New Study of Film Tax Credit Ignores Economics

The Pennsylvania Legislative Budget and Finance Committee issued a report on the state’s film tax credit, concluding that the $75 million program generates over $500 million in economic activity and “pays for itself”.  (See stories in the Tribune Review and the Patriot News)

Wow.  This contradicts what the Commonwealth Foundation, along with the Tax Foundation, have said about the film tax credit.  Could we be wrong? 

No, not if you read the caveats in the study:

While some of this activity would occur without the benefit of the FTC, a significant proportion of this activity would be at risk without such a tax credit program. As part of this analysis, ERA did not quantify what proportion of this activity would be at risk.

In other words, they assume that every single film receiving the tax credit would have filmed in another state, or not at all, if it were not for the tax credit. This is of course ludicrous. Many filmmakers admit they would have filmed in Pennsylvania regardless, but took the credit because it was free money.

Also consider this passage: 

While there is a net fiscal loss when comparing the net present cost of the Film Tax Credit program ($58.2 million) to the taxes generated by productions directly receiving tax credits ($17.9 million), there is a net fiscal gain to the Commonwealth of $4.5 million when considering all of the revenues generated by the entire industry.

The study adds in not only the effect from films receiving the credit, but the effect of all films in Pennsylvania – including the vast majority which did not get the tax credit.   How exactly does this measure the effect of the film tax credit?  Again, it assumes no one would film in Pennsylvania without the tax credit (despite their own chart showing the amount of filming done in Pennsylvania before the film tax credit had been enacted.)

Most importantly, the study doesn’t consider what could have been done instead – i.e. what would have been the impact of lower taxes on all businesses by $75 million.