Push for state film credits from Congress

In July 2014, 28 members of Congress sent a letter to members of the California legislature urging them to pass legislation (AB 1839) to extend California's film credits that expire in 2015. The letter notes some dismal data for the California film and television industry, including:

• 52% of production jobs are in California whereas ten years ago, it was 65%.
• In 1997, 16 of the 25 films with the largest receipts were filmed in California while in 2013, only 2 of the top 25 were filmed in California.

A few observations:

• The federal tax law includes a production incentives (IRC Section 181) that expired 12/31/13. Do the members who wrote the letter support extension or permanence of the federal incentive? After all, California is not just competing with other states for production work, but also with other countries. [Additional information on this incentive from the California Film Commission - here.]
• The California Legislative Analyst's Office (LAO) (and others) question the value of film credits. A report from the LAO issued in April 2014 raises many issues including (5/7/14 LAO blog):

1. "Film and television production in California could decline anyway.
2. Responding to other jurisdictions’ subsidies could be very expensive.
3. Interstate and international competition could stoke a “race to the bottom.”
4. For state government, the film tax credit does not “pay for itself.”
5. Subsidizing one industry sets an awkward precedent.
6. It will be difficult to evaluate the effectiveness of the film tax credit."

• The Tax Foundation has also questioned the value of film credits.  Several states have also issued reports reaching similar conclusions.
• Should members of Congress be urging state lawmakers to do something, particularly something that lowers tax revenues (yes, perhaps revenues increase from the film work, but is it enough (see the LAO report) and what is the harm to other industries that, in effect, are subsidizing another industry?).  Of course, "urging" is not as strong as what Congress is saying to state and local governments about their tax base decisions in other ways. The House passed H.R. 3086 (7/16/14) to make the Internet Tax Freedom Act permanent (it expires 11/1/14). This rule prohibits state and local governments from imposing taxes on Internet access fees.
• What about analyzing the film credit against principles of good tax policy? Certainly, it violates the neutrality principle by affecting decision-making about where to shoot a film. It violates economic efficiency be lowering taxes in one industry which in effect raises them in other industries. And, what about the "race to the bottom" argument of the states competing against each other in how much they can provide to the industry?

What do you think?  What might work better to keep film production in the U.S. and in any particular state?

Film Production Credits Go Too Far

There has been a fair amount of attention in the press on the variety of film production credits and grants that the majority of states offer to entice such work in their states. The attention hasn't all been positive though. In late 2009, the Wall Street Journal and others reported problems in Iowa where the incentives were used to purchase personal and lavish items - see "Build It With Tax Incentives and Hollywood Will Come" (10/19/09). The Governor temporarily stopped the program and in January 2010, the Governor's Tax Credit Review Panel recommended repeal of the state's two film project credits.

The National Conference on State Legislatures reports that 45 states offer some types of film production incentives (see list, 4/19/10). I encourage you to take a look at the list. Most of the incentives are quite generous. Michigan offers a refundable tax credit for up to 42% of the production costs!

Well, when states are contributing so much to the production of a film or commercial or other production, they just might also want to have a say in what is produced. This happened recently in Michigan. The New York Times reports that a movie was turned down as too horrific - "State Backing Films Says Cannibal Is Deal-Breaker" (6/14/10). Of course, it is really taxpayers funding these projects so perhaps film producers should be seeking public input in the states, or at least offering lots of bit parts or perhaps just free tickets (after all, the public shouldn't have to pay twice!)

These incentives violate several principles of good tax policy - simplicity, transparency, neutrality and economic efficiency. It seems like an odd thing for a state to incentive because the work is likely to be one-time. Why not reward businesses that are permanently setting up shop and creating a 21st century industry in the state? Or why not just offer a low tax rate and an incentive for hiring workers who live in the state?

What do you think?