Brentwood California Hotels

Film-industry subsidies: Unilateral disarmament

LOTS of states would love to be California and have their own little Hollywood. Film crews would then come to town and spend money in hair salons and hotels, and local politicians could pose with film stars. So why not call it “economic development” to justify the huge tax credits that lure film producers? As of last year, more than 40 states had such incentives, costing them a record $1.4 billion.

Even California itself plays the game, believing that it has to defend itself against the poachers. In 2003, when only a handful of states (principally Louisiana and New Mexico) offered incentives, California made two-thirds of America’s big-studio films. Now it makes far fewer than half. Film LA, an organisation that co-ordinates permits for film shoots in Los Angeles, says that without California’s own tax credit, “2010 would have been the worst year” since the mid-1990s for filming in Hollywood. As its marketing blog gibes: “It is extraordinarily unlikely that the 137 productions that filmed in Michigan since 2007 chose to shoot there for creative reasons, a favourable climate or a deep and talented film-crew base.”

All this costs money, which legislators volunteer on behalf of taxpayers. Many tax credits (a percentage of a film crew’s local expenditures) exceed the filmmaker’s total tax liability to that state. The credits have even become an industry unto themselves: brokers slice them into tranches and trade them. In Iowa filmmakers were selling their credits until that state shut its programme in 2009. Last month an Iowa judge sentenced a producer to ten years in prison for fiddling credits.

Incentives do not have to involve tax credits. Some states simplify the paperwork by just giving out cash (calling it “rebates” or “grants”). Others exempt film-makers from sales or hotel taxes or give them other perks.

All this is silly. First, as Joseph Henchman at the Tax Foundation, a non-partisan think-tank, puts it, even when a state succeeds in luring film crews, they rarely boost the economy or tax revenues enough to justify the costs of the incentives. Film companies usually import their staff (stars, stuntmen, etc) and export them again when the shoot is over. The local jobs they create (hairdressers, sound technicians, pizza deliverers) are mostly temporary.

Second, since virtually all states are at it, the programmes largely cancel out one another; no state gets a lasting advantage. The craze resembles a beggar-thy-neighbour trade war (with mutually destructive tariffs) or the federal tax code with its loopholes for every lobby and thus higher rates for all. In the language of cold-war nukes, it would be mutually assured destruction (MAD). The only winner is the film industry. In essence, a rich bloke in a Brentwood villa gets money from a poor taxpayer in West Virginia.

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