Film Tax Credits Are Bad for States
The new George Clooney film, Up in the Air, premiered at the Tivoli in Saint Louis over the weekend. Many are using the event as an opportunity to promote film tax credits, to be used as a means to bring more film productions to Missouri. John Combest links to a video on KMOV about the subject.
I could support the film tax credits if they actually did attract money from outside of Missouri. But, as I have blogged previously, this just doesn’t happen; states tend to spend more attracting filmmakers with tax credits than the filmmakers generate in the state. I have not been able to find information about how much money Up in The Air generated for Missouri, but I would not be surprised if that number is less than the $4.5 million in tax credits that it was awarded. I will continue to look for this information.
Instead of film tax credit programs, Missouri should spend its money on programs that create jobs that are better-paying and longer-lasting. We see from the KMOV video that these film tax credits do not result in sustained job creation. Certainly, many St. Louis residents are cast as extras in these films, but these jobs are low-wage and temporary. According to the casting call for Up In the Air, extras were compensated only $7.05 per hour (before taxes) and they were asked to work for just one day. Aspiring actress Adrienne Lamping was quoted in the video saying that she got to work on set for a week, but discloses that she does not have an acting job lined up in the future.
I understand why states like Missouri want to attract filmmakers. Certainly, it’s exciting for the hoi polloi to recognize their local haunts on the big screen and to spot celebrities like George Clooney. Unfortunately, however, almost nobody discusses the sheer cost of these programs.
I was cast as an extra in a late 90s made for TV movie filmed in StL “A Will of Their Own”
I was on set about 12hrs and got $100. I now wonder if tax credits were involved.
Comment by vroman — November 17, 2009 @ 5:14 p.m.
Film Tax credits lay the foundation for the development of an industry infrastructure that would create many high paying, permanent jobs. However, the people who will invest in animation suites, studios, soundstages, post production facilities, etc, will not do so if there is an up-down, maybe, maybe not attitude toward film tax credits. Michigan made a commitment and stayed the course. They have now attracted more than $100 million in film industry infrastructure investment.
I tire of hearing about the “hoi polloi” and celebrity worship. There is an element of that, of course, but make no mistake; This is about jobs. Filmmaking has a glamourous side but it is a business. It is a business that could grow substantially in Missouri if we had a serious and sustained commitment to it.
Having read your blog, I don’t think you do “understand why states like Missouri want to attract filmmakers.” It has nothing to do with George Clooney and everything to do with revenue generation and future permanent jobs.
Comment by Econdiva — December 9, 2009 @ 7:12 a.m.
Thank you for the comment, EconDiva.
Do you know how much Michigan paid in tax subsidies to attract this investment? I know that that state has been pursuing filmmakers rather aggressively, but I do not have specific financial information hand. I know that Wisconsin has spent more money than it has received in its film tax program.
I’d like to point out that, separate from their financial implications, there are also fundamental downsides to targeted tax credits such as these.
For example, these programs reinforce the idea that government should be able to pick and choose which economic activities may occur within its borders. Government should not have the role of deciding who wins and who loses in the market place; it should allow businesses to succeed or to fail as a result of their own efforts and the preferences of consumers.
Furthermore, targeted tax credits establish a system in which government favors certain businesses over others. These programs force every non-favored business to compete at a comparative disadvantage, creating inequality. As a consequence, this encourages corruption because it encourages all businesses within a state to seek the favor of their elected officials and solicit the government for special treatment.
Comment by Christine Harbin — December 9, 2009 @ 1:14 p.m.
Something to consider with the tax credits is that it gives our state the ability to build an economy that doesn’t currently exist and create new jobs for Missourians. These jobs just go to other states when we don’t have competitive tax credits. And this causes trained people to eventually leave the state to go somewhere with more work opportunities. Missouri has the potential to truly become a regional film industry in the long-term sense, creating sustainable jobs and a long-term market in film and media production. Our own natural assets such as two major cities, diverse small towns, and a variety of landscapes set us apart from other states. But you’re missing the point about what the industry can become. Missouri can never become a haven for extras and it seems foolish to think this is what a film economy can be. You’re forgetting about all the locally trained professionals that worked on these films to help make the film and also support the infrastructure of a large production. Missouri is currently training people to join the film and television industry in colleges around the state, including the one I teach at. Every year I’m sad to see our recent graduates leave Missouri to join the industry. Truthfully and perhaps surprisingly, many would rather stay here. But the lack of opportunities forces them to move on.
