Former Labor Secretary Robert Reich: Production Tax Incentives Create ‘A Race to the Bottom’

In "Inequality for All," Media is the Message

Robert Reich Film Tax incentives Race to Bottom

Former Labor Secretary Robert Reich, promoting the recently released documentary “Inequality for All,” says that there is a link between the growing income disparity and the wave of states, including California, that are offering tax incentives for movie and TV productions.

In fact, Reich, who served under President Bill Clinton, called the bonanza of states offering production tax credits a “race to the bottom,” as competition sees governments sweetening the pot to try to lure movies and TV shows within their borders.

“These tax credits and tax incentives are a zero sum game,” he said in an interview last week. “They don’t create a single new job. They just move jobs around, and they rob the states of the money they need for education and infrastructure.”

His comments reflect what has been an argument against tax incentives among some lawmakers in Sacramento, where an industry coalition is preparing to lobby heavily to expand California’s $100-million-per-year program to better compete against other states offering more generous tax breaks. Such orgs as the California Teachers Assn. have opposed the tax incentives, and advocates of increasing the state’s program acknowledge that they will face significant hurdles in moving legislation next year.

The issue of tax incentives is not featured in “Inequality for All,” which debuted at Sundance and went into limited release on Sept. 27, and has so far grossed more than $1.1 million at the box office. But Reich nevertheless sees the offering incentives as a symptom of the problem of growing income disparity.

“Any country or state that tries to tax its wealthiest and most talented resources is endangering itself because those resources can so easily move,” Reich says. “Forty years ago, the most valuable resource came in the form of a manufacturing plant that can’t just one day get up and move. It is relatively immobile. Today the most valuable resource is the brain power that puts together huge deals and manages these complex processes, whether they be entertainment or finance or technology, and they can move in a minute.”

The documentary, directed by Jacob Kornbluth and released by Radius and The Weinstein Co., does for income inequality what “An Inconvenient Truth” did for global warming. It’s centered on a lecture that Reich gives to his students at University of California at Berkeley, but intersperses charts and graphics with his own personal story, along with anecdotes from struggling middle class workers and a billionaire who argues that it is the interest of the top 1% to have a vibrant middle class.

“You have more and more of the national income going to the top — 95% of the gain since the recovery began goes to the top 1%,” Reich says. “But you got the typical American household doing worse and worse. This is not just an economic problem, it is social dynamite.”

He attributes the gap to the declining power of unions, the increasing effect of globalization and changes in technology. “The jobs are coming back,” he says. “The problem is that they pay lousy wages.” The result is a “vicious” cycle: Companies aren’t adding high paying jobs because there’s not enough demand. There’s not enough demand because the middle and working class aren’t making as much.

Kornbluth says that income inequality is “the biggest story of our time, and the media is not covering it.”

“They are framing it as right versus left, but that is not what the people are feeling,” he says. “They feel so disconnected from what they perceive the media on the coasts are telling them is the story.”

The media industry is the focal point in the documentary’s focus on escalating CEO salaries. Viacom’s Philippe Dauman is featured in a news clip in which he talks talking about making “difficult” workforce reductions, ones that were nevertheless necessary because “you had to do it for the organization to … survive.” But as he speaks, the documentary displays on screen his salary for 2010: $84.5 million, the highest of all public company CEOs that year.

“The three centers of extraordinarily high CEO pay are media, finance and technology,” Reich notes. “It is not coincidental that they are also the three leading sectors of the American economy. There is kind of a ‘winner-take-all’ mentality that happens in each of these sectors. That is that the people who manage to be considered ‘the very best’ dominate to such an extent that the second tier [of executive] doesn’t even show up.”

Nevertheless, Kornbluth says that the movie isn’t trying to send a dire message of despair, but that “the economy is for us. We are not working for the economy. We can make it work for the people.”

To that end, Reich says he is encouraged by such things as the recent election of Bill de Blasio, who ran on the issue of income equality, as mayor of New York, as well as the recent push back from Oracle institutional shareholders who voted against CEO Larry Ellison’s pay package, worth more than $77 million in the most recent fiscal year. Less evident is any drive for campaign finance reform. Reich argues that the flood of big money into politics, particularly into SuperPACs, skews the system via favorable tax policy and regulation.

As for film and TV tax incentives, Reich thinks that the solution is not to expand the program in California, but for the state to seek federal legislation that “preempts this kind of zero-sum competition.”

“There has to be a negotiated truce,” he says. “That is what Kansas and Missouri are doing [with other types of tax credits]. That is what New York, New Jersey and Connecticut have done.”