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13.8.12

Old media finally getting wastefulness of film tax credits?

Not that agents part of the traditional media in Louisiana are very quick on the uptake on many issues of the day, but they finally may be catching on to the fact that Louisiana has spent approaching a billion dollars on corporate welfare for the film industry to get back pennies on the dollar. Or, maybe not.

Recently, the Shreveport Times ran an editorial that questioned the need for the state’s sacred cow of motion picture tax credits, editorializing on an effort by the leftist Louisiana Budget Project that reiterated from state reports about the roughly 13.5 cents on the dollar in tax receipts the state got for every dollar of tax credits they doled out to filmmakers. Clearly, the attentiveness of neither the LBP nor The Times does them much credit, for in this space no fewer than 10 times starting in 2005 the exact same point has been made again and again, every so often taking the newest data that would reveal the same old picture of wasteful spending, which now is approaching a billion dollars worth of issued credits.

Why did it take a burn-through of a billion bucks for The Times to catch on despite this space’s persistent analyses (and similar columns appearing in a publication that the newspaper receives, Fax-Net Update)? Even the LBP seemed to pick up on this faster than The Times, as it issued a brief in opposition about the issue last year. Regardless of how late it is to the party, it’s significant in that it becomes the first mainstream media outlet in the state even to question the merits of the program.

And at least it gets the message, because some still don’t. A self-described New Orleans contributor to the online site of Forbes Magazine appears not only as inattentive to the program’s wastefulness as The Times had been until now, but then actually lauds it, using the same stale, flawed arguments that backers like Economic Development Secretary Stephen Moret use, in criticizing the LBP report.

This author repeats Moret’s assertion that, despite the transfer of hundreds of millions of dollars of lost taxpayer revenues to filmmakers and investors (producers often sell the credits to Louisiana investors because they typically have low state income tax liabilities), it’s a valuable program because “third-party economists have estimated the economic impact of film tax credits in Louisiana to be nearly six times the fiscal cost of the tax credits.” Also in support, she claims what should be taken into consideration is the “amount of new tax payers the industry has created through businesses, jobs, property owners, and industries that would not even exist in Louisiana had it not been for the implementation of the tax credit program.”

Thus, she concludes, the LBP report “fails to include very specific and proven economic impact benefits that the state has received as a result, and raises suspicion as to why this report was only just now released with two year old data.” Which tells us two things about the author: she neither understands the program and the reports about it, not does she understand economics.

In fact, the law requires a report issued every two years on the program, with the last couple by BaxStarr Consultants (the next is coming up this spring). In it, the consultants calculate the tax receipts attributable to the presence of all the “new tax payers the industry has created through businesses, jobs, property owners, and industries that would not even exist in Louisiana had it not been for the implementation of the tax credit program,” to arrive at the dismal returns numbers.

And the Moret soundbite continues to be a red herring: it doesn’t matter what the “economic impact” of the program is. To illustrate the absurdity of basing government policy solely on the amount of “economic impact,” why not jack the credit up to 100 percent? For every dollar spent in Louisiana to make a film, you get a buck back on your taxes, which are resalable. Won’t that stimulate even more filmmaking and thus more of an economic impact, even though the state would forgo even more tax revenue with little increase in tax receipts? But do we really want a lot more kinds of movies like that classic Drive Angry? Is this subsidization so much more important than alternatives such as funding health care, defraying unfunded accrued retirement expenses, or in a tax break for not just movie makers, but for everybody?

To put it another way, what if a tax credit program was introduced to support the propagation of the McKayla is Not Impressed meme? Like movies, that’s entertainment. Like the movies’ tax credit, it would let go of revenue and shell out administrative costs in an attempt to get, in this case, web developers to pay teenage Louisianans who live plugged into their computers to do digital enhancements that might exceed their realized costs, by the posting of such popular artistry on websites to capture much traffic to create ad revenues. But does a government decision to subsidize this activity really contribute to optimal economic development? Wouldn’t it be better to minimize government involvement and let the marketplace allocate resources to their best uses?

Defenders of the credits, like the author, argue that without them, there would be practically no filmmaking activity, hence the relatively small portion of outside dollars wouldn’t appear anyway and the state isn’t losing anything because the tax credits given out were on paper and the revenues forgone would not exist anyway without the program. However, this ignores entirely that the credits are used mainly by Louisianans who otherwise would be paying these taxes if the credits didn’t exist, so the state mostly ends up financing tax shelters of the wealthy. And after a decade of this stimulus now the infrastructure exists to suck in filmmakers regardless of the presence of the credits, even if it is at a vastly reduced level. Even at that low level, it’s cost effective without the credits while it is not with them.

“Economic impact” means nothing by itself; after all, having government pay one group of people to dig holes while paying another to fill them creates an “economic impact” but achieves zero benefits for society. Government only should undertake this kind of subsidization when we agree that the good in question is vital to society’s well-being, such as national defense or public safety. Otherwise, the rule of thumb is that government subsidizes private sector activity only when it creates economic development where the tax receipts to the state exceed the tax breaks forgone. Is film really that important to us?

1 comment:

Anonymous said...

"And after a decade of this stimulus now the infrastructure exists to suck in filmmakers regardless of the presence of the credits, even if it is at a vastly reduced level. Even at that low level, it’s cost effective without the credits while it is not with them."

The infrastructure is not where it needs to be, but it's getting there and that is why we need the tax credits now. They are the reason for everything we currently have