Film Tax Credits Don’t Bring Lasting Jobs or Significant Revenue Gains

Posted on by Christine Harbin

The new Jason Reitman film, Up in the Air, premiered at the Tivoli Theatre in University City last month. Many are using the event as an opportunity to promote film tax credits, to be used as a means of bringing more film productions to Missouri. Currently, the state offers a film production tax credit for up to 35 percent of the amount spent in Missouri for activities related to film production, up to $4.5 million. Although reducing tax burdens is generally a good idea, there are several reasons to oppose tax credits targeted to filmmakers.

States tend to spend more revenue by attracting filmmakers with tax credits than the filmmakers generate while working in the state. For an example of what not to do, Missouri should look to Wisconsin, which 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 the Wisconsin State Journal, the state paid $4.6 million to the filmmakers in credits, even though the film generated an estimated $270,000 in state taxes. Furthermore, filmmakers can frequently claim more than they paid in taxes, because refundable tax credits function like grants.

Additionally, this economic activity is short-lived. As soon as the filmmakers complete their shoot, they pack up their sets and leave the state. Certainly, many area residents are cast as extras in these films, but these jobs are both low-wage and temporary. According to the casting call for Up in the Air, extras were compensated only $7.05 per hour (before taxes), and they were asked to work for just one day. If the state were truly focused on creating productive, long-term jobs, it would target activities that are more permanent than film shoots. Rather than offering these film tax credit programs, Missouri should encourage employers to create jobs that are better compensated and longer lasting.

There are also fundamental downsides to targeted tax credits in general, not only those that target filmmakers. These programs reinforce the idea that government should be able to pick and choose which economic activities may occur within its borders. Government officials should not have the role of deciding who wins and who loses in the marketplace; they should allow businesses to succeed or to fail as a result of their own efforts, and the preferences of consumers.

Furthermore, targeted tax credits establish a system in which government favors certain businesses over others. These programs force every non-favored business to compete at a comparative disadvantage, creating inequality. Government policy should not prefer filmmaking over hog farming, for example, simply because one is considered to be more glamorous. This sort of favoritism breeds corruption, because it encourages all businesses within a state to seek the favor of their elected officials and solicit the government for special treatment.

There are ways to structure tax policy that would encourage job creation and also maintain a level playing field. If the government reduced or eliminated the commercial property tax surcharge or the earnings tax in Saint Louis, for example, it would decrease the overall cost of labor and employers could hire more people.

I understand why Midwestern states offer tax credits to filmmakers: They want to attract celebrities. Certainly, it’s exciting for the hoi polloi to recognize their local haunts on the big screen and to spot celebrities like George Clooney and Johnny Depp. Rather than competing with other star-struck states, however, Missouri should leave filmmaking to states that specialize in it, like California, and then realize gains from interstate trade. If Missouri wanted to take part in a red-carpet film premiere, it would make much more economic sense to provide the Michelob than to give away tax money in exchange for the “privilege” of hosting the event.

Christine Harbin is a research analyst with the Show-Me Institute, a Missouri-based think tank.

 

Horrible Stuff Up and Down New Federal Spending Bill

Posted on by David Stokes

This is just a depressing AP article on federal budget expenditures, from beginning to end. This has everything you need to make you sick, unless you love the idea of going deeper into debt while giving up your freedoms little by little.

Thank God the employees of the federal government got their pay raises. I was definitely worrying that millions of government bureaucrats would not get a raise during the recession, while millions of others lose their jobs completely. Who cares that there has not been a cost of living increase? Let’s give them one anyway!

Federal workers would receive pay increases averaging 2 percent, with people in areas with higher living costs receiving slightly higher increases.

Do you love earmarks? Well, it’s got earmarks!

The measure contains 5,224 pet projects for lawmakers totaling $3.9 billion, according to Taxpayers for Common Sense, a Washington-based watchdog group.

And don’t worry, Missouri got ours, too. I love Kit Bond, and would absolutely vote for him if he was running for reelection, but why can’t Kansas City pay for its own community center?

[…] Christopher Bond of Missouri, pulled down 21 projects worth $32.5 million from the some portion of the bill, including $2.5 million for a community center in Kansas City.

Don’t take that personally, KC — if they had cited a St. Louis project, I would have gone with that instead. Hey, while we are at it, let’s stick it to the children:

It also would phase out a D.C. school voucher program favored by Republicans […]

And I won’t do anything but quote the article when it comes to Missouri’s other senator’s vote:

The Democrats opposed were Sens. Evan Bayh of Indiana, Russ Feingold of Wisconsin, and Claire McCaskill of Missouri — who voted “no” only after Lieberman arrived to ensure the bill would advance.

I realize this kind of vote planning happens all the time in politics, but still. … This entire story makes me need a drink.

Become a Friend of Freedom

Posted on by Eric D. Dixon

We don’t generally use Show-Me Daily to ask for your support — instead, we keep it consistently updated with new observations about public policy and economics, and encourage the lively discussions in our comment threads. It’s worth noting, however, that this blog is made possible by individual contributions from people like you. The end of the year is rapidly approaching, and a small donation to support our work would be a tremendous help in furthering the cause of freedom in Missouri.

The economy has been tough lately, as politicians respond to fiscal crisis by spending ever larger amounts of tax revenue and still clamor for more. It’s important to be frugal, but we must remind you that although the economy is still stalling, our work in fighting for fiscal sanity is not in recession. It’s more important than ever that friends of freedom stand against the latest tide of public opinion — against economic illiteracy and government handouts, against higher taxes and even higher spending, against the kind of burdensome regulation and red tape that hampers market growth and prevents price mechanisms from allocating labor and capital efficiently. If we want the economy to recover, it will take a powerful voice calling for economic freedom. The more people who support the Show-Me Institute’s efforts, the louder that voice will grow.

