Hollywood Trashes Reaganomics, Yet Promises Their $35 Mil Tax Credit Will Trickle Down

Editor's Note: The following originally appeared at Andrew Breitbart's Big Hollywood.

M. Night Shyamalan’s latest film production, "The Last Airbender," was recently awarded over $35 million in film tax credits from Pennsylvania over two years.  The award is the largest in the history of Pennsylvania’s Film Tax Credit (FTC), breaking the record held by his previous project, "The Happening," which received $12 million in tax credits.  His film "Lady in the Water" also received a film production grant. The only good news is that taxpayers are only forced to subsidize these movies, not to watch them.

Pennsylvania first created a film tax credit in 2004, replaced it with a film grant program in 2006, then enacted its current $75 tax credit program in 2007, in which films can receive up to 25 percent of production costs in the form of tax credit. The state’s FTC was temporarily reduced, as the 2009 state budget agreement reduced all tax credits by 33% for three years.

Forty-four states offer tax incentivizes or grants to filmmakers for in-state production, according to a recent report on film tax credits by the Tax Foundation.  Pennsylvania is among the 26 states that offer transferable (or in some states refundable) tax credits to film producers.  This means that tax credit awarded is more than the actual state taxes the recipient owes, they can sell the remaining credit to another business.

But movie incentives by-and-large have failed as economic policy.  As the Tax Foundation notes:

Movie production incentives are costly and fail to live up to their promises. … Among these failures, the two most important are their failure to encourage economic growth overall and their failure to raise tax revenue. 

A state-commissioned study of Pennsylvania’s film tax credit—conducted by Hollywood consultants—effectively concluded that the tax credit was responsible for every movie filmed in the state.  Yet this ignores evidence that the vast majority of films didn’t even apply for the tax credit or that the film tax credit had not had much of an impact on film production in the state.

James Homan of the Mackinac Center notes that Michigan—which has the largest film tax credit in the nation—has lost film jobs since the creation of the tax credit.  Likewise, data from the Bureau of Labor Statistics show that Pennsylvania employs fewer than 8,000 workers in the category “Motion picture and sound recording industries,” representing about 0.2% of the state workforce, and an increase of 800 employees since 2004.

Why don’t film credits “create jobs”?  In part, they provide incentives for economic activity that would have occurred anyway.  Furthermore, a narrow tax incentive does little to improve the overall economy. Indeed, the tax breaks given to the film industry could instead have been used to lower taxes on all businesses, rewarding entrepreneurship rather than lobbying.

While film production tax credits remain popular, as lawmakers love the chance to have movie stars show up in their districts, many states are reconsidering their benefits.  Wisconsin Gov. Jim Doyle pushed for elimination of his state’s film tax credit. One employee at the Wisconsin Department of Commerce summarized their film tax program by saying, “We lost a lot of money. We had to get off the crazy train.” Iowa’s film tax credit was recently suspended, and criminal charges were filed for “stealing” tax credits when filmmakers inflated costs and took the tax credit while actually filming and hiring workers in other states.

See also: "Texas Considering Giving State Funding to Anti-Arizona Immigration Film 'Machete'"