail to spur economic growth or raise tax revenue, according to the study.
"Motion picture incentives are often touted as 'job-creating' programs, but they create mostly temporary positions with limited upward mobility," said Tax Foundation Adjunct Scholar William Luther, who authored the report. "The only thing these incentives create is the need for ongoing credits and subsidies. As other states sweeten their incentives, productions move on."
The new study, "Movie Production Incentives: Blockbuster Support for Lackluster Policy," is Tax Foundation Special Report, No. 173, available online at http://www.taxfoundation.org/publications/show/25706.html.
Currently, 44 states, the District of Columbia and Puerto Rico offer significant movie production incentives, up from five states in 2002. Of those, 28 states and Puerto Rico offer tax credits for film production - credits that are refundable in 15 of those states. Eighteen states offer direct cash rebates to production companies, and Texas, Tennessee and the District of Columbia offer grants to filmmakers.
In addition to tax credits, cash rebates and grants, film production companies receive other preferential tax treatment: 30 state offer sales tax exemptions, and six states offer fee-free locations for the use of police officers to stop traffic. Some states are suspending their MPI programs due to budget pressures and revelations of mismanagement. Kansas has suspended its film tax credit program, and an Iowa panel appointed by Gov. Chet Culver after findings of program abuse on Friday recommended eliminating the state's film tax credit.
A Pennsylvania study endorsed the state's tax credit and grant program, claiming net benefits of $4.5 million by assuming that all film activity and related industries in Pennsylvania (some $500 million worth) would disappear if the credit were repealed. "That Pennsylvania study is another outlandish example of how states are willing to stretch economic assumptions to justify massive giveaways to film companies," said Joseph Henchman, Tax Foundation Tax Counsel and Director of State Projects.
"Rather than addressing the underlying problem and encouraging growth and development primarily by reducing tax burdens across the board and removing cumbersome regulations, which is politically challenging, politicians focus on what's easy: industry-specific incentives," Luther said. "A better solution would be to repeal these incentive programs and focus instead on broad-based tax competition."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.