Sure, Winter’s Bone received $260,000 under Missouri’s film tax credit program. And the film did receive great reviews. But the state actually paid more to the film More Than Puppy Love 2, the (apparent) sequel to More Than Puppy Love, a 2002 film that IMDB users panned. One wrote that “This just might be the worst movie ever made.”

I do not know what reviewers said about More Than Puppy Love 2, because I could not find any references to it. But I do know that state taxpayers paid more than $285,000 to have that movie made here in Missouri. I wonder if the puppy used in the film was counted as one of the “jobs” associated with the production of More Than Puppy Love 2. There have been more dubious job claims made when justifying film tax credits.

If you love film, or anything else creative, the last thing you should want is for it to receive taxpayer funding. Some of the best works of art, films, and books are controversial — as they should be. Censorship and the funding of saccharine works begins when taxpayer dollars allow politicians and bureaucrats to get involved in deciding what is, and what is not, art.

The post More Than Puppy Love 2: A Better Film Than Winter’s Bone? appeared first on Show-Me Institute.

But the problem, Lynch says, is the lack of financial incentives available for movie production in Missouri. Though the state still offers the film production tax credit, Missouri Gov. Jay Nixon shut down the Missouri Film Commission in 2011, and the Missouri Accountability Portal shows that no film tax credits have been issued for 2012.

From KSDK:

Missouri actually has $4.5 million to use for tax breaks, but the Department of Economic Development doesn’t have anyone to recruit out-of-state productions.

“It hurts the city, it hurts the state and it ultimately hurts us because we’re forced to go elsewhere for monetary reasons,” said Lynch.

One way to answer the question of whether a lack of film tax credits hurts the state is to look at what film tax credit money has subsidized in the past.

The 2009 film “Up in the Air,” which starred George Clooney, was filmed in Saint Louis, and was issued $4.1 million in tax credits from the state. Under Missouri’s Film Production Tax Credit program, movie productions are reimbursed for a portion of their expenses.

In 2010, the Show-Me Institute requested documentation from the state Department of Economic Development (DED) that showed what expenses associated with the film tax credit program were deemed eligible for partial reimbursement. The documents we received are now posted online.

Below are some expenses that the production of “Up in the Air” incurred and the DED deemed eligible for the Film Tax Credit program:

* More than $11,000 in living allowance money for Director Jason Reitman.

* $5,600 for George Clooney to stay at the Chase Park Plaza.

* More than $8,500 in living allowance money for Vera Farmiga.

* More than $11,000 in living allowance money for Executive Producer Michael Beugg.

If having state taxpayers fund living expenses for high-paid actors and directors while working on “Up in the Air” is not concerning enough, recent reports have found state film tax credit programs lacking.

If Lynch really thinks Saint Louis is the best place to film her movie, then make it here. But if tax credits are necessary, I would prefer she stay in East Saint Louis.

P.S. Lynch is not the first person to think that using film tax credits to subsidize a movie about a serial killer is a good idea. Jack Donaghy ran with that in 2011.

The post Sorry, Film Directors: Taxpayers Should Not Have To Pay For Your Luxury Hotel Rooms appeared first on Show-Me Institute.

Several weeks ago, Ira Glass opened his nationwide hourlong “This American Life” program with a satiric interview about one of the defining elements of Nixon’s leadership: his whirlwind trips around Missouri to celebrate state-funded job creation schemes.

Glass described his visit to a plant that made fishing reels, “to announce not hundreds of jobs, or dozens of jobs, but eight jobs,” Glass marveled. “Eight! He did a press event for eight jobs!”

At this point, Nixon chimed in, saying, “That’s not the smallest we’ve been to, either. We actually did one in north Missouri where we created one job.”

“And you showed up?” Glass asked, laughing in disbelief.

Nixon affirmed that he had. A program that he initiated had given a low-interest loan to a woman in Bethany. This enabled her to move her T-shirt printing business from her basement to a storefront, and to hire a single employee.

“This is what it’s come to, America,” Glass hooted. “You can hire your very first employee, and the governor shows up with TV cameras.”

At the Show-Me Institute, we have pointed out the flawed thinking behind a wide variety of schemes intended to promote job creation and economic development — ranging from big-budget Hollywood movies to plans for building an “Aerotropolis” in and around Lambert-St. Louis International Airport.

