Although Oscar nominations were announced yesterday, one winner has already been determined: the Oscar for Best Tax Break (not a real Academy Award). Among the nine films nominated for Best Picture, The Wolf of Wall Street received the largest state tax incentive, a 30 percent tax credit from New York State. In effect, New York State taxpayers paid for a third of its $100 million in production costs.
Louisiana has the best movie production incentives in the nation: a 30 percent credit on expenditures plus an additional five percent payroll credit. However, the two nominated movies filmed there, “12 Years a Slave” and “Dallas Buyers Club,” had significantly smaller budgets ($20 million and $5.5 million, respectively).
All nine movies nominated for Best Picture were filmed in jurisdictions with movie production incentives. Clearly, a lower cost of doing business attracts the best filmmakers to these locales.
The important question is: do these incentives pay off for the states?
The answer is no. Similar to most targeted tax breaks, movie production incentives routinely fail to deliver on the economic promises made by their proponents. Supporters frequently claim movie incentives create jobs and lead to net gains in tax revenue. However, data from several states find movie production incentives generate less than 30 cents for every lost dollar in tax revenue.
Providing tax breaks specifically to the film industry is an example of government working to choose winners and losers in the marketplace. States could attract almost any industry if they paid for a quarter to a third of its expenditures, but such a policy would be fiscally unsustainable. A better system would be to lower state tax rates for everyone, encouraging economic growth.
Film is a particularly poor industry to subsidize because it does not create long-term employment and other lasting economic benefits for states. Even though a well-made film might boost tourism, productions only offer short-term employment and the workers are highly specialized. Production and workers can easily move from one location to wherever better deals are offered.
Reduced revenue from tax breaks leaves the rest of the state’s taxpayers to foot the bill necessary to balance the budget. Because of specialized tax credits, such as movie production incentives, states have less money to spend on teachers, roads, and police. Either these essential services are cut, or tax rates are raised for everyone else.
According to the non-partisan Tax Foundation, 37 states had film incentive programs that offered $1.3 billion in payouts in 2011. As many states face deep budget shortfalls, governors should be looking for places to save instead of competing over who can most heavily subsidize Hollywood filmmakers.
Connecticut recently suspended its film production tax credit for two years after mounting evidence showed the credit was not helping the state’s budget. The state faced a $1.5 billion budget deficit for 2013 and could not afford to keep adding to the $140 million spent to attract filmmakers. A report by the Federal Reserve Bank of Boston concluded the Connecticut credit “does not pay for itself” when net tax revenue from the credit is considered.
Two other states in deep fiscal trouble, New York and New Jersey, are wasting valuable tax resources to host movie stars. New York State’s tax credit is capped at “only” $420 million a year. New Jersey has a $10 million limit.
Movie production incentives do little more than give legislators an opportunity to brush elbows with the rich and famous.
Jared Meyer is a policy analyst at Economics21, a center of the Manhattan Institute for Policy Research. You can follow him on Twitter here.
Jason Russell is a research associate at Economics21, a center of the Manhattan Institute for Policy Research. You can follow him on Twitter here.