Tax Incentives for Film Production? We’ve Seen This Movie Before

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Call it the latest entry in the fantasy genre. As states look to bounce back from the economic damage of the coronavirus pandemic, many are considering new or expanded tax credits for movie production. The hope is that taxpayer subsidies will lure big-budget blockbusters and good-paying jobs, but such blatant corporate welfare has failed virtually everywhere it has been tried. It would be a comedy—if millions of dollars in taxpayer money weren’t on the line.

At least nine states are considering or have already acted on this foolish policy, which Hollywood companies rely on to the tune of tens of millions of dollars a year. Legislators in Tennessee approved a new incentive program in April, creating new sales-tax exemptions for “qualified productions.”

Utah expanded its program in March. Lawmakers in Missouri have proposed new film incentives, while some in Maine, North Carolina, Pennsylvania and Minnesota have suggested putting more money into existing programs. Lawmakers in Kentucky have restored tax credits that were scaled back in 2018.

Something similar may happen in Michigan, which in 2015 killed its film tax-credit program on grounds that it was ineffective and expensive. Under the guise of pandemic relief, some Democratic state lawmakers want to reimburse movie producers for up to 30% of their expenses.

The supposed justification for this subsidy is simple: “This is about Michigan jobs,” as the bill’s sponsor put it. But Michigan’s previous experience shows that nothing good will come of this crony handout.

The previous version of Michigan’s film tax credit failed to deliver on its promises. According to Michigan’s nonpartisan Senate Fiscal Agency, the state doled out up to $186,519 in taxpayer money for every job created in 2008. These jobs weren’t the kind that would have benefited the state in the long run. In 2009 an outside consultant hired by the state found that 2,763 short-term movie jobs had the same economic impact as merely 254 full-time, yearlong jobs. Even that oversells the benefit, since film industry positions are often filled by people from out of state.

Remarkably, after spending half a billion dollars on film incentives between 2008 and 2015, Michigan saw only a modest increase in film-industry jobs. In 2013 the state’s jobs agency reported the program created no full-time jobs. As for revenue, Michigan Economic Development Corp. documents we’ve seen demonstrate that Michigan’s film program lost the state money in 2014.

Moviemakers play states against one another, leading to a cycle of bigger movie subsidies as lawmakers try not to be outbid by their neighbors. Analyst

Robert Tannenwald

has called this “perpetual competitive purgatory.”

The history of film subsidies shows the dynamic at work. Louisiana was the first to spend big money on subsidies for moviemaking. It had a small program that started in 1992, but a major expansion in 2002 caused scores of major productions to rush to the Bayou State. That inspired other states to start their own programs, and Louisiana had to spend to keep up. Costs spiraled out of control. Eventually lawmakers capped the subsidy program.

Georgia has lately been the movie industry’s preferred destination, thanks to its generous subsidies. But eventually some other state will poach its productions. New Jersey Gov. Phil Murphy is trying to lure Hollywood to the Garden State by drawing producers’ attention to Georgia’s controversial new voting law. Gov. Gavin Newsom has added $30 million to California’s subsidy program to try to compete with the Peach State. It doesn’t matter which state does the bribing: Movie producers will be the only winners.

Nationwide, the evidence is clear. State film incentive programs don’t create permanent jobs that benefit residents. A 2018 survey of studies by Kennesaw State University economist J.C. Bradbury found that they return an average of only 27 cents per dollar invested. A study published in March by the Massachusetts Tax Expenditure Review Commission found the return on investment in the Bay State was 14 cents. In 2015 Maryland’s Department of Legislative Services reported to the General Assembly that film subsidies hurt the state’s economy, because the money could have been spent on things that actually create jobs and boost wages. In Kentucky, where subsidies were recently expanded, policy makers tried to avoid this pesky reality by releasing a taxpayer-funded study that ignored any evidence showing the subsidies’ failure.

It’s irresponsible to spend so much on a policy that has repeatedly fallen far short of its promises. Lawmakers in Michigan and every state considering such corporate welfare should look at the evidence, then end their obsession with doling out taxpayer money to moviemakers. This sort of favoritism won’t create jobs or boost the economy, and anyone who claims otherwise is living in La-La Land.

Mr. Garofalo is director of state and local policy at the American Economic Liberties Project. Mr. LaFaive is senior director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy.

Main Street: Unlike Hollywood’s woke, at least its Communists could make good movies. Images: Everett Collection/A.M.P.A.S. via Getty Images Composite: Mark Kelly

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