States Can Entice Businesses and Industries Without Tax Credits

Supporters for incentive programs, such as tax credits and tax increment financing (TIF), claim that businesses would not locate in a particular state without them. However, many examples to the contrary exist.

The Wisconsin State Journal published an article that the film industry is thriving in Wisconsin, my home state, despite the fact that the governor reduced the cap for film tax credits in Wisconsin from $1.5 million to $500,000.

Why did Chicago writer and director Terry Green film in Wisconsin rather than some other state with more generous tax breaks for movies?

It wasn’t because of a fat state subsidy. According to the film’s Web site, Milwaukee was Green’s “first choice location” because of “the city’s rich history, vintage architecture and Lake Michigan’s horizon,” which made a “perfect backdrop for the 1919 period locations which simulate old world New York City.”

What’s more, Wisconsin is able to attract major blockbuster films without providing a cent of subsidy. According to an article in the Milwaukee Journal Sentinal, many scenes of Transformers 3 will be filmed in Milwaukee this summer:

Visit Milwaukee spokesman Dave Fantle says “Transformers 3” doesn’t qualify for that particular [tax credit] program, and that no public money is going to the production in Milwaukee.

”They are here because director Michael Bay fell in love with the Art Museum (the Calatrava addition) and wants to feature it in the film,” Fantle said, in an e-mail.

Wisconsin sets a great example for Missouri in this regard. Both states have many positive attributes (e.g., the river, the architecture, the skilled human capital, the history, etc.) which can attract business on their own merit. Firms will locate here for these reasons; they don’t need to be bribed with generous incentive packages.

As an example, the True/False documentary film festival in Columbia illustrates that the Show-Me State doesn’t require production incentives from the government in order to have a thriving film industry. My colleague, Audrey Spalding, is a fan of the festival. In the comment section of a previous post, she writes (emphasis mine):

Just last weekend, I attended the True/False Film Festival in Columbia, watched at least 13 documentaries, and spent all sorts money to eat out. And, I loved it, not because it was subsidized activity that otherwise wouldn’t occur in this state, but because it was central Missouri doing something central Missouri does well: Hosting an intimate film festival to screen documentaries about such disparate subjects as tween NASCAR, the war in Afghanistan, and the inventor of the floppy disk.

And, for clarification, I called Paul Sturtz, one of the founders of the festival. True/False, which is run by a nonprofit organization, does not receive any state tax credits or local tax incentives.

This is true for industries other than film, as well. For example, American Express decided to locate a new $600 million data center in Greensboro, N.C., without receiving a cent of assistance from the state or local government. This is a stark contrast from Missouri, whose state legislature proposes offering generous incentives to data centers as a means to lure them to the state, and also gave $28 million in state tax credits to IBM for locating a service center in Columbia.

Furthermore, when officials don’t offer tax credits, the state benefits because new businesses contribute revenues from sales and property taxes, none of which has to be reimbursed or abated by the state.

The optimal way to attract business to Missouri is to eliminate the uneven playing field that exists in the status quo and reduce marginal tax rates for all individuals and businesses — not just some.