A total of $4.5 million in tax credits were issued to the makers of the George Clooney film Up in the Air, as an enticement for filming a large part of the movie in the Saint Louis area. How much good did that do for job creation and the local economy? Almost none, it seems. According to the casting call, extras were compensated only $7.05 per hour before taxes, and they worked all of one day.

In the Missouri legislature, there is support from both parties for an enormous tax credit bill that would subsidize the construction of $300 million worth of new warehousing space in and around the Saint Louis airport, while doling out another $60 million in tax breaks for freight forwarders. Nixon backs the proposed legislation, which may be raised at a special session of the legislature later this year.

Proponents say the extra warehousing space is needed for processing cargo going to and from China. However, as we pointed out, there are acres and acres of unused warehousing space in and around the airport. So, why are our lawmakers in a hurry to build more warehouses? Especially when there is no commitment from China to support the project?

Politicians will often argue that even one job created through tax credits or subsidies is better than none. To think in this way, however, is to engage in single-entry bookkeeping — counting jobs gained but ignoring jobs lost because of higher taxes or the burden of increased public indebtedness. Add to that the misallocation of resources that always occurs when power-hungry or publicity-seeking politicians, rather than paying customers, decide what is to be produced and who should produce it.

Our state government is already straining to meet its current commitments. Every dollar that is given away in tax credits is a dollar that our state government must replace by increasing taxes or making cuts in current programs.

“Being governor of the state is not a theoretical job,” Nixon said at a recent press conference. “It is a very practical job.” Here, then, is some practical advice for our governor: Get out of the job-creation business. It’s doing more harm than good.

Andrew B. Wilson is a fellow with the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post How (Not) to Create Jobs: Some Advice for Gov. Jay Nixon appeared first on Show-Me Institute.

You can watch the full episode here:

In the episode, Jenna stars in a horror film that’s shot in Connecticut. It turns out that Connecticut will only give tax credits to films that promote tourism. So, instead of shutting down the film, the producers change it to be very pro-Connecticut. They decorate the killer’s dungeon with Yale pennants and  posters that say, “Visit Connecticut.” They also write www.IheartConnecticut.com in blood on the wall, and they dress up one of the victims in a UConn Huskies shirt.

They even change the dialogue:

SLAUGHTERFACE: “No one is going to save you. Because we’re deep inside one of Connecticut’s 30 beautiful state forests. Thirty!”

JENNA: “Oh, please don’t kill me! I still haven’t tried the famous seafood pizza at Sally’s in New Haven.”

It’s hilarious. This shows how filmmakers will change the message of their films in order to get film tax credits from a state. This is something that I have discussed before on the blog.

It’s no secret that government officials sometimes deny tax credits to films that don’t send a positive message about the state. It may be possible that this happens in Missouri, too. Consider Up In the Air, which received $4.1 million in tax credits to shoot in Missouri in 2009. One scene sounds like a commercial for Lambert Airport. At one point, George Clooney’s character says:

Are you kidding — Lambert Field? The Wright brothers flew through there. That domed main terminal is the first of its kind; it’s a precursor of everything from JFK to de Gaulle.

This wasn’t the first time that “30 Rock” highlighted the ludicrousness of film tax credit programs — It was also a plot point in an episode last season, in which Jenna starred in a movie about werewolfs that shot in Iceland. They shot the film there because the Icelandic government gave them tax credits, but they could only shoot during the one minute of darkness each day.

In economist-speak, we would say that Iceland does not have a comparative advantage in werewolf films, relative to other locations. (Similarly, Missouri doesn’t have a comparative advantage in filmmaking. We’re better at making other things!)

The post Film Tax Credits Featured on “30 Rock”! appeared first on Show-Me Institute.

Year end is a time to reflect — and to think ahead. In the holiday spirit, the Show-Me Institute has compiled a list of five New Year’s resolutions for state officials, to promote better government for 2011 and beyond. Taken together, these policy changes have the potential to propel Missouri’s income and job growth into the front ranks.

First, lose weight. The Nov. 2 election showed that the overwhelming majority of Missourians (and Americans generally) want smaller, less intrusive government and reduced taxes. Missouri legislators should therefore unite to kill pork barrel spending projects and make major spending cuts.

