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4.3.09

Study confirms wastefulness of LA film tax credits

Always looking out to justify its existence, the Louisiana’s Department of Economic Development commissioned and has released a report blowing some more sunshine up the skirts of taxpayers in the guise of the state’s corporate welfare program for motion picture development.

This report, which follows one done for the state a few years ago, throws out all sorts of seemingly-impressive numbers for 2007 that the state gets for the $115.1 million given to producers of movies: $429.2 million in “direct in-state spending” (almost half of which were wages at an average of around $32,000 annually per job) which translates into $763 million in “economic benefit.” It also directly pays $14.6 million in tax revenues.

Of course, that means that the taxpayers are still on the hook for $100.5 million. And that’s the part LED hopes you gloss over: the credits never pay for themselves in terms of actual return for the state. This was noted back in 2004 when Louisiana’s own Legislative Fiscal Office prepared a report which, ironically, is still considered one of the seminal works and is used often to point out that these kinds of tax credit programs, where producers can write off portions of in-state expenditures on Louisiana income taxes (or, more likely, sell these credits to brokers to resell them to high-income entities within the state), cost far more in revenue than they bring to state tax coffers.


As the report notes:

tax credits generated by the film projects are real reductions to existing tax liabilities. While the credits are generated by economic activity that might not occur in the state in the absence of the credits, the credits are not applied against tax liabilities that might be directly associated with that new economic activity…. State tax credits exceed State revenue receipts. State revenue gains from stimulated economic activity settle to about 16% - 18% of State tax credit costs…. the economic benefits are not sufficient to provide tax receipts approaching a level necessary to offset the costs of the tax credits that stimulated the increased film production expenditures.

In fact, the report notes its assumptions are quite generous. In particular, it assumes every single bit of film spending in the state occurred solely because of the presence of these tax credits which is unrealistic. That is, some who intended to come without the presence of credits here get a subsidized bonus. Finally, the costs of distorting the economy (by encouraging a less-productive activity at the expense of a forgone more-productive activity) are not included. Regardless, these doubtful results are congruent with analyses of others states and regions (such as here).

Estimates vary, but the state faces a budget deficit in the neighborhood of a billion bucks and this subsidy is an easy and obvious choice to cut. Elected officials might find it ego-boosting to rub shoulders with Hollywood types, but they owe their first responsibility to taxpayers to get rid of this needless drain on their hard-earned resources.

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