Film Tax Credit: Economics vs. Movie Star Sightings

It’s hard to argue economics against the “I saw Denzel Washington at Starbucks” factor—but debate over the merits of the film tax credit should be decided on the former.

KDKA-TV had a story yesterday on the potential for ending Pennsylvania’s $75 million annual tax break for some film producers.  Here was our contribution to the story:

Whether you are talking about $35 million for M. Night Shyamalan’s latest flop or $22 million for the Denzel Washington thriller Unstoppable, Pennsylvania’s film tax credit isn’t generating economic growth.  This corporate welfare for Hollywood studios doesn’t “create” any jobs in Pennsylvania—but shifts economic activity from one area to another.  Most of the films produced in Pennsylvania don’t receive tax credits, and many of those that do would have filmed here anyway; the studios benefit from a tax break, but the program isn’t spawning new economic activity.  Most importantly, a tax break for one industry requires higher tax rates on everyone else, hindering job creation in every other sector of the economy.

After I blogged yesterday, film tax credit supporters have been commenting like crazy.  Their argument is basic, the film industry “creates jobs.”

But the film industry in Pennsylvania wouldn’t disappear without the film tax credit—because most movies/TV shows filmed in PA don’t receive the film tax credit. That $75 million goes only to films approved by the state.

But the big question here is, why is the film industry unique?  Don’t other industries respond to lower taxes? In fact, as Joe Henchman of the Tax Foundation notes:

[F]ilm production doesn’t even have that high of a multiplier: relatively internal production processes like auto manufacturing or nuclear power plants actually have higher multipliers. Also, benefit calculations usually don’t count alternative uses. That hairdresser who can charge $60 with the film in town would probably still charge $50 otherwise; film tax credit proponents would say they created a whole new job and generated $60.

The most important question is this: Should other industries pay higher taxes so that the film industry gets tax breaks?  The obvious answer is, of course not—a better policy would be to lower the tax rate for all businesses, allow everyone to “create jobs,” not just one special interest.  This is why, with good reason, other states are slashing their film incentive programs.

More Information on Film Tax Credits: