×
You will be redirected back to your article in seconds

Film Tax Incentives Are a Giant Waste of Money, New Study Finds

Are film tax credits worth the money? It’s a hotly debated question. Hollywood contends that tax credits create a multiplier effect that stimulates the broader economy, while skeptics say the benefits don’t outweigh the costs.

But a new study from a professor the USC Price School of Public Policy says that argument is beside the point. Professor Michael Thom reviewed the effects of tax credits nationwide, and found that the benefits are almost non-existent.

“The promise was this was going to diversify the economy, that they were going to draw Hollywood out of Hollywood,” Thom said in an interview. “In general, this does not pay off.”

Thom analyzed wages and employment levels within the motion picture industry in more than 40 states where incentives have been implemented. In 18 states that implemented transferable tax credits, employment in the motion picture industry increased by less than 1% per year. In 26 states that implemented refundable credits, there was no measurable effect on job growth. Transferable credits had no measurable effect on wages, while refundable credits did produce short-term wage gains, the study found.

The study, titled “Lights, Camera, but No Action?”, also looked at sales tax and lodging tax waivers, finding no effect on motion picture employment from those incentives. The study also found that none of the incentives had a measurable effect on the share of the motion picture business located in each state.

The findings fly in the face of the conventional wisdom in Hollywood, which is that state tax incentives have resulted in a massive flight of jobs from California to other parts of the country. That argument was central to the California Legislature’s decision in 2014 to expand its tax credit program from $100 million per year to $330 million per year.

In pushing for the credit expansion, legislators relied on research from the Milken Institute. Kevin Klowden, the executive director of the institute’s California Center, was asked to review Thom’s paper. Klowden argued that it was “well done for its limited focus, but misses the bigger picture.” Specifically, Klowden argued that Thom did not adequately distinguish between different types of incentives.

“There are a lot of different states that have thrown money at incentives and they haven’t worked out,” Klowden said. “If all they’re doing is using incentives as a lure and nothing else, then as soon as they go away, local film production takes a hit. What makes things work is you need to invest in and build up the local workforce.”

Klowden argued that states that have provided incentives for investment in permanent infrastructure, like production facilities, have seen the greatest benefits. He singled out New York and New Mexico as states that have been particularly successful.

Thom was not impressed with that argument. “If it’s such a successful industry and a profitable industry, you shouldn’t need a subsidy,” he said. “This is a multi-billion dollar industry.”

In the last couple of years, a handful of states have rolled back or eliminated their incentive programs. In the wake of a number of state-by-state studies showing that incentive programs don’t create benefits commensurate with their costs, Thom wondered why more states have not done away with their programs.

That led him to write another paper, titled “Fade to Black?”, that examines the “rise and fall” of motion picture tax incentive programs. He found that states generally enacted incentives as a response to high unemployment, and also because they were following the example of other states.

“Policymakers look around and say, ‘If five other states are doing something, they can’t all be idiots,’ so they have to do it to,” Thom said. “There’s a lot of peer pressure.”

Thom also looked at states that have eliminated their programs, finding that the smaller the program, the easier it was to get rid of. States that have spent the most on tax credits have generally been the most reluctant to give them up.

“Many have doubled down,” said Thom, adding that regulators and vested interests have become powerful advocates for continuing the larger programs. “The people who voted for that money don’t want to admit fault.”

Thom also noted that few programs include a requirement to analyze the effects of the tax subsidy.

In California, advocates for film incentives are still awaiting definitive data that would show whether the expansion has had a positive effect, Klowden said.

More Biz

  • Jackie Knobbe

    UTA Hires Agent Jackie Knobbe to Comedy Touring Division

    UTA has hired Jackie Knobbe as an agent in its comedy touring division, Variety has learned. Knobbe joins UTA after almost 20 years at APA, where she was a partner and co-head of comedy touring. She will bring a strong roster of touring comedy clients with her to the agency, including Tiffany Haddish, Lewis Black, Jeanne Robertson [...]

  • Arista Records Names Danny Cooper Senior

    Arista Records Names Danny Cooper Senior VP of Promotion

    Danny Cooper has been named senior vice president of promotion at Arista Records, it was announced today by John Boulos, the label’s executive VP of promotion. In this role, Cooper will work closely with Boulos in all areas of promotion across genres, and oversee Arista’s promotion staff throughout the U.S. He is based in Los [...]

  • Harvey Weinstein

    Media Organizations Seek Access to Key Harvey Weinstein Hearing

    A group of media organizations asked a New York judge on Monday to allow public access to a critical hearing in the Harvey Weinstein criminal case. The disgraced producer is scheduled to go on trial on June 3 on five charges of rape and sexual assault involving two alleged victims. Prosecutors have filed a motion [...]

  • Delta Air Lines celebrates Grammy Weekend

    Halsey, Jonas Brothers, Zedd to Headline iHeartMedia Wango Tango Concert

    Jonas Brothers, Halsey, 5 Seconds of Summer, Zedd, Ally Brooke (with special guest Tyga), Ava Max, Fletcher and Tomorrow X Together will perform at iHeartMedia’s annual Wango Tango concert at the Dignity Health Sports Park in Los Angeles (formerly StubHub Center) on June 1. Freeform will broadcast a 90-minute television special on Friday, June 7 [...]

  • Prince Memoir, ‘The Beautiful Ones,’ to

    Prince Memoir, ‘The Beautiful Ones,’ to Be Released in October

    The memoir Prince was working on at the time of his death is coming out Oct. 29, according to the Associated Press. Publisher Random House confirmed Monday that “The Beautiful Ones” will combine Prince’s unfinished manuscript with rare photos, scrapbooks and lyrics. Announced just weeks before his 2016 death, the 288-page book, issued in partnership [...]

  • Abigail Disney on Bob Iger

    Abigail Disney Calls Bob Iger's $65 Million Compensation 'Insane'

    Disney chairman-CEO Bob Iger’s total compensation for Disney’s fiscal 2018 was a whopping $65.6 million. Abigail Disney, the granddaughter of Disney co-founder Roy Disney, calls that sum “insane.”  While speaking at the Fast Company Impact Council, the filmmaker and philanthropist insisted that this level of corporate payout has a “corrosive effect on society.” Disney took [...]

More From Our Brands

Access exclusive content