Paying For A Movie, Even If You Don't See It

Sunday, filmmakers and movie stars will walk the red carpet at the Academy Awards.

However, this is not the only time of the year Hollywood receives special treatment. California taxpayers fund Oscar-nominated films through expensive tax credits gifted to the motion picture industry.

All eight films nominated for Best Picture were subsidized by taxpayers. “American Sniper” received $6.8 million from California's 20 percent feature film tax credit, meaning that if there was an Oscar for Best Tax Break, the film would take home the statuette. “Sniper” star Bradley Cooper should remember to thank California taxpayers during his acceptance speech, should he win Best Actor.

Though $6.8 million is a lot of money, it is dwarfed by the amount received by last year's Best Tax Break winner, the “Wolf of Wall Street.” Since the movie was filmed in New York, it received the state's 30 percent, fully refundable tax credit.

The film's $100 million budget means that New Yorkers paid up to $30 million for the honor of having Leonardo DiCaprio and Martin Scorsese shoot in their state. Similar to this year, all nine 2014 Best Picture nominees were filmed in locales with incentives.

Movie production incentives do little more than give legislators an opportunity to brush elbows with the rich and famous. Tax credits targeted to specific industries do not generate long-term economic benefits for states, and support has recently waned as the associated costs have become clearer.

At their peak in 2010, these film incentives cost 40 states a total of $1.4 billion.

Though many states have cut back, or eliminated, their film tax credits, some are ignoring the economic costs and instead choosing to seek the film industry's approval.

For example, California recently tripled its film credit spending to $330 million, likely in an attempt to keep up with New York's $420 million limit. Mike Gatto, a state assemblyman who represents Hollywood, said he wanted the tax break to be “[big] enough of a break to incentivize productions to stay here, to locate here, to incentivize long-term health of the industry.”

Instead of catering to a favored industry, legislators should be concerned with the health of the overall economy. Gatto admits that lower tax burdens create incentives for firms to locate in the state and expand. A far better policy would be to lower tax rates for everyone – not just Hollywood.

Special-interest tax breaks leave other states' taxpayers to make up the revenue shortfall. Either essential services are cut, or tax rates are raised. Fixing potholes and staffing fire departments are better uses of tax money than subsidizing wealthy film production companies.

Providing tax breaks specifically to the film industry is an example of the government choosing winners and losers in the marketplace. State lawmakers could attract almost any industry if they paid for a quarter to a third of its expenditures, but such a policy would be fiscally unsustainable.

Positive effects of film tax credits only tell half the story. Even though a popular film may boost tourism and create the appearance of economic development, film productions only offer short-term employment, and most film workers are highly specialized. States that choose to enter the competitive arena of film tax credits are set up for a losing battle. Unless they continually increase their incentives, film companies will simply pack up and move to states offering sweeter deals.

The studies cited by subsidy proponents are deeply flawed and often supported by Hollywood funding. Joseph Henchman of the nonpartisan Tax Foundation points out that, if the fanciful projections of these studies were taken seriously, the United States could solve its long-term budget situation by simply giving the film industry $1 trillion. One study assumes that every dollar in film tax credits creates $17.75 in economic activity, which leads to $1.88 in new state tax revenue. These claims are less realistic than some of the science-fiction films supported by the credits.

California residents, make sure to tune in Sunday for the Academy Awards – after all, you are already paying for the ceremony.

This piece originally appeared in Orange County Register

This piece originally appeared in Orange County Register