GUEST COMMENTARY: Film tax credits show downside of targeted tax credits

Monday, December 14, 2009 | 12:01 a.m. CST; updated 10:57 a.m. CDT, Tuesday, May 4, 2010

The new Jason Reitman film, "Up in the Air," premiered at the Tivoli Theatre in University City last month. Many are using the event as an opportunity to promote film tax credits, to be used as a means of bringing more film productions to Missouri. Currently, the state offers a film production tax credit for up to 35 percent of the amount spent in Missouri for activities related to film production, up to $4.5 million. Although reducing tax burdens is generally a good idea, there are several reasons to oppose tax credits targeted to filmmakers.

States tend to spend more revenue by attracting filmmakers with tax credits than the filmmakers generate while working in the state. For an example of what not to do, Missouri should look to Wisconsin, which offers a refundable tax credit of 25 percent for all production-related activities, as well as the use of state-owned buildings and locations free of charge. When Johnny Depp and Christian Bale filmed "Public Enemies" in the state capitol building in Madison, the state lost money. According to the Wisconsin State Journal, the state paid $4.6 million to the filmmakers in credits, even though the film generated an estimated $270,000 in state taxes. Furthermore, filmmakers can frequently claim more than they paid in taxes, because refundable tax credits function like grants.

Additionally, this economic activity is short-lived. As soon as the filmmakers complete their shoot, they pack up their sets and leave the state. Certainly, many area residents are cast as extras in these films, but these jobs are both low-wage and temporary. According to the casting call for "Up in the Air," extras were compensated only $7.05 per hour (before taxes) for up to eight hours and overtime after that, and they were asked to work for just one day. If the state were truly focused on creating productive, long-term jobs, it would target activities that are more permanent than film shoots. Rather than offering these film tax credit programs, Missouri should encourage employers to create jobs that are better compensated and longer lasting.

There are also fundamental downsides to targeted tax credits in general, not only those that target filmmakers. These programs reinforce the idea that government should be able to pick and choose which economic activities may occur within its borders. Government officials should not have the role of deciding who wins and who loses in the marketplace; they should allow businesses to succeed or to fail as a result of their own efforts and the preferences of consumers.

Furthermore, targeted tax credits establish a system in which government favors certain businesses over others. These programs force every non-favored business to compete at a comparative disadvantage, creating inequality. Government policy should not prefer filmmaking over hog farming, for example, simply because one is considered to be more glamorous. This sort of favoritism breeds corruption, because it encourages all businesses within a state to seek the favor of their elected officials and solicit the government for special treatment.

There are ways to structure tax policy that would encourage job creation and also maintain a level playing field. If the government reduced or eliminated the commercial property tax surcharge or the earnings tax in St. Louis, for example, it would decrease the overall cost of labor and employers could hire more people.

I understand why Midwestern states offer tax credits to filmmakers: They want to attract celebrities. Certainly, it’s exciting for the hoi polloi to recognize their local haunts on the big screen and to spot celebrities like George Clooney and Johnny Depp. Rather than competing with other star-struck states however, Missouri should leave filmmaking to states that specialize in it, like California, and then realize gains from interstate trade. If Missouri wanted to take part in a red-carpet film premiere, it would make much more economic sense to provide the Michelob than to give away tax money in exchange for the “privilege” of hosting the event.

Christine Harbin is a research analyst with the Show-Me Institute, a Missouri-based think tank.

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Scott Clark December 14, 2009 | 7:32 p.m.

Wisconsin does little or no film business and is a poor comparison. The film business is an Industry which spend billions of dollars every year, not a fan page for stars. Seems like any new business is good business in these times of overall reduction in almost all industry in the USA. The Michigan film industry is around 4th in the country now in film production and growing at a time when all other industry has collapsed there. $10 million spent times a 2 factor equals $20 million new money spent in Missouri compared to 0 million if no one films there. That is just one project. Unfortunately the film business will not spend their billions in the USA without incentives as many countries have similar incentives and better exchange rates. Not all production crew and almost no vendors are from out of state on a movie. The rates for skilled local crew are not low paying unless you consider $10- $50 per hour low paying. Hiring local crew and building or adding to local infrastructure for filmmaking does add long lasting jobs and new business to the communities where film production occurs, just ask any crew person or vendor who does business with filmmakers. These local crew people and businesses spend locally, pay taxes locally, and own property and homes in the area they live. The film business is also very green and very low impact. I invite you to take a look at the Missouri Film Commission Production Guide and see how many Missouri based companies and crew people actually make a living in the film business-
Thank you for your time and consideration!

(Report Comment)
Pam Garrett December 15, 2009 | 8:23 a.m.

Again, misleading information on the film credits.

The Missouri incentive has a CAP on credits. It's $4.5 Million cap per year. Not $4.5 million cap per film..
You are only seeing a portion of the picture. While films are in the state and do generate Sales Tax Revenue, they all generate revenue for in the communities they shoot in. 40 percent of a film's budget stays within the locale the shoot in.
Extra's make the state's Minimum Wage per hour, and they are short term jobs. Missouri has a quite a pool of seasoned Film Crew Professionals in this state, and our jobs are not low paying..You want a low paying job? Try working in a smaller community here and see if you can live on Minimum Wage when you have years of experience in your field even.
Missouri tends to want to live in the "Good Old Boy" days, when you help your friends instead of trying to breathe new life into a new industry.
These credits are transferable since they are meant to offset state taxes and most film production companies are not residents, they are just here short term to get their film shot. YOu are boosting HUGE corporations who buy these credits to offset their taxes so they don't have to pay as much to the state.
You never mention the states that benefit from having good film incentives.
North Carolina, Georgia, New Mexico, Colorado, Louisiana, etc.
They have good workable film incentives and they do see the positive economic impact of attracting film productions.
But best not to talk about what you obviously don't understand.

(Report Comment)
Darla Morrison December 15, 2009 | 1:26 p.m.

Ms. Harbin seems to think Missourians and legislators are all groupies and that film tax credits are just a way to assure an opportunity to get close to George Clooney. The reality is that film is a business and involves long hours and hard work.

Ms. Harbin noted how the jobs were "low-paying." What's frustrating is that it's very probable that she knew otherwise when she wrote this op-ed but chose not to include that information.

"Up in the Air," provided more than 100 jobs paying $2200 to $3500 per week during the deepest part of the recession. The Missouri payroll was more than $5 million dollars. Caterers, carpenters, truck drivers, ice vendors (one of whom sold $30,000 worth of ice for a winter film scene) seamstresses, electricians and more were employed by this film production.

I would encourage you to read a New York Times article on the film tax credit program in Michigan:

(Report Comment)
John Schultz December 15, 2009 | 1:58 p.m.

Tax credits and similar incentives are a way for politicians to choose winners and losers by deciding who gets credits and who does not. Government should get out of that role.

(Report Comment)
Cat Cacciatore December 15, 2009 | 7:28 p.m.

I think the Economic Impact Report for 'Up in the Air' puts all of this misinformation into perspective: Film Tax Credits cost less than the money that the film industry brings into the state. Please read the report by clicking the link below.

(Report Comment)
Jonathan Polansky December 27, 2009 | 3:39 p.m.

The Hollywood Reporter takes a clear-eyed view of film subsidies — and comes to a less positive conclusion than you might predict. See:

Not yet factored: massive collateral damage to public health, because taxpayers unwittingly subsidize tobacco promotion in kid-rated films to the tune of $500 million a year. See this recent University of California report:

(Report Comment)

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