President Bill Clinton’s economic plan contains bad news for Hollywood and broadcasters: the new investment tax credit proposal will not apply to motion pictures, while broadcasters are facing the prospect of spectrum auctions for new technologies such as high-definition TV.
On a more personal level, many of the executives and talent in Hollywood fall into the high-income bracket that will bear a particularly heavy burden under Clinton’s proposal, spelled out in his State of the Union speech Wednesday night.
His plan calls for an increase in the top individual tax rate from 31% to 36% for households with taxable earnings of at least $ 140,000.
“In a big way, this is going to change how we all live,” producer and former studio exec Dawn Steel said yesterday in response to Clinton’s speech. Although she did not discuss her income, she admitted she and her husband, producer Charles Roven, will feel the impact of the President’s initiative on upper-income couples. But she didn’t object to the added tax burden that the proposal would require. “I do believe the wealthy, those who make over $ 250,000 , should bear the most burden. I’m sensing from other people that they want to support him and this plan.
“It’s not easy to pay more taxes. It’s my share and it’s my job. We’re really proud of him.”
A high-ranking studio executive, who spoke on condition of anonymity, seconded those sentiments. “After four years of a president saying there was no problem, we now have a president who is admitting that there is a problem and that something should be done. I’m excited that there is leadership. I hope this gets done quickly. I think it is good.”
Meanwhile, the film community has been fighting hard to convince Clinton advisers that the industry should be able to take advantage of the investment tax credit. Under the Clinton proposal, companies with sales of more than $ 5 million annually may write off up to 7% in plant and equipment purchases over the next two years. For those companies under $ 5 million in sales, the tax credit will be permanent.
George Smith, veepee and tax counsel with MCA Inc., said yesterday he is not surprised Hollywood was cut out of the tax credit proposal. The Treasury Dept. has been sending signals in recent weeks that the tax credit will be “very limited in scope,” he said.
Sound recordings are also ineligible for the credit, Smith said. Though it’s expected the Motion Picture Assn. of America will be lobbying tax-writing committees in Congress to make the tax credit available to movies, it could be tough sledding convincing lawmakers to embrace a plan that would add to the federal deficit.
Broadcasters may also have reason to be glum over the budget, given the new administration’s embrace of the concept of auctioning off the radio spectrum. Clinton reps claim auctions will raise $ 4 billion by 1997.
Broadcasters are wondering whether they will be exempt from the auction proposal — as has been suggested by Senate communications subcommittee chairman Daniel Inouye (D-Hawaii) — or whether they will have to pony up big bucks for the right to become players in future technologies such as HDTV.
National Assn. of Broadcasters prez Eddie Fritts said yesterday his group has “consistently opposed” auctioning off the broadcast spectrum. Fritts said broadcasters are also wary of other possible administration proposals, including FCC “user fees” and proposed limits on the deductibility of advertising.
The NAB will monitor developments “to ensure that broadcasters are not singled out to pay more than their fair share,” Fritts said.
Other details of the Clinton plan that have an entertainment industry angle include:
o A hike in the corporate tax rate from 34% to 36% for taxable income above $ 10 million;
o A crackdown on excessive executive pay by disallowing deductions beyond $ 1 million paid to corporate honchos. MCA’s Smith said it’s unclear whether the administration also intends to limit the deductibility of salaries paid by movie studios for actors and actresses making more than $ 1 million per pic;
o Tightening from 80% to 50% allowable deductions for business meals and expenses;
The new Clinton budget does, however, propose abolishing the Board for International Broadcasting, the agency that oversees Radio Free Europe and Radio Liberty. A spokesman for the Voice of America said Clinton hopes to instead launch a Radio Free Asia service into China.