Municipalities need to rein in runaway pension costs for city employees, including firefighters and police. They should also consider privatizing the provision of water, electrical power, and other services. The Show-Me Institute has produced a wealth of research demonstrating the benefits of privatization, which creates much-needed cash through the sale of public-owned assets and contributes to municipal revenues through the addition of new taxpaying entities in the private sector. Research shows that privately owned utilities consistently provide more efficient services than their public-sector counterparts.

Second, stop meddling in other people’s business. The Show-Me Institute has spotlighted the proliferation of needless licensing requirements that do nothing to promote public safety in businesses as different as home heating and air conditioning work (HVAC) and African hair-braiding. Such requirements are often promoted by established businesses as a means of inhibiting competition and choice.

Third, give families real school choice. Our research has consistently shown that education is improved when parents and students are given more choices and traditional public schools face greater competition from charter and virtual schools. Adjusted for inflation, we spend four times as much for education in urban areas today as in 1960, but educational achievement is no higher. Today, the Saint Louis and Kansas City school districts spend more than $15,000 per pupil — more than all but the most expensive private schools. Charter schools provide a real opportunity for poor students stuck in failing schools. They also enable teachers and administrators to innovate more freely, and force other public schools to improve their performance in order to compete successfully.

Fourth, halt the silly business of awarding specialized tax credits to favored enterprises. In one of my op-eds about the inanity of tax credits for favored industries, I pointed out that government policy should not prefer filmmaking over, say, hog farming, “simply because one is considered to be more glamorous.” Most of the local jobs created by Missouri film productions like Up In the Air were both low-wage and temporary — many lasting only a single day. Missouri should do away with its development tax credit programs, which have a record of failing to boost either income or employment — even if you do like George Clooney.

Last but not least, repeal the state income tax and replace it with a broader sales tax. The adoption of such a plan in 2011 would be the single most important step that Missouri could take to move Missouri to the front of the pack in terms of growth. The noted economist Arthur Laffer, who spoke at the Show-Me Institute in October, observed that during the past decade, the nine states without a personal income tax have “outperformed those states with the highest personal income tax rates by 26.5 percent, and have outperformed the U.S. average by 20 percent.” Even more impressive, those nine states “outperformed Missouri by a whopping 41.5 percent.” Eliminating the income tax would encourage people to work and save more, crucial factors for economic growth. A broader sales tax can also be balanced with mechanisms that would compensate those with lower incomes for any potentially regressive effects.

In the past, it has often seemed that major changes originate on the coasts and slowly make their way to the heartland. I think that flow has been reversed during the past year and a half. I believe that Missouri — and the heartland — will play a leading role in our nation’s economic recovery. We will do so through a renewed commitment to free enterprise.

Christine Harbin is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

The post New Year’s Resolutions for Missouri Public Policy appeared first on Show-Me Institute.

[Gov. Jay] Nixon’s main evidence is anecdotal yet tangible. He cites the decisions of a dozen specific businesses to add employees in Missouri. And he backs that up with statistics showing general growth in employment over the past six months.

When comparing the past three months or 12 months _ instead of six _ Missouri’s employment remains down. And a leading economic survey shows Missouri business growth may actually be waning.

But Nixon has been pumping up the positives, traveling to towns across Missouri to join businesses leaders in announcing the addition of anywhere from a few dozen to a few hundred employees. He’s attended five such announcements in the past five weeks and a dozen in the past four-and-a-half months.

The governor did exactly this in his opening remarks at the Tax Credit Review Commission last week. He cited the Perryville plant, the $5 million in state tax credits that it was recently given, and the 400 jobs that it is projected to generate. Unfortunately, he’s far from the only policymaker doing this in Missouri. Last year, for example, Saint Louis’ mayor likely used the projected amount (note: not actual amount) of economic activity generated from the film Up In The Air as a demonstration of its supposed success.

Why doesn’t the governor cite a program that has been in progress for a period of time? (I suspect that it may be because these programs aren’t working.)

