Spreading wealth to Hollywood

Cross Posted at Capitol Domes  
Giving handouts to Hollywood has become an en vogue method for state governments to stimulate economic growth.

According to the Heartland Institute, 40 states subsidize film production in some form. In 2007, Pennsylvania allocated $75 million for a film-industry tax-credit program, which included support for “Zack and Miri Make a Porno.”

Each state wants to attract as much movie production as possible, so they offer generous incentives. Since spending isn’t simultaneously cut, giveaways need to be offset with tax increases in other areas.

But do giveaways to Tinsel Town’s business executives actually spur economic growth? As John Wayne liked to say, “Not hardly.”

While the Rendell administration is touting the jobs they “created” with the film tax credit, they take credit for every film job, not the net impact of the tax credit. That is, they assume that none of the films taking the credit would have filmed in Pennsylvania had the legislature not passed the tax credit. This is absurd. In fact, one recipient of the tax credit even acknowledged this fact: “We’ll keep making movies here probably regardless.”

Furthermore, the Rendell administration neglects to measure the effect of having higher taxes on the rest of business to pay for a carve-out for a specific industry. How many movies would have filmed in Pennsylvania in the absence of the program, and what would the impact of lowering taxes on all businesses by $75 million (rather than just the film industry) been?

Evidence from other states demonstrates the folly of the venture.

Old fiscal habits die hard, and offering taxpayer-funded goodies to a declining industry (all too eager to accept the welfare) is certainly no different. But as with other “economic development” schemes, states would be better off with the proven formula of lowering taxes and spending.