Tax Dollars for Film Credits? Whatz This?

This is a little know funnel for tax dollars to people that live in a fantasy land. It's bad enough our tax dollars are wasted by people that we elect to watch our money, but now they give our money to people that just landed in a space ship from the planet Hollywood.

Whaz up with this? Are we star struck into thinking maybe, just maybe, we might be in the movies, or are we just lazy and stupid.

Important Questions to Ask in Evaluating a Film Tax Incentive Program
Source: Joseph Henchman, "Important Questions to Ask in Evaluating a Film Tax Incentive Program," Tax Foundation, March 22, 2012.

Speaking before the Finance Committee of the Alaska House of Representatives, Joseph Henchman, vice president of legal and state projects for the Tax Foundation, argued against the state legislature's bill to extend the state's tax credit for film production companies through 2023. He states the credits, worth up to $200 million over the period, do little to benefit state residents and are not cost effective.

First, he attacks the oft-made point by proponents that by regularly attracting productions to the state, Alaska will eventually attain a critical mass beyond which films will continue to shoot there without additional financial incentive. The number of states offering film tax credits has increased from four states offering $2 million in 1999 to 40 states offering $1.4 billion in 2010.

Because of the competition among states, film production companies maintain little state loyalty and instead flock to whatever state offers the best deals. This means that the attainment of that critical mass is unlikely.

Henchman then moves on to disprove the claim that the film tax credit is revenue-neutral. While proponents argue that the credit merely forgives taxes on activities that would not have occurred in the state anyway, this hides the true financial interworking.

Many states' tax credits, including Alaska's, are transferable or refundable. This means that often, when the allocated credit is greater than the tax liability of the production, the credit receives a refund or is transferred, thereby reducing state revenues. This likely explains why in the last couple of years, several states have reconsidered their entire film tax credit, with some like Michigan sharply contracting the credit amount.

Finally, Henchman makes the argument that even if the film production does create jobs and provides a positive economic effect on the community, this effect does not outweigh the costs of the credit. Thus, film tax credits on the whole are not cost effective.

A Michigan study of its own tax credit found that it was essentially paying $100,000 for each full-time equivalent job created.

Arizona's Department of Commerce calculated a receipt of 28 cents per dollar spent.
Studies in Connecticut, Louisiana, Massachusetts, New Mexico and Pennsylvania all arrived at even lower amounts.