I realize that I shouldn’t be surprised when a politician spins statistics in an effort to persuade the public that his policies are working. Politicians are self-interested, and they will say and do whatever it takes to get reelected. However, I find it misleading to herald the number of projected jobs and projected economic activity as evidence for success. When evaluating the success of tax credit programs in Missouri, policymakers should instead consider whether any jobs or economic activity have been generated by programs in progress, not those that were very recently authorized or issued.

The post Tax Credit Programs in Missouri: Projected vs. Actual Results appeared first on Show-Me Institute.

According to the New York Times article:

“This film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light,” wrote Janet Lockwood, Michigan’s film commissioner.

Missouri may or may not officially require that films promote the state as a condition of receiving tax credits, but there seems to be a correlation. I’m reminded of a scene from Up in the Air, which cashed $4,131,011 in Missouri tax credits in 2009, when George Clooney’s character sang an ode to “historic” Lambert–St. Louis International Airport:

Are you kidding — Lambert Field? The Wright brothers flew through there. That domed main terminal is the first of its kind; it’s a precursor of everything from JFK to de Gaulle.

On one hand, officials are not saying that the movies considered in the New York Times article can’t or shouldn’t be made; instead, they’re saying that the films won’t receive subsidies. On the other hand, by placing restrictions on which genres of film that it will subsidize, the government helps to pick winners and losers within an industry that is already favored.

If a state decides to subsidize certain films and not others, it should be clear and upfront about the intention of the program. Does it exist to create jobs? Economic growth? Tourism? Positive net domestic migration? Something else? If the purpose of the film tax program is to support an infant film industry, there is no reason to dictate the terms of the presentation. (This begs a further question: Would a film that featured cannibals generate a dissimilar number of jobs and economic activity to a film that didn’t?) If the purpose is to promote the state as a tourist destination, however, officials should be up-front about their intentions.

Furthermore, the practice of approving or denying the content of a film encourages people to ask the government to affirm their preferences, much like state symbols. As communicated in the article, this can even include moral judgments:

In Florida, a recent legislative proposal to bar a special tax credit for family entertainment from films or shows that exhibit “nontraditional family values” was dropped after it was widely criticized as seeming to exclude gay characters.

The moral of the story for filmmakers? If a filmmaker wants to secure film tax credits, he or she should brown-nose bureaucrats by promoting their state.

The post Now in Theaters: Greetings From Missouri, The Show-Me State appeared first on Show-Me Institute.

It is exciting that the private commercial airport in Branson is expanding its operations; it is also exciting that at least some airline service in mid-Missouri can be operated at a profit without government support. Here is to hoping for much more of both!

The post More Good News for Aviation in Missouri appeared first on Show-Me Institute.

While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

To see this lesson applied, check out the personal blog of Jason P. Hunt, a film and television producer in Kansas City. He uses it to voice support for H.B. 1587, which would increase the cap of film production tax rebates from $4.5 million to $10 million. Although I’m getting bored of blogging about the production incentives program in Missouri, I want to refute the specific points that Hunt made in his most recent post, “An Open Letter to the Missouri Senate”:

I understand several in the legislative branch would question why we need to increase this cap.

I question this, too, especially since only one single production in Missouri has ever come close to the $4.5 million cap during the last 10 years. (That production was Up in the Air, which was awarded $4.13 million.) The second-highest amount ever awarded was $786,800. The “Show Me: Tax Credits” web tool shows that the average amount awarded is only $369,347.

I suppose Hunt’s implicit argument is that glamorous, large-scale productions won’t be motivated to film in Missouri unless the state coughs up even more cash. If Missouri awards more money to an activity in which it has a comparative disadvantage, it faces an increasing opportunity cost. This is money that the state could otherwise devote to other programs and/or return to the pockets of taxpayers.

Consider that for every dollar allowed as a tax credit under the program, three have to be spent within the state.

From what I understand, an economic multiplier of 3 is unrealistic. In estimating the activity generated from its film incentive program, Louisiana uses a demand earnings multiplier of 0.3982. Here’s a math problem: How much wealth do a $61,000 Range Rover and a $68,000 Mercedes generate in a state? Using Hunt’s logic, they would create $387,000 of economic activity within the state’s borders. I disagree that this is realistic.

That’s found money.

