Home > Tax Film Credits: Fiscal Pain, Little Gain (and Subsidizes Smut)

Tax Film Credits: Fiscal Pain, Little Gain (and Subsidizes Smut)

January 6, 2010 at 11:29 am Matt Leave a comment Go to comments

From Tim Feran in The Dispatch:

Four movie projects will contribute roughly $25 million in economic activity to the state, the result of tax credits signed into law last summer, state officials said yesterday.

That includes jobs — at least temporary ones — as production-crew members and extras for nearly 3,000 Ohioans.

“Ohioans are getting a chance to be part of the motion-picture industry and generate income for their families,” Lisa Patt-McDaniel, director of the Ohio Department of Development, said in a statement. “Production crews are also utilizing restaurants, hotels and other businesses in several Ohio communities.”

Work on one project has already taken place, and three others are upcoming.

It is always fun to have the spokesbabe for the Ohio Department of Corporate Welfare comment on how excited a specific industry is to receive a tax credit or grant. After all, Ohio is writing movie companies a check, and who doesn’t love free money?

$30 million dollars in tax credits are available in Ohio for fiscal year 2010-2011. And while “$25 million in economic activity” may sound good, it fails to  include inherent multiplier effect of economic activity, which for movie production companies is low.

The numbers are difficult to control for, even the most generous estimates by accounting firm Ernst and Young shows that, on average, tax collections have been, in states with movie tax credits, $.37 for every $1.00 of tax credit awarded.  And our neighbors in Pennsylvania last year spent $75 million on tax credits, but the program only generated $18 million in tax revenue.

I say these estimates are extremely generous, as accounting firms are assuming that all film-related economic activity from tax credits were due to the  tax credit…. For example, any local tailor or hairdresser whose services were paid for by a movie production firm would count as jobs and economic activity, and 100% of their economic activity would be counted even if they would of had a successful business without the movie being produced. Therefore, such metrics are difficult to control for, and the $25 million is most certainly incorrect.

In addition, there are costs involved in the aftermath of artificially propping up part of an economy… the same type of problems which occur when President Obama’s short-term “shovel ready” projects are finished or the autodealers suffered after the Cash for Clunkers program came to an end.

And there should be bipartisan reasons to oppose movie tax credits. Social conservatives like me don’t want my tax dollars subsiding smutty movies. And liberals certainly can’t be pleased that it isn’t uncommon for movie tax credits to lead to censorship. By subsiding movies, artistic work is being politicized.

This shows the problem with politicians being interested in gimmicky, short-term “job creation”, instead of long-term wealth creation. Ohio wouldn’t have to offer these tax credits if Ohio was an attractive place to do business. But with some of the highest tax rates in the nation, state taxes stifle economic activity, and we instead choose to shower selected business interests with handouts and favors.

Instead of competing with other states to give handouts to movie production firms, Ohio should instead focus on the over-taxed companies the state is gouging to fund these subsidies. This is a diversion from serious tax reform.

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