It doesn’t take much. A donation of as little as $25 will help us: conduct the best in academic-caliber economic research; spread the word about the value of free markets and individual liberty through speaking events, our websites, and in group discussions; promote government transparency and accountability; and reach out to the many people who are on our side but don’t yet know we’re here. The best ideas in the world only provide results if people hear them and act on them, and that’s more likely to happen if we stand together.

So, during this holiday season, if you’re trying to find a gift for the person who has everything, try an investment in freedom. The rest of our prosperity hinges on that freedom. It’s also the kind of gift you can give to yourself.

If you’d like to know more about the ways in which you can help the Show-Me Institute fulfill its mission of “advancing liberty by promoting market solutions for Missouri public policy,” contact Rebecca Bruchhauser: (314) 726-5655 or [email protected]

Thanks.

Despite Drawbacks, Raw Milk Law Better in Missouri Than Some Other States

Posted on by Sarah Brodsky

Sting operations against dairy farmers notwithstanding, Missouri has better raw milk policy than some states do. For example, Wisconsin bans all raw milk sales, including the practice of selling shares in a cow in exchange for future delivery of milk. (Selling raw milk from a farm is legal in Missouri.) A few Wisconsin farmers do sell milk through cow-shares — that’s what it’s called — because they successfully petitioned state regulators for exceptions to the law.

And Oregon restricts raw milk sales to farms raising three or fewer cows. One blogger writes that the regulations prompted her to arrange for some of her cows to live on a neighbor’s land. Oregon also forbids dairy farmers to advertise raw milk; for that reason, the section of her website for raw milk customers is password protected.

Meat in School Lunches: Good Enough for Government Purposes

Posted on by Sarah Brodsky

USA Today looks at meat in the National School Lunch Program and finds that it doesn’t compare favorably to the meat in fast food restaurants. The USDA accepts blemished meat that the restaurant chains would reject, and the private companies conduct better tests for bacteria, too.

A professor of medicine explains why the USDA’s lax standards matter:

Morris, who used to run the USDA office that investigates food-borne illnesses, says the department’s purchases of meat that doesn’t satisfy higher-end commercial standards are especially worrisome because the meat goes to schools. It’s not just that children are more vulnerable to food-borne illnesses because of their fledgling immune systems; it’s also because there’s less assurance that school cafeteria workers will cook the meat well enough to kill any pathogens that might slip through the USDA’s less stringent safety checks.

There are two lessons to be learned here. First, advocates who focus on the supposed benefits of local vegetables (like the Farm to School supporters in Columbia) have misplaced priorities. It would be better for schools to serve imported produce with safer meat than local produce with lower-quality meat. Schools need to obtain safe food and not allow themselves to be distracted by geographic preferences.

Second, private businesses often hold themselves to stricter standards than the government would like to impose. It follows that a state-licensed day care provider or interior decorator won’t necessarily do a better job than someone without the license.

Spending and Jobs

Posted on by Sarah Brodsky

Following Tuesday’s commentary on a Tax Foundation report, MO Rage has written another post that has me scratching my head. This one’s about government spending, and it contains the following statement:

I totally agree that we need to reduce spending but, frankly, not on jobs.

All government spending translates into a job for somebody. Even when it’s as simple as sending checks directly to citizens, government spending keeps people employed producing the envelopes and printing the checks.

So cutting government spending puts people out of work — there’s no way around it. The good news is that governments that spend less can tax less, leaving more wealth available for job creation in the private sector.

It’s something to keep in mind when state agencies try to ward off spending cuts, as they did earlier this week.

This Is Spending On Rail That I Can Support

Posted on by David Stokes

The Kansas City Star is reporting on the opening of a new sidetrack along Missouri’s Amtrak route connecting St. Louis and Kansas City. This expenditure of $8 million will have immediate, quantifiable benefits for transportation in Missouri. It isn’t some pipe dream of spending enormous sums of money in the hope that a small number of people will ride more rail or transit. Rather, it is an engineering-based improvement that will begin improving our rail service right away. I cited this as an example of well-directed resources in my testimony two month ago before the Joint Transportation Oversight Commission.

Needless to day, this improvement is a far better use of tax money than some dream of high-speed rail that will get someone from Kansas City to Chicago in 7 hours at best, when they can fly there for the same price in 1 hour and 20 minutes.

Illinois’ Cup Runneth Over … to Missouri

Posted on by Caitlin Hartsell

When are Pigovian taxes a win? When they happen in a border state!

I wrote back in September about how Illinois’ newly increased liquor tax would be a boon for Missouri stores. The Suburban Journals confirms my prediction:

Missouri tax revenue from wine and spirits has skyrocketed after Illinois lawmakers raised the state’s liquor taxes in September.

September’s increase over August: 41 percent

October’s increase over September 8: 6.5 percent

Not everyone can escape this tax when they want to purchase alcohol, but those who can will drive the extra few miles for cheaper liquor.

Proponents of the higher tax intended for it to fund infrastructure projects in Illinois, but Illinois lawmakers should have also taken into account that some marginal number of people would find other methods to procure their alcohol. At any rate, their state’s tax increase results in additional tax revenue for Missouri, because the state now captures many Illinois residents’ liquor, gas, and cigarette dollars, and whatever other purchases those Illinoisans make during their trips across the border.

(Thanks to MissouriLP for pointing me to this article.)

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