Tax Breaks for Movie Producers

Posted on February 23, 2008 | Author: Satya Thallam
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Tax breaks for movie producers? As John Stossel has been known to quip, "Gimme a break!"

Recently a crowd gathered in front of the state capitol to announce support for legislation that would provide tax credits for movies made in Arizona. Rising star Hunter Gomez lamented his inability to do what he enjoys here at home, declaring "This is unacceptable and shouldn't be right." His youthful charm notwithstanding, he's wrong.

At best, the impact of such a measure will be minimal.  We can expect the resulting increase in film productions to be small but they will be useful to proponents of such tools.  By this, I mean, such a visible and publicity-surrounded product like a TV show or movie can be held up as "thanks to our tax credit,' regardless of its overall impact on the economy and the net gain/cost of the tax incentive.

The provision's fairness problem is obvious a small tool and dye manufacturer from California receives no specialized incentive but a Hollywood producer does. The film producer's dollar is no more inherently valuable than an independent retailer or franchise restaurant. It seems to be an example of a loss-leader for other development incentives, using an industry in which Arizona is supposedly underperforming. This Arizona Republic article describes the rally and legislation, noting that Arizona's film industry has been weak in recent years. Has anyone noticed that copper production in Arizona has become less significant in recent years?  Should we subsidize that industry as well, with the aim of returning it to its former glory?

Not to mention that this kind of incentive is not groundbreaking, meaning it's become commonplace among state economic developers.  New Mexico, for example (which boasts some similarity in landscape) has a "credit equal to 15% of the total direct production costs incurred in [the state]." Given competing filming locations, many of which are interchangeable to a certain degree, especially interior filming, Arizona may simply be engaging in a game of oneupsmanship the upshot being that any tax credit that will have a significant effect will likely be hugely cost ineffective.

Moreover, this kind of credit, if placed in a more reasonable (but thus less effective) range will probably motivate only smaller productions, as opposed to big budget blockbusters, because their marginal costs are so much higher.  Large productions are increasingly headed to places where overall costs are lower, due to broader economic reasons.  Canada, for example, is hosting more and more productions because of broad cost-reducing reasons, such as avoiding certain crippling Hollywood union rules.

Finally, as with any kind of credit or incentive of this kind, we may all agree that it might be kind of cool to be home to more and more film productions, but we can expect the definition of a qualified production to be ill-defined at first, and expand over time.  Eventually, Arizona may be the land of infomercials, or corporate training videos, which may be just as beneficial per dollar spent as any other kind of filming, but may not be the preferred activity the incentive was designed to spur. 

Despite its cache, its semi-famous cadre of support, and its indirect ties to the glamour of Hollywood, this incentive deal is just another B-list economic development tool trying to walk the red carpet.

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