Film Tax Credits and Political Theater

Massachusetts Governor Charlie Baker recently floated a proposal to cut the state’s film tax credit (FTC) in order to pay for an increase in the state earned income tax credit (EITC). The former subsidizes movie companies to make films, television shows and commercials in the state; it costs about $80 million a year, and in 2012 fully two thirds of that spending went out of the state. The EITC’s proposed expansion, on the other hand, would put tens of millions  of dollars directly into the pockets of the working poor. Eliminating the FTC would cover most but not all of the EITC expansion.

Some state lawmakers are saying it’s a “cute” trick to link the two, but that the Governor is cruelly overlooking the value of the film tax credit. The “local lighting technicians and hairdressers who work on movies would be the real losers if the governor got his way” according to a politician quoted in a recent Boston Globe article. Seems appropriately dramatic for a discussion about state-subsidized films.

Some background: the EITC is almost universally hailed as an effective means to a) boost the spending power of those who need it most; b) improve the economy, as working poor are more likely to spend the money they receive; and c) encourage work. In an era where apple pie is partisan, the EITC is actually supported by everyone. It’s almost not fun to defend the EITC: it’s too easy.

I want to spend some time instead on the film tax credit, which is significantly less easy to love.

Somewhere between 35 and 44 states offer some type of incentive for film; the sources disagree (I think) because the tax credits are structured differently and pay for different things. The broader point is that it ought to be a red flag if 70% of states offer a tax credit aiming to lure in the same businesses. Almost all of these states have adopted such credits since the 2000s, a time before which movies appear to have been produced.

According to the Massachusetts Department of Revenue, it takes more than $100,000 to develop one Massachusetts job through the credit for one year. The report takes a fairly generous approach, assuming for example “that all feature films applying for the tax credits were induced to film in Massachusetts due to those credits.” Which is, as they recognize, “a generous assumption considering that some feature films were required to shoot in Massachusetts, at least in part, for authenticity purposes.” Of all the states that have analyzed their Film Tax Credits, only Massachusetts took the dramatic step of refusing to count TV series and films whose filming was already underway before the tax credits were enacted.

There are many different ways to slice the question of the FTC’s impact: how much “economic activity” is generated; the return on each dollar spent; how many jobs are “created”; the proportion of spending going to people within the state. None of them looks great for the FTC, but the problem is that supporters will take the one metric that puts them in the best light and run with it. It just can’t stand up to scrutiny.

You will often see quotes in news stories like “proponents point to the $342 bazillion in total spending the tax credit generates per year” without any kind of context or analysis of the opportunity cost of that spending. The “spending per job” metric I outlined above isn’t really the best way to determine economic impact either, it just happens to make some intuitive sense without going into counterfactual scenarios of economic activity.

There’s also a lot of vague insistence that the Mass Dept. of Revenue failed to account for something important and thus doesn’t capture the FTC’s true impact. Defenders insist that there is also a huge multiplier effect that creates spin-off jobs throughout the Commonwealth. Filming in Massachusetts creates “good publicity” that leads to tourism, they say (never mind that The Departed is not exactly an advertisement for the type of tourism Boston is looking to promote).

One defender argued that Sandra Bullock said nice things about Massachusetts on Regis and Kelly after filming the 2008 film The Proposal here – the best publicity, apparently, that money can buy. Actually, for the current price tag, we could deploy an army of 80 celebrities, paying each of them a million dollars to say “Massachusetts is nice, everyone should visit” on every talk show they go on.

The tourism defense is at best questionable. After nearly 10 years, the burden of proof should be on the credit’s defenders to show that even a single person has visited Massachusetts because Sandra Bullock told them to.

No, there’s no intrinsic reason to link the two tax credits, but Massachusetts is in a budget shortfall, and this plan is a great opportunity to take a bad use of money and turn it into a good use of money. It is cute. It’s shrewd politics. And it would be a shame if it didn’t work.