Missouri is at a pivotal point with two major films (not only Up in the Air, but also the independent film Winter’s Bone that will soon premier at Sundance) that are highlighting the state right now. Why not capitalize on this opportunity and create sustainable jobs for talented and trained men and women? Perhaps it could lead to less vacant offices, and less documentary subjects to play the out of work actors for films like Up in the Air.
Comment by Kerri Yost — December 10, 2009 @ 10:03 a.m.
I also hear that argument regarding economic development incentives. “Developers should come to a community without incentives.” The reality is that neither Missouri nor individual communities can compete in the national or global marketplace for new development without them. If every other state in the nation dropped tax credits for film production, it would be a different playing field. Tax credit programs in other states have harmed Missouri’s film industry, just as the very successful Canadian program has drained much of the production from L.A. and elsewhere. Billions of dollars in production have left the U.S. due to tax credit programs in Canada.
I would be happy to send you information on the Michigan program which is now quite mature. I will also send you a recent New York Times article on the success of that program.
Comment by Econdiva — December 10, 2009 @ 11:15 a.m.
Chris,
If you were aware of how the program works, you would not have made the comment, “….I would not be surprised if that number is less than the $4.5 million in tax credits that it was awarded.”
The tax credit isn’t issued until the Missouri spend is verified. The Missouri spend for Up in the Air was just shy of $12 million. By statute, tax credits are earned at a rate of 35% of qualifying Missouri expenditures. It greatly concerns me that you were obviously not aware of this or you would have very quickly determined the amount of money spent based upon the tax credits issued.
I would imagine you have good credentials. However, if you are going to blog about something, I and others in the industry would greatly appreciate it if you would verify all of the information you include. If this were a personal blog, I wouldn’t care so much. You wrote this under the banner of the Show Me Institute. Missouri Net picked it up.
When talking about employment, why did you focus on extras? Were you aware that more than 100 Missourians were employed on this film full time at wages ranging from $2200 to $3500 per week? Were you aware that the film used hundreds of hotel room nights as well as local caterers, rental cars, truck drivers, electricians, carpenters, set designers, casting and many other services? Were you aware that the film bought thousands of dollars in local art for set decoration? Were you aware that the film used more than 150 Missouri vendors during the course of the shoot? One shot called for snow. The filmmakers purchased $30,000 worth of ice from a St. Louis vendor.
Comment by Econdiva — December 10, 2009 @ 3:55 p.m.
Econdiva, you wrote that the tax credits result in permanent jobs. Could you explain what permanent jobs are created when a filmmaker comes in to the state, works on a film for a short time, and then leaves? The expenditures you cite in your last comment (catering, art, ice, etc.) were one-time purchases.
Comment by Sarah Brodsky — December 10, 2009 @ 4:39 p.m.
Thank you very much for the commentary, Econdiva. The subject of tax credits that are targeted to film is surprisingly polarizing, and I am learning a lot in this process.
To your first point, I would be happy to read the information that you mentioned. Please feel free to email me at christine.harbin@showmeinstitute.org. My focus is on public policy in Missouri, but I am interested to learn how other states have structured their programs for comparison.
Why is it important that Missouri try to compete in the national or global marketplace in filmmaking? In my opinion, Missouri would be better off if it focused on the products and services that it produces best (e.g., Budweiser beer, hog-farming, mining limestone), and then traded with other states. I disagree that states like Missouri should focus on developing industries for which they are at a competitive disadvantage, compared to other states.
Your second point makes me think of Frédéric Bastiat’s broken window fallacy. To paraphrase, when we spend money upon one thing, we cannot spend it upon another. It’s fallacious to consider only the benefits of bringing filmmakers to Missouri, and then ignore the cost to taxpayers. Perhaps taxpayers would have preferred to spend the money in alternative ways, such as building new roads or improving public schools.
Additionally, industries that are protected by the government (so-called, “infant industries”) tend to remain dependant on it. Industries that are subsidized are not subject to the same competitive pressures as those that are unsubsidized, and they consequently do not have an incentive to innovate. In The Case For Free Trade, Milton and Rose Friedman describe some of the negative implications of these infant industries.
Comment by Christine Harbin — December 10, 2009 @ 4:44 p.m.
I’m not sure that “other states spend tax money to attract filmmakers so we should too” is very compelling on any level. If other states want to spend their residents’ tax dollars to attract filmmakers, and the result is that Missourians (1) are still able to get the benefits of the product by paying to see the movie (perhaps more cheaply if the tax credits are spent in making the film more affordable, whatever that might mean) and (2) don’t have to spend our tax money to entice the film’s production to locate here then we have a few obvious benefits. One is, as Chrissy said, we have more tax money to spend on other things. Another is that we have more workers available to do other kinds of work. There is not some fixed “pool of jobs” which can only be expanded by spending tax dollars in the right way. There are many different types and amounts of work that can be done to earn a wage, specialization and trade tend to lead to a more efficient economy. So let Michigan and California make the films, and here in Missouri, we’ll continue to trade them our manufactured goods and other products for which we have a comparative advantage.
