Filmmakers Vote With Their Feet

I blogged yesterday about how tax policy distributes people and businesses. A recent article in the Wall Street Journal illustrates an example of this: Tax credits distribute film production activities.

Instead of leaving filmmaking to states that specialize in it, like California, and then realizing gains from interstate trade, star-stuck states are competing with each other (and with other countries) to attract cash-strapped filmmakers. And, just like any other business would, filmmakers move to the state that offers the most tax incentives and subsidies. They even rewrite their scripts to accommodate the setting changes. According to the WSJ article:

Michigan offers credits for as much as 42% of a film’s in-state budget, and Utah and North Carolina have both recently increased their incentives to stay competitive. France recently enacted a new law that creates a 20% rebate for foreign productions shot in the country that have ties with French culture.

Missouri offers a film production tax credit for up to 35 percent of the amount spent in Missouri for activities related to film production.

As a fiscal conservative, I am in favor of reducing tax burdens in general. However, I believe that filmmaker tax credits are bad policy for several reasons.

First, states lose money on them. Filmmakers can frequently claim more than they paid in taxes because refundable tax credits function like grants. My home state, Wisconsin, offers a refundable tax credit of 25 percent for all production-related activities, as well as the use of state-owned buildings and locations free of charge. When Johnny Depp and Christian Bale filmed Public Enemies in the state capitol building in Madison, the state lost money. According to an article in the Wisconsin State Journal:

The state paid $4.6 million to the makers of Public Enemies through the credits, even though the film generated an estimated $270,000 in state taxes.

Second, there are more cost-effective ways to create jobs. In March, the Wisconsin Department of Commerce published a cost-benefit analysis of the state’s film tax credit program, which reported that it costs 20 times more to create a job using the state’s movie tax incentive program than it does using other state job creation programs.

The state subsidy going to films such as “Public Enemies,” starring Johnny Depp, cost $128,000 per each year-long job created, the Department of Commerce study found. In contrast, the agency’s other programs cost about $6,200 for creating a job for the first year and that position might, unlike some film jobs, last much longer than that, the study found.

This quotation introduces a third important point: This economic activity is short-lived. As soon as they complete shooting, the filmmakers pack up their sets and leave the state. Under other job-creation programs, the jobs are more permanent.

Commerce officials said that since taxpayer money for creating jobs is limited, it makes sense to compare how much it costs to create a job with the film program compared to others targeting manufacturers and high-tech businesses.

If the pukka focus of these subsidies were job creation, then they could be directed better elsewhere. I think that the real focus of film tax credits, however, is attracting celebrities to Midwest states. If it weren’t for the subsidies, why would Johnny Depp ever set foot in Wisconsin?