That money comes from other states. If a person is walking to her car in a parking lot and finds $20 lying on the ground, she may consider herself to be $20 richer. However, the person who dropped the $20 on the ground in the first place is $20 poorer. No wealth was generated. When a production company from another state spends $1,000 in Missouri, the money is not created out of thin air; it’s $1,000 that the company would have otherwise spent in a different state.

When states regard each other as antagonistic economies, it is a mutually detrimental situation. Targeted incentive programs result in dead-weight loss and restrict overall growth. In order to increase overall economic growth and prosperity, Missouri should focus on the activities for which it has a comparative advantage, and then trade amicably with the states that have a comparative advantage in producing films.

There’s another reason it’s a bad idea to regard this out-of-state spending as “found money”: Missouri doesn’t get to keep 100 percent of it. States that offer film production incentives get a raw deal, because they are poorer by the amount of money that they allocate in tax credits. For every $1,000 that a film production company spends in Missouri (up to the cap), the state economy only keeps $650. In other words, Missouri government pays the film company $350 for every $1,000 that it spends here. Raising the cap, as Hunt supports, would exacerbate this loss.

The post The Lesson Applied to Film Production Incentives appeared first on Show-Me Institute.

Trend of Film Tax Credits Awarded in Missouri

The total number of tax credits that have been issued since 2000 is 35, for a total amount of $12,927,154. The average amount of a tax credit was only $369,347, which is much less than I anticipated. The smallest amount of credit that was awarded was $19,048, and the largest was $4,131,011. The latter award occurred in 2009, for Up in the Air, and it is represented by the spike in the graph for that year.

Although I disagree that Missouri should offer film production incentives, I am relieved to learn that few productions are taking advantage of it. Only one film has come close to the tax credit cap during the last 10 years. I have heard many of our commentators and politicians call for increasing this cap, but this graph leads me to believe that it would not encourage a marginally higher number of large-scale productions. It would be as efficacious as putting a price floor below the equilibrium price.

The post Trend of Film Tax Credits Awarded in Missouri appeared first on Show-Me Institute.

They (filmmakers) spent a lot of money, had about a $50-$60 million dollar economic impact on the St. Louis area.

Hold on — $50–$60 million? Where is he getting this figure? Allow me to crunch some numbers and demonstrate that an impact of this magnitude is unrealistic.

In the comment section of my recent post about film tax credits in Missouri, Econdiva provided an estimate that the producers of Up in the Air spent “just shy of $12 million” in the state. I will grant her estimate for the sake of argument, because she worked on the film and is more likely to know this information.

For an economic multiplier, I’ll reference a fiscal note from Louisiana regarding the estimated economic and fiscal impacts of film and video tax incentives (emphasis added):

[T]he current statewide economic multipliers, supplied by the Bureau of Economic Analysis of the U.S. Department of Commerce, for the motion picture and sound recording industries estimate that each dollar of expenditures in those industries generates about 40¢ of earnings throughout the entire economy (a final demand earnings multiplier of 0.3982).

Using this figure, an expenditure of $12 million for Up in the Air would generate only $4.8 million for Missouri’s economy.

Even if Mayor Slay used the January 2009 prediction of $30 million in the Saint Louis Business Journal, the amount generated for the state’s economy would only be $12 million.

Both numbers fall pretty far short of $50–$60 million. This is just wishful thinking.

The post Mayor Slay Overestimates Economic Impact of Up in the Air appeared first on Show-Me Institute.

My recent op-ed against film tax credits was published as a guest commentary in the Columbia Missourian today! As regular readers of this blog will know, it was also discussed by Steve Walsh on MissouriNet and by David Nicklaus on Mound City Money last week.

Over the weekend, I thought a lot about the arguments that were raised in favor of the film tax credit program. I’d like to take this opportunity to respond to them.

(1) The debate over the appropriateness of film tax credits is a natural application of the general principle of the parable of “The Broken Window” by Frédéric Bastiat (1850), which was later developed in Economics in One Lesson by Henry Hazlitt (1946).

