Tax Update Blog: Permalink

Scary. Really, really scary.

I don't know whether to be encouraged or discouraged by this.

We are doing the same thing here in Michigan. Evidently movies, batteries and wind turbines are the solution to losing manufacturing.

I wonder which state will be the first to create jobs by paying Hollywood more than a full tax credit?

First of all, Jane Beshear is the wife of the Governor of Kentucky, not Ohio. And there are many studies to see if the incentives end up making money for the state. These incentives bring a lot of money into a sate, sometimes there are studios built because of incentives, many businesses will get a lot of business because of the films in the state, etc., etc., etc. You need to look at direct and indirect results. Here are the results of Ernst & Young's study showing incentives were beneficial for New Mexico: http://nmfilm.com/locals/downloads/nmfilmCreditImpactAnalysis.pdf.

There is no mention of the opportunity costs of that money - the loss of jobs that would have resulted had New Mexico citizens had the money for other things. There is no mention of how many films would have been done in New Mexico anyway.

Also, what is so special about filmmaking that makes subsidies for that industry better than subsidies for anything else? It generally leaves nothing behind in a community - no infrastructure, no buildings - it's just gone.

Finally - over 40 states have subsidies now. How can any state claim they are doing any more than pouring money down a rathole? When every state provides subsidies, no state gets an advantage, and it becomes a bidding war that the filmmakers win and the taxpayers lose.

Check out the Wisconsin study - not sponsored by the state film office - that said "...the film incentives are 75 percent less effective at generating jobs than other state programs and that each job created costs 20 times more than those created under other state programs."

The film business had a record year in 2008, even as many other businesses failed. That is one reason to try to get the film business in your state. Believe me, there would not have been many films (especially not big budget ones) made in NM without the incentives. Why would they? They would have stayed California. Of course all states will not remain little Hollywoods, but the ones that really work to try to maintain it can benefit. A man from Cleveland, OH built a studio in NM because of the tax incentives. Too bad OH wasn't quicker. Also, Ivan Schwarz has worked out a deal to get Nehst Studios to relocate to Cleveland if the incentives go through. These studios will do pre to post and create a lot of permanent jobs. Also, people in Ohio won't have to leave in droves anymore to work on films and can buy their homes and pay their property taxes and spend their very decent film pay in OH. You really need to look at the big picture. It goes on and on. Ohio has tourism for the "Shawshank Redemption" prison and "The Christmas Story" home to this day.

You can attract any industry with subsidies. There's nothing special about film, other than the pretty people asking for the corporate welfare.

I am unclear of what you're proposing with your post: whether subsidies for any industry or company are unfair, or just the "pretty people" industry?

True that you can attract any industry with subsidies: in fact, many states including Ohio and Iowa DO have subsidies for other industries, such as agricultural and manufacturing and even preferential subsidies to specific companies. Is it fair for manufacturing companies to get subsidies over media based industries?

Not only does this level the playing field for other states offering the film/media production incentives, it levels the playing field for other industries that could bring a creative class to a state dying from the loss of manufacturing jobs overseas. A creative class that could grow cities culturally, intellectually and financially.

Kat, you ask an excellent question:

"Is it fair for manufacturing companies to get subsidies over media based industries?"

No, it's not! And they shouldn't get them.

As far as "levelling the playing field," that is almost always properly translated as "changing the rules to favor me."

So, you are against subsidies or breaks of any kind? Although I do believe there is just cause for fairness in tax code by simplifying it, what about agricultural subsidies and write-offs for charitable contributions? Is there any place for economic development benefits via subsidies?

...And also, wouldn't deleting subsidies entirely and simplifying the tax code be put you out of a job?

Kat - That's pretty much it. Broaden the base, lower the rate. Ag subsidies would be the first thing to go if I were king, along with economic development subsidies. They inevitably go to the well-connected first. It's no accident that here in Iowa, one of the biggest Senate supporters of the rehab credit is in the business of rehabbing.

Contributions? I haven't made up my mind on that, but I'm not sure the complexity they cause is worth it.

A low rate for everyone makes everything much simpler and more fair. I would have very few deductions, but very low rates.

Would I be out of a job? The chances of my views being enacted are just north of the chances of me capturing Bigfoot in my backyard, so I lose no sleep over it. And people forget how hard it is for businesses to measure income even without a zillion breaks; there will always be work for accountants.