State tax breaks for making movies: A needed boost for local economies, or just a chance for politicians to pose with the stars at taxpayer expense?

by Brian Wolfman

Need another reason to avoid next year's long, self-congratulatory Oscars' awards? How about that the movie industry is the principal lobbyist for, and the prime beneficiary of, government largesse that may be eating away at your kids' school funding or support for your local fire fighters?

We know that tax-paid consumer services — like roads, emergency services, and schools — are getting squeezed because many state and local government budgets are very tight. Nonetheless, as discussed in this piece by Glenn Reynolds, the states are trying to out-do each other with tax give-aways to attract movie producers to film on location in their states. Virginia gave $3.5 million in tax breaks — that is, $3.5 million in taxpayers' money — to the producers of "Lincoln." The rationale is that the tax breaks will create local jobs and spur the local economy, which, in turn, will fill tax coffers. (And even out-of-staters, like Spielberg when he was making "Lincoln," need places to stay and eat.) But we can't just assume that a tax break for big business will be better for consumers. Here's what Reynolds says about chasing the Hollywood stars with your tax dollars:

Such state incentives are widespread, and often substantial, but they
don't do much to attract jobs. About $1.5 billion in tax credits and
exemptions, grants, waived fees and other financial inducements went to
the film industry in 2010, according to data analyzed by the Center on
Budget and Policy Priorities. Politicians like to offer this largess
because they get photo-ops with celebrities, but the economic payoff is
minuscule. George Mason University's Adam Thierer has called this "a
growing cronyism fiasco" and noted that the number of states involved
skyrocketed to 45 in 2009 from five in 2002.

Reynolds points to the Center on Budget and Policy Priorities' study State Film Subsidies: Not Much Bang for Too Many Bucks, which concluded that "[l]ike a Hollywood fantasy, claims that tax subsidies for film and TV productions — which nearly every state has adopted in recent years — are cost -effective tools of job and income creation are more fiction than fact. In the harsh light of reality, film subsidies offer little bang for the buck. … The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact." (emphasis added).

The tax incentives for movie-making were supported by studies. The Center lays into those studies: "The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity.The most careful, objective studies find just the opposite."

For more on the Center's study go here.