Comment by Josh Smith — December 11, 2009 @ 11:51 a.m.
I am very surprised that people still do not understand the economic benefits of the Missouri Film Tax Credit. I was the buyer/assistant set decorator on “Up in the Air’ and spent $185,000 of Paramount’s money, all locally, acquiring set dressing items for the show.
I am one of the many crew members who benefitted from having this production in our own backyard. I have been in the film business almost 15 years working mostly in the art department and have spent a lot of production money at the local businesses level. It is a nice chunk of money and any of my local vendors for UITA would vouch for that.
Because I make my living working in films I must always go where the work is. In the last 12 months I have done 5 movies – 2 in Missouri, 1 in Wisconsin, and 2 in Michigan. When work is scarce in Missouri, I am forced to travel to states that are getting the productions and spend their money in those states. Again, there is a lot of cash to be spent and money to be made in film production.
It is too bad that Missouri is not taking advantage of bringing film production work and dollars into our economy. Instead we are watching crew and cash move to other states who do understand the economic boost that follows filmmaking.
I would like to stay and work in Missouri next year. To be at home, working, spending production money in my own backyard would be beneficial to not only Missouri, but to me and my family.
Comment by Cat Cacciatore — December 11, 2009 @ 12:55 p.m.
I don’t really know much about this, but I just looked at some of Michigan’s recent film history. It seems they have films shooting all year round. One film comes in, shoots, leaves. But then another one is standing by. For the people that live and work in the industry in Michigan, it seems they are able to make a permanent job/career out of it. But again, Michigan has higher tax credits as well, and so it seems they are able to continually attract films on a consistent basis. So, I guess, what I’m wondering is maybe the fact that the Wisconsin and the Missouri tax credits are so low that it creates a situation where only one film can really be shot each year which, in turn, makes it correct that in Missouri film work is not a permanent job. However, if the tax credits actually increased, it seems this would change. Maybe it’s not that the investment in film is too much but actually it is too little to truly capitalize.
I like the statement about government not favoring any particular industry. And normally, I would agree. But it does seem that some states are able to really capitalize on the money from film making. Again, to bring up Michigan, it seems the state makes a lot of money from their investments. If that is the case, it seems like good business. And I wouldn’t necessarily have a problem with diversifying Missouri’s economy. From my experience diversification tends to help. I don’t know if it is really wise to become too dependent on one industry. Farming is important, that’s obvious, but an early frost, or disease such as swine flu, would really hurt Missouri as a whole if that was all we did. I’m reminded of stories of Missouri as the “dustbowl” during the depression.
One last thought. I wonder how California got to be “California.” It certainly did not spring up out of the ground as a fully functional film making establishment. I’m curious if government incentives had any part to play. I don’t really know, but I would love to find out.
Comment by Spanky — December 11, 2009 @ 1:15 p.m.
I have been a Steadicam operator and cameraman working from St. Louis since the late nineties. I reside here for family reasons. However, due to lack of work in my home state I work on the road away from my family around 200 days a year. Ms Harbin, it’s obvious you have no idea what you are talking about. There is a large community of local television and film production crafts women and men, here in Missouri. Film making is good business for Missouri. “Up in the Air” generated a lot of much need work for this year for my colleagues and I. Also, the film pumped a lot of money into the local economy to; restaurants, hotels, sporting events, clothing stores, car, truck, van, generator rentals, airlines, taxi and limo services, clubs and bars, gyms and personal trainers, teachers and baby sitters, grip, and lighting rental houses, construction workers, truck and van drivers, catering companies, local actors (I am not talking about want to be actors who come out to be extras), and talent reps, local production companies, couriers, shipping facilities. Ms. harbin, we are loosing a lot of dollars to many states that have tax incentive programs. The only way to get movies to shoot in Missouri is through tax credit programs. Making movies in Missouri isn’t about George Clooney, it’s about getting our Missouri economy working again.
Comment by Dave Rutherford — December 11, 2009 @ 1:29 p.m.
Cat: No one is contending that the amounts spent by filmmakers are not generous. Yes it helps the individuals whose wares are purchased, and other people on down the line. But it’s not free. In order to attract the filmmakers (as opposed to attracting other businesses) we have to target them with tax credits. The result is that tax dollars are lost or misdirected in order to encourage film making over other enterprises.
