Conservatives and Liberals Agree: Film Subsidies Are a Waste

by Jonathan Berr | February 28, 2014 9:41 am

There is only one thing that Maryland officials should say to the producers of there hit Netflix series House of Cards who are threatening to leave the state unless they get more taxpayer subsidies: “Goodbye.”

House of Cards Conservatives and Liberals Agree: Film Subsidies Are a WasteAnd they might want to add: “Don’t let the door hit you on the way out.”

The greed of Media Rights Capital is so transparent that it might serve as a basis for a series of its own. (Maybe I ought to pitch that idea to Netflix.)

Maryland has rolled out the red carpet for Media Rights Capital, providing the California-based company with $26 million in credits[1] for the first two seasons. The state’s economic development officials want to promise $15 million for the yet-to-be-shot third season, but they’re having trouble getting lawmakers to agree to boost the $7.5 million in tax credits Maryland provides for film and television projects each year.

Maryland officials argue that it’s money well spent since nearly 2,200 Maryland crew, actors and extras were hired in Season 1 and another 3,738 residents got jobs in Season 2. Plus, the production utilized the services of nearly 2,000 Maryland businesses that resulted in an economic impact of a $250 million.

If that $250 million figure sounds too good to be true, that’s because it is based on wishful thinking. Economists base these sorts of estimates on what is known as a multiplier. A dollar spent of film production will  travel through the economy and generate more economic activity in the process.

“But all spending has multipliers, not just the film industry,” writes Elizabeth Malm, of the Tax Foundation’s Center for Tax Policy, in an email. As she explains:

“Spending on other government programs, or letting taxpayers keep their money, also has a multiplier that reverberates through the economy. Some industries even have better multipliers than film production. That film production has an economic impact alone is not enough to justify choosing film subsidies over other uses of taxpayer dollars.”

Indeed, studies cited by the Tax Foundation[2], a conservative think tank, and others have argued for years that subsidies for film production are money losers for states. The liberal-leaning Center for Budget and Policy Priorities[3] noted that the jobs created by film subsidies are largely “temporary and part-time jobs” that the film companies would have created anyway.

Maryland officials, however, know that Media Rights Capital’s threat to leave isn’t an idle one.  According to the National Conference of State Legislatures[4], 45 states have incentives for film and TV production, making them as much a part of the entertainment industry as the red carpet at the Oscars. Their numbers have exploded over the past decade or so.

Tax breaks have an impact on where movies and TV shows are shot. Indeed, producers of HBO’s “Boardwalk Empire”, which takes place in Atlantic City, shoot the series at a Brooklyn, New York sound stage because the Garden State tax credit wasn’t generous enough. However, other producers are coming to New Jersey shooting such cultural masterpieces as The Real Housewives of New Jersey[5].

Backers of Hollywood tax breaks often note that film and TV production can spur tourism. That’s true to an extent. For instance, anyone visiting Philadelphia is sure to run up the steps at the Art Museum made famous by Sylvester Stallone in Rocky. Seinfeld fans can take plenty of tours of New York City haunts made famous by the show, including one run by Kenny Kramer, who was the basis of the Kramer character. But these are the exceptions rather than the rule.

Liberal and conservative economists, who don’t agree on much, are united in their view that subsidizing film and TV production is benefits Hollywood at the expense of taxpayers. The arguments in favor of such special treatment are as flimsy as, well … a house of cards.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Follow him on Twitter @jdberr.

Endnotes:
  1. $26 million in credits: http://www.washingtonpost.com/local/md-politics/house-of-cards-threatens-to-leave-if-maryland-comes-up-short-on-tax-credits/2014/02/20/bf9a8206-9a70-11e3-b931-0204122c514b_story.html?tid=pm_pop
  2. Tax Foundation: http://taxfoundation.org/article/testimony-film-tax-incentives-oklahoma-task-force-state-tax-credits-and-economic-incentives
  3. Center for Budget and Policy Priorities: http://www.cbpp.org/files/2-8-12sfp.pdf
  4. National Conference of State Legislatures: http://www.ncsl.org/research/fiscal-policy/state-film-production-incentives-and-programs.aspx
  5. The Real Housewives of New Jersey: http://articles.philly.com/2013-11-25/news/44416098_1_tax-credits-greater-philadelphia-film-office-sharon-pinkenson

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