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Film Tax Credits are Bad Economics

Josh Barro of the Manhattan Institute hammers on film tax credits, which have been so popular among lawmakers in Pennsylvania and other states, who love when movie stars show up in town.

A new report out Saturday from the Michigan Senate Fiscal Agency looked at that state’s film tax credit program — the country’s most generous — and found that even under the most optimistic assumptions, tax receipts driven by new economic activity barely offset 10% of the cost of awarding film tax credits. …

Yet the economic assumptions in the report are actually overly aggressive, failing to fully account for the economic activities that are crowded out by new, subsidized films. With a more accurate reflection of those costs, the report would likely show that the film credit program shrinks Michigan’s economy rather than growing it slightly. …

Handing out huge subsidies costs a huge amount of money. States can afford to do this in film, because it is a small industry — even with its aggressive subsidy program, Michigan still gets only 0.1% of GDP from filmmaking. But the flip side of that is that the job and economic impacts of film credit programs are small, and the cost is unjustifiably high on a per-job basis.

We are in a film subsidy bubble, and states that trail Michigan and New York would be unwise to bid high enough to win film productions back. Instead, states should foster economic development by improving their infrastructure, human capital, and tax and regulatory environment. Or if they’re going to offer incentives to specific industries, they should at least pick less crowded fields than film.

More from us on Pennsylvania’s Film Tax Credit