A guaranteed flop
by Jeff Jacoby
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The Massachusetts film tax credit program has been a flop, a taxpayer rip-off that enriches one of the nation's most profitable industries while choking off funds from more pressing public needs. Naturally some legislators are now eager for a sequel.
The Bay State has been lavishing corporate welfare on movie producers and Hollywood actors since 2006. It gives production companies a 25 percent tax credit on anything they spend to make a film or TV show in Massachusetts – credits they can sell for cash to third parties. Like most schemes that use public funds to bribe industries into doing business in Massachusetts, the film tax credit program has been a loss-maker from the outset. The Department of Revenue's most recent annual report on the program noted that while filmmakers in 2010 collected $14.6 million in tax credits, their productions generated only $0.8 million in new state revenue. That amounted to a paltry 5 cents of tax revenue for every $1 in tax credits the commonwealth gave away. (In 2009, Massachusetts awarded credits worth $83.3 million, but reaped only $10.4 million in revenue –12 cents of tax revenue for every $1 in subsidies.)
Nor have the film credits put thousands of residents to work, though they are regularly touted as a stimulus for employment. The Revenue Department attributed no net jobs to the tax credits in 2010, and only 222 jobs the year before. Those jobs, many lasting just weeks or months, didn't come cheap: They cost the taxpayers an estimated $142,000 apiece. (The state's latest report, with data updated through 2011, has not yet been released.)
Film tax credits are based on a kind of voodoo economics – a faith that the more revenue the state manages to lose to Hollywood, the better off the public will end up. "Lawmakers understand that cutting income tax rates from 6 percent to 5 percent will cost the state revenue," economics writer Josh Barro observes, yet they imagine "that cutting the tax rate on film productions to negative 25 percent or 40 percent can pay for itself."
This is public policy as it might look if it were devised by Max Bialystock and Leo Bloom, the seedy theatrical producer and timid accountant in Mel Brooks's farce The Producers.
"Under the right circumstances," muses Bloom, "a producer could make more money with a flop than he could with a hit. Yes, it's quite possible. If he were certain the show would fail, a man could make a fortune."
Bialystock: "You keep saying that, but you don't tell me how. How could a producer make more money with a flop than with a hit?"
Bloom: "It's simply a matter of creative accounting."
Having swallowed such "creative accounting" when it comes to films and TV shows, Massachusetts policymakers are now being urged to do the same thing for theatrical productions. A bill introduced on Beacon Hill would grant up to $3 million in tax credits for Broadway-bound shows that play in Massachusetts before moving to New York or a national tour. "Advocates of the proposal," the Globe reported this week, "say the credits would create hundreds of jobs and drive millions of dollars of business in Massachusetts." Now where have we heard that before?
Local theater honchos are warning, of course, that unless the Legislature showers them with a lucrative new subsidy, Massachusetts can kiss big stage productions goodbye. "We need this credit," the Citi Center's Josiah Spaulding Jr. told the Globe. "Illinois has one. Louisiana has one. And if we can't get one, we won't be able to attract pre-Broadway shows again."
Uh-huh. That is what rent-seeking special pleaders – sports team owners, mutual-fund companies, video-game makers, solar-energy firms, filmmakers – always claim. And almost invariably the subsidies and benefits and tax breaks they clamor for turn out in the end to be what the critics predicted: ill-advised corporate welfare that costs far more than it generates. (See under: 38 Studios. Or Boston Convention & Exhibition Center. Or Evergreen Solar. Or Nortel Networks.)
Film tax credits have not paid for themselves in Massachusetts, nor have they nurtured a permanent state-based moviemaking sector. What they have done is siphoned off millions of dollars from legitimate government services – education, public safety, mental health – in a fruitless quest for glitz, popularity, and a free lunch. And now we have legislators who want tax giveaways for Broadway-bound shows? That's one flop that ought to close before it ever opens.
(Jeff Jacoby is a columnist for The Boston Globe).
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