Massachusetts Considers Ending Film Tax Credits. Why Not Arkansas?
Our friends over at the Tax Foundation have a good summary of Massachusetts’s experience with its failed policy of film tax credits.
From the Tax Foundation:
Back in September, the Massachusetts Department of Revenue issued a study of the program’s first seven years, from 2006 to 2012. The figures are bleak. In 2012, $78.9 million in tax credits resulted in an estimated $100.6 million worth of in-state spending, generating $10.6 million in new state revenue. So not only did the state lose $68.3 million on the deal, but total in-state spending was only 25 percent higher than the cost of the credits. And it gets worse: between 2006 and 2012, the Department of Revenue estimates a net increase in in-state spending of $261.1 million attributable to film incentives—at a cost of $411 million in tax credits generated (some of which would be realized in 2013 or later). Each job created—most of them lasting less than three months, or even “a few weeks, or even days,” according to the Department of Revenue—cost an estimated $118,873.
The evidence from other states isn’t any better. Last October, the Maryland Department of Legislative Services prepared a damning report on the state’s Film Production Activity Tax Credit which found that even if every single production filmed in Maryland would have gone elsewhere without the credits, the state would have recouped a mere 6 cents on every dollar awarded in film tax credits. The Maryland report concluded that the credit “does not provide much, if any, long-term economic stimulus” and “does not provide any sustainable employment.” It’s hard to disagree.
Subsidizing the lucrative and transitory film industry through the tax code results in economic distortions, pits states against each other in competing for a zero-sum expenditure, and shifts the tax burden disproportionately onto individuals and other businesses to underwrite a favored industry. Baker will face an uphill battle selling his proposal to a skeptical legislature, but his fight is a worthy one. Just don’t expect anyone to make a movie out of it.
If Massachusetts does wind up rolling back its film tax credit program, Arkansas would be in the unenviable position of being further to the left fiscally on this issue than Massachusetts. That’s scarier than an Alfred Hitchcock flick!
As Marc Kilmer noted in a paper for the Advance Arkansas Institute in 2014, the film tax credit program in Arkansas has tanked like a third-rate romantic comedy.
Take the state’s tax expenditure for film production. From 2010 to 2012, this provision in the tax code provided almost $1.7 million to “develop” the Arkansas film industry. Many states have similar provisions in their tax code. However, the evidence indicates that film tax credits don’t do much (if anything) to help a state’s economy. Here is how Joseph Henchman of the Tax Foundation summarizes its research on film tax credits:
…generally the benefits of film tax credits are often exaggerated and misunderstood, while the costs of film tax credits are underestimated or completely ignored. We also find that many states are currently locked in an unproductive arms race of film tax incentives, with film producers reaping most of the benefit.
You can read the entirety of AAI’s report on the wastefulness of giving tax credits to favored industries (as opposed to giving broad-based tax relief to average Arkansans) here.