NCPA - National Center for Policy Analysis

Strapped States to Hollywood: Stay Home

December 10, 2010

The new primetime television show Detroit 1-8-7 is giving the Motor City's famous restaurant, American Coney Island, a lift, with customers pouring in since it appeared in the show in September.  What's good for the restaurant, however, hasn't been so great for Michigan taxpayers, says Tom Moroney.

  • The show's producers were lured by state incentives -- a mix of tax credits, job-training subsidies, low-interest loans and other aid.
  • A state report says such subsidies are the most generous in the United States and cost Michigan taxpayers more than the economic activity they generate.
  • The 355 full-time jobs created as a result of the program last year cost the state about $193,000 each, the study found.

Since 2005 states have granted $3.5 billion in incentives to makers of films, TV shows and commercials, according to a Tax Foundation calculation.  Now, as states face a total of $72 billion in budget deficits in their coming fiscal years, according to the National Conference of State Legislatures, some are concluding Hollywood gets a lot more than it gives.

  • Kansas and New Jersey have suspended their tax credits.
  • Rhode Island has capped subsidies at $15 million annually, and Wisconsin's are set at a measly $500,000 a year.
  • Arizona's program is set to expire on Dec. 31.

The credits also have aroused criticism because some states make them refundable, says Moroney.

  • That means a production owing little or no state taxes still gets a check for the portion of the tax breaks it didn't need.
  • In Michigan and 13 other states the credits are also transferable and can be sold in a secondary market to companies looking to cut their own taxes.

Some states are staying in the game.  California began offering credits last year; New York just extended its program for five years; and Florida and Virginia recently enacted new enticements.

Source: Tom Moroney, "Strapped States to Hollywood: Stay Home," BusinessWeek, November 24, 2010.

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