Spanky: Diversifying the economy does sound like a good idea. On the other hand, I don’t really know what’s best for the economy and would prefer to keep my hands off. I hope our state and city legislatures do the same when it comes to picking their favorite types of business to promote with targeted tax credits.
Dave: I sympathize with your situation. As a former taxi driver, I interacted with a lot of people going to and from the airport, traveling for work, so I have a great deal of second-hand knowledge of how difficult it is to maintain work in that way, especially over a many years.
Let us not forget, however, that there are other people in other cities in the very same position, also jockeying for targeted tax credits to bring films — or indeed other businesses which they have a special skill related to — to their town. What of them?
Targeted tax credits are not bad because they offer no benefits. They are bad because the large, obvious, localized benefits they confer, are not sufficiently countervailed by the costs which are large, subtle (tax credits are a particularly subtle form of subsidy) and distributed (among all Missouri taxpayers). Business will be done, and efficiency — rather than film making — should be our goal.
Comment by Josh Smith — December 11, 2009 @ 2:05 p.m.
Ms. Cacciatore and Mr. Rutherford, in your comments you are providing proof to my point that there is not enough demand in Missouri for the film industry to exist in Missouri without a considerable level of government assistance. I disagree that it is the role of the state to subsidize entire targeted industries. I disagree that it is right for the state to favor one industry over another.
The vast majority of Missourians work in industries that don’t have targeted tax credits. Their jobs exist because there is enough demand for them. The demand for bakers, babysitters, yoga instructors, doctors, lawyers, and free-market research analysts in Missouri is high enough so that their employers choose to pay for their jobs without government assistance.
I share your desire “to get the Missouri economy working again,” Mr. Rutherford, but I disagree with you on how we should do that. Subsidizing entire industries will not put Missouri on road to recovery (please see my previous statements about how “infant industries” have difficulty weaning themselves off government assistance). On the contrary, I agree with Josh Smith that Missouri would be better off to take a hands-off approach. That way, the state can excel at the industries in which it possesses a competitive advantage.
In this debate, I think that we should give serious consideration to the principles of Frédéric Bastiat’s broken window fallacy. Although the state is spending money on filmmaking in the form of subsidies, it is diverting money from other causes. Wikipedia provides a good explanation of the parable’s implications in government:
Comment by Christine Harbin — December 11, 2009 @ 3:30 p.m.
Wikipedia. Really?
Comment by Joe Collins — December 11, 2009 @ 4:28 p.m.
Wikipedia is not universally reliable, true, and is generally best at providing links to useful primary/secondary sources — but it can also be good at providing summaries of known information.
In this case, having read almost everything Bastiat wrote, I can vouch for the usefulness of that particular Wikipedia summary.
Comment by Eric D. Dixon — December 11, 2009 @ 4:45 p.m.
@Joe:
In the content that I posted, do you disagree with anything specific?
Comment by Christine Harbin — December 11, 2009 @ 4:53 p.m.
I understand that the 4.5 million of the missouri taxes paid by all missourians should not be concentrated on one industry. It’s not fair. Nobody should get something for nothing, especially other people’s money.
But, by that reasoning, I don’t see how it is anybody else’s right, other than the people who worked on it, to have any say over what happens to the money brought in by “Up in the Air,” and other film projects this year.
So, how about the film community keeps the money generated by the film (I think Encondiva estimated it as just shy of 12 million) for next year’s film tax incentive, and Josh and Chris can keep their 4.5 million dollars.
Comment by Spanky — December 11, 2009 @ 4:57 p.m.
Spanky, I agree with you that only those who worked on the film (e.g., tech, vendors) should have control over the money that was spent in Missouri for products and services that were used in the production process. But that’s not the point that is being argued in this discussion thread. No one is making statements about what should happen to the money that was spent in Missouri related to these film projects.
I like your proposal for next year, and I hope that Missouri listens to you. By all means, the the film community SHOULD keep the money that they generate from their activities related to the film (as long as they didn’t receive government assistance). Then the taxpayers of Missouri can keep their $4.5 million.
Comment by Christine Harbin — December 11, 2009 @ 6:32 p.m.
I get the parable of the broken window. Money can indeed be spent in different ways. The problems with applying this theory to the film industry is that the film industry is not really just one industry. As many have answered before, the production of a film already circulates the money to a wide variety of different industries. We are not talking about one glazier.
It would be difficult to find another industry that does circulate that much money into that many different types of businesses in such a short amount of time.
