New Michigan Study: Film Tax Credit Program Does Not Pay for Itself

Supporters of film tax credit programs argue that these programs generate more revenue than they cost. Over at Mound City Money last week, David Nicklaus highlights a study recently released by the Senate Fiscal Agency in Michigan that provides evidence to the contrary. It concludes that the film tax credit program in Michigan does not pay for itself.

The following is an excerpt from the study (emphasis mine):

Significant confusion appears to exist regarding the public and private costs and benefits of the credits. Statements in the press regarding the benefits of the Media Production Credit typically highlight the increases in private sector activity and measure them against the public sector cost (often without accounting for the impact of lowering other public expenditures to offset the lost revenue from the credit). This comparison creates confusion about the impact of the credit on the budget. The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit “pay for itself” from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred.

Public discussion of the Media Production Credit also has confused the nature of the credit, often leaving taxpayers with the impression that the credit represents foregone revenue that the State would not have otherwise received. The amount of the Media Production Credit, however, is unrelated to a taxpayer’s liability. The credit represents a subsidy for production activity and is unrelated to any provisions in law that impose liability on the taxpayer. Because the credit is refundable, the State not only foregoes the revenue it would have otherwise received but also pays additional money to offset the costs of the production.

The study includes some striking statistics:

• In 2009, each job created by the film tax credit program in Michigan cost taxpayers between $44,561 to $193,333.
• in FY10–11, Michigan will spend $125 million on film credits, and this will generate merely $13.5 million in new tax receipts. This equals a net fiscal cost of $111.5 million.

Nicklaus linked to an article by Josh Barro discussing the study, which is also worth reading.

After my testimony before the Missouri Tax Credit Review Commission on Wednesday, co-chair Steve Stogel asked me which specific programs I would cut. Although I believe that Missourians would be better off if all development tax credit programs were eliminated, I realize that we live in a world of second-best solutions and that eliminating them all may not be politically feasible. If I had to choose which programs to eliminate, the film tax credit program would be among the very first. (This is unsurprising; by my count, I have written 18 blog posts about the specific subject of film tax credit programs on Show-Me Daily, not to mention an editorial.)

Policymakers often look to the economic development strategies used in other states and try to emulate them. It just so happens that Wisconsin recently scaled back its film tax program, and Iowa decided to eliminate its program, too. When will Missouri face the facts and do the same?