I am impressed with the sheer amount of commentary generated by my recent blog posts arguing against film tax credits in Missouri. I have heard from people who worked on the Up In the Air set, professors of film, and representatives of the Missouri Film Commission, among others. In his book Economics in One Lesson, Hazlitt explicitly warns that this will happen (emphasis mine):

The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

To paraphrase Bastiat and Hazlitt, government should consider ce qu’il voit et ce qu’il ne voit pas au même temps when it is deciding policy. In plain English, this means that it should consider “the big picture” instead of only one group of people when forming policy that affects everyone. Hazlitt thinks that this concept is so important that this is his “one lesson,” further reduced to a single sentence (emphasis mine):

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Here’s how this relates to the film tax credit program. If we only consider that which we see, ce qu’on voit, then the tax credit programs are considered to benefit everyone. The recipients of the tax credits do assuredly benefit, as they testify in their commentary (Econdiva provided an estimate that the producers of Up in the Air spent nearly $12 million in the state). Bastiat and Hazlitt warn that it is dangerous to ignore the hidden costs, ce qu’il ne voit pas, that affect everybody. Missouri should not focus solely on the benefits of bringing filmmakers to Missouri and ignore the cost of the program to taxpayers.

While certain public policies would in the long run benefit everybody (e.g., eliminating the earnings tax or commercial property tax surcharges), other policies would benefit one group only at the expense of other groups. Film tax credit programs fall into the latter category. When tax revenue is spent on film productions, taxpayers cannot spend that money in alternative ways, such as education or infrastructure; they face an opportunity cost that is equal to the amount of the subsidy.

(2) There is not enough demand in Missouri for the film industry to exist in Missouri without a considerable level of government assistance.

In their comments, both Cat Cacciatore and Dave Rutherford provided proof of this point — they both travel out of state because there isn’t enough demand for film production work in Missouri (even in today’s status quo, in which we offer a $4.5 million tax credit). If an individual decides to live in a location in which there is not enough demand for him to work full-time, why should the taxpayer have to subsidize his employment?

Let’s say that I am a trained lobster farmer and I choose to relocate to Missouri, which is at a competitive disadvantage for lobster farming because it is very far from the ocean. I have two options: (1) I can petition the government to subsidize my employment; or, (2) I can transfer my knowledge, skills, and abilities to an industry for which there is demand. I believe that the second option is better because it does not burden taxpayers.

Most Missourians work in industries that don’t have targeted tax credits. Their jobs exist because there is enough demand for them. The demand for bakers, babysitters, yoga instructors, doctors, lawyers, and free-market research analysts in Missouri is high enough so that their employers choose to pay for their jobs without government assistance.

Furthermore, if the state stops subsidizing these jobs, then it has more workers available to do other kinds of work. In the comments, Josh Smith notes that:

There is not some fixed “pool of jobs” which can only be expanded by spending tax dollars in the right way. There are many different types and amounts of work that can be done to earn a wage, specialization and trade tend to lead to a more efficient economy.

(3) The $4.5 million applies to state tax revenues, not total expenditures.

I realize that there is some confusion here, and I admit that I should have stated this more clearly in my op-ed. State tax revenues and total expenditures are different numbers. To an out-of-state production crew like Reitman’s, Missouri issues a tax credit to for up to 30 percent of the amount that they spend in state. This means that they get $3 million back if they spend $10 million in Missouri (which they can turn around and sell, because these tax credits are fungible). Given the low multiplier for the film industry (described herein), there is no way that the state would be able to recover that amount of money, whether it be through sales taxes (4.225 percent) or personal income taxes.

(4) These programs do not result in permanent economic activity.

As Sarah Brodsky points out, the purchases cited are single-time expenses (e.g., $30,000 for ice, $185,000 for set dressing items). Few permanent jobs, if any, are created when a filmmaker comes in to the state, works on a film for a finite period of time, and then goes back to California.

Additionally, according to “The Economic Impact of the UK Film Industry,” a 2007 study by Oxford Economics, the film industry has a multiplier of only 2.0. This is lower than the multiplier for the economy average, and indicates that the indirect impacts on employment and output from the film industry are not very far-reaching.

(5) Missouri should leave filmmaking to states that have a comparative advantage in it.

