NCPA - National Center for Policy Analysis

Economic Effects of Film Tax Credits Overstated

April 4, 2011

Over the past decade, film tax credits have gone from being an obscure tax benefit available only in a few states to a ubiquitous nationwide policy tool.  Film tax credits are credited with creating jobs, economic activity and tax revenue for states, as well as bringing a little glamour to some states that are not accustomed to the spotlight.  However, a great deal of economic misunderstanding surrounds film tax credits, says Mark Robyn, staff economist for the Tax Foundation.

  • The economic benefits of film tax credits are often exaggerated and misunderstood, while their costs are underestimated or completely ignored.
  • For example, supporters claim that tax credits do not cost states any revenue, because the tax credits lure companies that would not have located in the state without the credit.
  • However, this claim is based on the false assumption that all the credit recipients would have filmed elsewhere were it not for the credit.

Some advocates go even further, claiming that by increasing jobs and economic activity, film tax credits actually "pay for themselves" with increased tax revenue generated from these activities.

  • This claim is false, and for the same reason discussed above: this claim is largely based on the assumption that all the credit recipients would have located elsewhere in the absence of the credit.
  • Much of the tax subsidy represents a real loss of revenue with no net new jobs to offset the cost.

As is the case with any tax cut or tax benefit, there is an opportunity cost associated with giving tax dollars to film producers.  Those dollars might have been used on other, more productive government spending that instead never happens.  Or the lost revenue might have been made up with higher taxes on other taxpayers, reducing their well-being.  Unfortunately these costs are almost always left out of the analysis of film tax credits, leading to highly biased results, says Robyn.

Source: Mark Robyn, "Film Production Incentives: a Game California Shouldn't Play," Tax Foundation, March 21, 2011.

 

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