The breaking of the window does produce a favorable result for one person, perhaps at the expense of others. However, the appearance of 12 million dollars into the borders of the show me state, in which that money PREVIOUSLY DID NOT EXIST there, and then the rapid circulation of it, such as 30 thousand for ice one day, 10 thousand at a mom and pop frame shop the next (just to name a few purchases) and meanwhile spending thousands daily on food (it takes an army to make a film) from local supermarkets which (depending on the item and season) may very well have come from local farmers, is hardly comparable.
The money is varied. It branches out like a tree touching many different facets of the community, including the state vaults. Everytime a good is sold, they take a cut. And on every paycheck, not just from those working directly on the film, but from those other small and local business who will pay taxes on it and maybe hopefully might have been able to keep an extra employee this year during the rough economical times. If you follow the life of that 12 million as it exists within the borders you will see that the vaults will indeed get their hands on a huge chunk of that 12 million.
Now, just so this isn’t confused with the Trickle down theory-
The tax incentive is there to reward favorable results. It is not given to film makers in the hopes it might get spent, like the tax breaks to the rich in the trickle down theory. It is ONLY given out AFTER it has been proven that a certain amount of money has already been spent within the state. I like to add again that this money, this 12 million, did not previously exist within the state. It did not come from one area of the state and moved to another because politicians play favorites. No, it was ADDED from outside.
Bringing 12 million into the state is what is important. Like if a friend gave the shopkeeper the 6 francs to fix the window. A friend from out of town whose only reason for coming was to give him the 6 francs and then left. Then the community as a whole is up 6 francs. And if that friend later needed 2 francs on his way out, I would think it is the least I could do.
The tax credit is there as a reward for a favorable result. And I don’t just mean an Oscar nominated movie. I mean the appearance and rapid distribution of money from outside the state to, again, a wide variety of businesses, large and small WITHIN our state.
The reps. are not just favoring film makers with an incentive because they like movies. They are rewarding a favorable and proven result.
Also, I would like to add that it doesn’t actually matter what movie is made either. Of course we would like them to all be big successful hits, but even it isn’t, even if it has no Clooney, no Reitman, if if flops at theatres, if it never even gets a distribution deal at all because it sucks so bad, the money making the film was still spent in Missouri during the time of it’s production.
I think the only person that might be blinded by the glitz and glamour is you, because it is keeping you from seeing the local film industry for what it is; a money generating (remember, it comes from outside the state), money circulating, TAX PAYING machine that operates on a muli-faceted level, reaching a wide variety of missourians and also state vaults.
However, the money won’t come into the state if the state chooses not to entice with incentives. Bottom line, more money is actually coming in and staying in as a result of the tax incentive.
Comment by Joe Collins — December 12, 2009 @ 3:06 a.m.
I work in the film industry, and rarely work in this state. It’s not that the demand to shoot in Missouri isn’t there, but the paltry tax credits we offer drive producers to other states with better incentive dollars.
If you can direct your attention to Louisiana they offer a nice incentive to productions. Last year alone they generated over $640 BILLION in revenue for their state alone off Film Production. They have enough production lined up for the next 3-5 years. Major studios have built facilities there to house productions, and offer up stage facilities. This in turn creates those Permanent Jobs everyone is seeking. It takes a few years, a little tweaking to get it, but by far Louisiana has market cornered on credits.
Missouri has several different terrains that would entice producers to this state, we have a fabulous crew base here, we have equipment, hotels, airports, everything a state needs to attract producers to our state.
What we don’t have is a viable credit. What we need is a NO CAP, credit that attracts the business here. Hollywood wasn’t built in a day, and our film industry won’t be either, but nothing is that easy. We just need the support of the state to make this a viable industry with mentoring programs for future crew and the support of a well run film office.
And for those not wanting to FOCUS on one industry you should remember this. Missouri has a tax credit system for other business. Those businesses that profit from those credits are companies like Walmart, and Bass Pro Shop They get MILLIONS of incentive dollars every year for building warehousing centers and new stores. They get to offset their MISSOURI Taxes by these incentives. So where we are all spending our hard earned money in these businesses, they are being subsidized by the state.
So instead of propping up businesses like those who DON’T NEED the Propping up…Why not invest it in new business or expanding businesses instead.
Comment by Pam Garrett — December 12, 2009 @ 8:45 p.m.
Thank you all for your commentary; I have enjoyed reading it. I collected my thoughts on the subject over the weekend, and I have posted a response: http://www.showmedaily.org/2009/12/even-more-on-missouri-film-tax.html
Comment by Christine Harbin — December 14, 2009 @ 3:48 p.m.