So Much Misinformation in This Editorial … So Little Time!
On the subject of Illinois’ film production incentives program, the editorial board at the Chicago Tribune poses the question:
What’s not to like?
On the contrary, what’s not to dislike? Film production incentive programs are undesirable policy for states, including Illinois and Missouri, and they have many unintended negative consequences. I have written extensively about film production incentive programs before. In this post, I’d like to highlight specific statements from the editorial and explain why they are incorrect in an economic sense.
Expect this flurry of activity to continue.
The estimated economic and fiscal impact of these programs is debatable. Film tax credits do not result in permanent economic activity because the purchases are single-time expenses and they do not create permanent jobs. The Tax Foundation recently released a study that concluded these programs fail to incite economic growth. In fact, the programs restrict growth because they force taxpayers to support an entire industry.
The tax credit is something lawmakers got just right — in size, scope and sustainability.
Tax credit programs in Missouri are anything but “just right” in size, scope and sustainability, because they are growing at a much faster rate than the state’s revenues. This is why the Missouri state auditor’s report on tax credits recommends that government officials set both expiration dates and annual and cumulative limits for all tax credits programs, including those for film productions. The state of Missouri has awarded nearly $13 million in film tax credits since 2000, and this money comes at the expense of basic government functions, such as education.
“It creates jobs without breaking the bank.”
This is fundamentally false. First, as Henry Hazlitt explains in Economics in One Lesson, this kind of spending destroys jobs in the private sector. As a positive consequence of eliminating the program, there will more workers available to do other kinds of work. Second, for reasons I described earlier, this program is very expensive!
“And it has the potential to make Chicago not only a destination for big Hollywood productions, but also a center of independent film activity.”
States like Missouri and Illinois do not have a comparative advantage in filmmaking, so most film productions are more efficient and cost-effective when undertaken in states that have this comparative advantage. Spending public funds to bring film productions to Missouri means that extra resources are expended to make films, which also means that those resources are no longer available for use in other industries. If Chicago, Kansas City, or Saint Louis were truly suited to be a center for the film industry, it would happen in an unregulated market, independent of government assistance.
Furthermore, it seems to me that practically every state aspires to be a center for the film industry. First, by definition, they can’t all be the center. Second, from the perspective of a government agency, why is filmmaking preferable to any other activity? The free market — not the government — should decide which economic activities occur in an area.
“[T]he value of Chicago’s film infrastructure overcomes bigger tax credits from neighboring states. […] And a plethora of talented stage actors call Chicago home. In other words, you have a place that provides everything a filmmaker might need.
The availability of desirable resources is already a significant incentive to locate in an area. If a state boasts resources that are attractive to filmmakers, then it should not need to use tax credits to encourage firms to locate within its borders.
States like Missouri and Illinois do not have an absence of supply of film production; I disagree that this is the issue, however. Instead, what these states experience is an absence of demand for filmmaking. Unless other factors change over time, there is not enough demand in Missouri for the film industry to exist here without a considerable level of government assistance.