Red Carpets Trip Up Real Tax Reform

When Rocky Balboa triumphantly climbed the steps of the Philadelphia Art Museum in the 1976 blockbuster film Rocky, he did it without a special government handout.  But now Hollywood lobbyists are climbing the steps of the Capitol Building in Harrisburg to ask for just that, and top lawmakers are rolling out the red carpet. 

While some lawmakers are talking about keeping an onerous business tax scheduled to end in 2014, others are talking about increasing the state Film Tax Credit (FTC), giving an even greater tax break to Hollywood studios.  While bringing movie stars to Pennsylvania is good for headlines, special tax breaks for targeted industries hurt average Pennsylvanians.

The FTC attempts to entice movie production companies to film in Pennsylvania by giving them a tax credit equal to 25 percent of their total production costs.  As a bonus, if the tax credit is greater than the taxes they owe (meaning they paid zero taxes) the company can sell their excess credits for a profit. 

Supporters of the FTC argue that these tax breaks will bring jobs and economic activity to Pennsylvania.  This is only partially true, and comes at expense to Pennsylvania taxpayers.   According to an Independent Fiscal Office report, the uncapped tax credits will cost taxpayers $108 million per year, with the state recouping only 14 cents in tax revenue for every dollar given away.

And what do Pennsylvanians get in return for the state’s losing investment?  Supporters claim it will bring jobs to Pennsylvania, but the IFO report shows that 70 percent of wages (which make up the majority of production expenses) will go to non-residents transplanted from out-of-state.  When shooting ends and the film crews go home, their earnings leave with them.

Furthermore, the money could be better spent reducing the tax burden for all Pennsylvanians, making Pennsylvania more competitive and leaving us with more of our hard earned money.

The FTC is an example of why Pennsylvania needs real tax reform.  Special tax breaks for some are paid for by the rest of us, and primarily serve to benefit politicians. We should leave the FTC and all other special tax breaks on the cutting room floor, and instead bring real tax relief to all Pennsylvanians.