The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Lights, Camera, Action? Not Without Tax Incentives

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


State governments across the country have enacted movie production incentives (MPIs), most commonly through tax credits, in an attempt to lure that business to their states.  While the expenditures on these tax incentives are easily quantifiable, the same cannot be said for the benefits that their supporters claim are produced.

According to the National Conference of State Legislatures, 45 states have some form of tax advantage or subsidies for movie production.  These incentives take several different forms; including tax-credits, interest free loans, and grants.  The proliferation of MPIs has led to an arms race of sorts, as governors and state legislatures attempt to enact the most generous packages possible to attract movie productions, and the accompanying jobs that they entail, to their states.  The following MPIs, offered by Louisiana and New York, are among the most generous:

Louisiana:

“Qualified applicants are eligible for a 30 percent transferable credit for total in-state expenditures related to the production of a motion picture.  An additional 5 percent labor tax credit can be earned on the payroll of Louisiana residents who are employed by a state-certified motion picture production.  The tax credits are fully transferable and the state has no limit to the amount of tax credits that can be earned by a single production.”

New York:

“Film companies may apply for a 30 percent to 35 percent fully refundable tax credit on qualified expenses while filming in the state.  Refundable tax credits are available for qualified commercials. Also, certain production activities and expenses are exempt from state/local sales and use taxes.”

Given the munificent nature of these credits, it is easy to see why the film industry has slowly been exiting California.  According to a January 18, 2014 article in The Economist, “Thanks to generous incentive schemes offered by other states and countries, America’s movie capital has lost its lustre: only two live-action movies with budgets over $100m were filmed in Los Angeles last year.  Half as many feature films were produced in the city last year as in 1996, according to Film LA, a private non-profit organisation.  Television drama is 39% below its 2008 peak.”

Although many Californians, including Los Angeles Mayor Eric Garcetti, are fighting to keep the film industry from evacuating the state, enacting more exorbitant MPIs could likely be a worse outcome for taxpayers.  Proponents of MPIs argue that they create thousands of jobs and pump millions of dollars into a state’s economy; however, the findings of several independent studies belie this contention.  According to The Economist, “A study in Louisiana found that for every dollar the state received in revenue from film production, it spent $7.29 in credits.  Jobs created by productions often do not last.”

The competition for MPIs can often be quite fierce.  In Maryland, Media Rights Capital (MRC), the production company responsible for the hit Netflix show “House of Cards” is threatening to leave the state if it does not enact more generous MPIs.  In a letter to Maryland Governor Martin O’Malley, MRC wrote that “In the event sufficient incentives do not become available, we will have to break down our stage, sets and offices and set up in another state.” 

This threat would not be surprising if Maryland had refused to offer the company any competitive incentives; however, MRC has already received tens of millions of dollars in tax credits over just the past two years.  According to a February 20, 2014 article in The Washington Post, “After each season, Maryland has reimbursed Media Rights Capital, the show’s California-based production company, for a chunk of production expenses.  For the first season, that totaled more than $11 million in tax credits. For the second season, reimbursements could reach $15 million.”

“House of Cards” was so successful for Netflix that following the release of the show’s first season on February 1, 2013, the company generated its first profit and added two million new subscribers.  The stock price has more than doubled since then and remains near its record highs.

No one questions that governors and state legislatures are faced with myriad tough decisions regarding how best to allocate limited fiscal resources or that private companies are perfectly within their rights to seek the best deal in a competitive (taxpayer subsidized) market.  While it is up to the leadership of each individual state to decide what is in the best interests of their constituents, there should be transparency and accountability for MPIs.  There certainly should be a debate over whether they make fiscal sense, or if being able to say a particular program or movie is being made in the state is more important than the lack of return on the taxpayers’ investment.    

  -- P.J. Austin

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