Why is it important that Missouri try to compete in the national or global marketplace in filmmaking? I disagree that states like Missouri should focus on developing industries for which they are at a competitive disadvantage. Missouri would be better off if it focused on the products and services that it produces best (e.g., Budweiser beer, hog farming, mining limestone, manufacturing) and then traded with other states. I agree with Josh Smith that the statement “Other states are doing it, so Missouri should too” is an insufficient reason. He observes:

If other states want to spend their residents’ tax dollars to attract filmmakers, and the result is that Missourians (1) are still able to get the benefits of the product by paying to see the movie (perhaps more cheaply if the tax credits are spent in making the film more affordable, whatever that might mean) and (2) don’t have to spend our tax money to entice the film’s production to locate here then we have a few obvious benefits.

Also, the Michigan economy is in terrible shape! Why would Missouri want to model its tax policies after Michigan’s, even when legislators there are already discussing discontinuing the program? Right now, Michigan has a unemployment rate of 15.3 percent, which is the highest in the country. (By comparison, Missouri’s current unemployment rate is 9.5 percent, which is below the national average of 10 percent). Even before the recession sharpened, Michigan had the highest rate; in September 2008, it was 8.9 percent.

As its comparative advantage, California has more sunlight than the Midwest, which allows for longer shooting hours, as well a variety of landscape types within driving distance, which can stand in for locales around the world. (Remember how Austin Powers remarked, “You know what’s remarkable? That England looks in no way like Southern California!” while driving on an “English” country road in Austin Powers: The Spy Who Shagged Me?)

(6) Subsidized industries have difficulty weaning themselves off government assistance.

When a state coddles an industry that does not have a competitive advantage (a so-called “infant industry”), the industry tends to remain dependent on that aid. Industries that are subsidized are not subject to the same competitive pressures as those that are unsubsidized, and they consequently do not have an incentive to innovate. In “The Case For Free Trade,” Milton and Rose Friedman describe some additional negative implications of these infant industries.

The infant industry argument is a smoke screen. The so-called infants never grow up. Once imposed, tariffs are seldom eliminated. Moreover, the argument is seldom used on behalf of true unborn infants that might conceivably be born and survive if given temporary protection; they have no spokesmen. It is used to justify tariffs for rather aged infants that can mount political pressure.

The post Even More on Missouri Film Tax Credits appeared first on Show-Me Institute.

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.

The post Film Tax Credits Don’t Bring Lasting Jobs or Significant Revenue Gains appeared first on Show-Me Institute.

In location scouting in St. Louis and Detroit, I walked into empty building after empty building. I realized that I was surrounded by the realities of this recession.

I find this to be poignant, but for a reason different than Reitman probably intended.

Perhaps businesses could afford to staff those office buildings if Missouri weren’t redistributing their money to filmmakers and property developers via tax subsidies.

But then, Reitman would have to find other things to exploit explore than “real people who really lost their jobs.”

Hat tip to David Stokes!

The post More on Missouri Film Tax Credits appeared first on Show-Me Institute.

I could support the film tax credits if they actually did attract money from outside of Missouri. But, as I have blogged previously, this just doesn’t happen; states tend to spend more attracting filmmakers with tax credits than the filmmakers generate in the state. I have not been able to find information about how much money Up in The Air generated for Missouri, but I would not be surprised if that number is less than the $4.5 million in tax credits that it was awarded. I will continue to look for this information.

Instead of film tax credit programs, Missouri should spend its money on programs that create jobs that are better-paying and longer-lasting. We see from the KMOV video that these film tax credits do not result in sustained job creation. Certainly, many St. Louis residents are cast as extras in these films, but these jobs are 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. Aspiring actress Adrienne Lamping was quoted in the video saying that she got to work on set for a week, but discloses that she does not have an acting job lined up in the future.

I understand why states like Missouri want to attract filmmakers. Certainly, it’s exciting for the hoi polloi to recognize their local haunts on the big screen and to spot celebrities like George Clooney. Unfortunately, however, almost nobody discusses the sheer cost of these programs.

The post Film Tax Credits Are Bad for States appeared first on Show-Me Institute.

The online copy of this article is truncated and only available to paying subscribers. But, for those of you who received a print copy this morning, I encourage you to browse through it. It’s on page 45.

Also, be sure to read the Show-Me Institute’s three previous commentaries about why using tax credits to promote economic growth is a recipe for economic stagnation.

The post Do Tax Credits Pay for Themselves? appeared first on Show-Me Institute.