Even More on Missouri Film Tax Credits

December 14, 2009

Even More on Missouri Film Tax Credits

Frédéric Bastiat

My recent op-ed against film tax credits was published as a guest commentary in the Columbia Missourian today! As regular readers of this blog will know, it was also discussed by Steve Walsh on MissouriNet and by David Nicklaus on Mound City Money last week.

Over the weekend, I thought a lot about the arguments that were raised in favor of the film tax credit program. I’d like to take this opportunity to respond to them.

(1) The debate over the appropriateness of film tax credits is a natural application of the general principle of the parable of “The Broken Window” by Frédéric Bastiat (1850), which was later developed in Economics in One Lesson by Henry Hazlitt (1946).

I am impressed with the sheer amount of commentary generated by my recent blog posts arguing against film tax credits in Missouri. I have heard from people who worked on the Up In the Air set, professors of film, and representatives of the Missouri Film Commission, among others. In his book Economics in One Lesson, Hazlitt explicitly warns that this will happen (emphasis mine):

The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

To paraphrase Bastiat and Hazlitt, government should consider ce qu’il voit et ce qu’il ne voit pas au même temps when it is deciding policy. In plain English, this means that it should consider “the big picture” instead of only one group of people when forming policy that affects everyone. Hazlitt thinks that this concept is so important that this is his “one lesson,” further reduced to a single sentence (emphasis mine):

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Here’s how this relates to the film tax credit program. If we only consider that which we see, ce qu’on voit, then the tax credit programs are considered to benefit everyone. The recipients of the tax credits do assuredly benefit, as they testify in their commentary (Econdiva provided an estimate that the producers of Up in the Air spent nearly $12 million in the state). Bastiat and Hazlitt warn that it is dangerous to ignore the hidden costs, ce qu’il ne voit pas, that affect everybody. Missouri should not focus solely on the benefits of bringing filmmakers to Missouri and ignore the cost of the program to taxpayers.

While certain public policies would in the long run benefit everybody (e.g., eliminating the earnings tax or commercial property tax surcharges), other policies would benefit one group only at the expense of other groups. Film tax credit programs fall into the latter category. When tax revenue is spent on film productions, taxpayers cannot spend that money in alternative ways, such as education or infrastructure; they face an opportunity cost that is equal to the amount of the subsidy.

(2) There is not enough demand in Missouri for the film industry to exist in Missouri without a considerable level of government assistance.

In their comments, both Cat Cacciatore and Dave Rutherford provided proof of this point — they both travel out of state because there isn’t enough demand for film production work in Missouri (even in today’s status quo, in which we offer a $4.5 million tax credit). If an individual decides to live in a location in which there is not enough demand for him to work full-time, why should the taxpayer have to subsidize his employment?

Let’s say that I am a trained lobster farmer and I choose to relocate to Missouri, which is at a competitive disadvantage for lobster farming because it is very far from the ocean. I have two options: (1) I can petition the government to subsidize my employment; or, (2) I can transfer my knowledge, skills, and abilities to an industry for which there is demand. I believe that the second option is better because it does not burden taxpayers.

Most 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.

Furthermore, if the state stops subsidizing these jobs, then it has more workers available to do other kinds of work. In the comments, Josh Smith notes that:

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.

(3) The $4.5 million applies to state tax revenues, not total expenditures.

I realize that there is some confusion here, and I admit that I should have stated this more clearly in my op-ed. State tax revenues and total expenditures are different numbers. To an out-of-state production crew like Reitman’s, Missouri issues a tax credit to for up to 30 percent of the amount that they spend in state. This means that they get $3 million back if they spend $10 million in Missouri (which they can turn around and sell, because these tax credits are fungible). Given the low multiplier for the film industry (described herein), there is no way that the state would be able to recover that amount of money, whether it be through sales taxes (4.225 percent) or personal income taxes.

(4) These programs do not result in permanent economic activity.

As Sarah Brodsky points out, the purchases cited are single-time expenses (e.g., $30,000 for ice, $185,000 for set dressing items). Few permanent jobs, if any, are created when a filmmaker comes in to the state, works on a film for a finite period of time, and then goes back to California.

Additionally, according to “The Economic Impact of the UK Film Industry,” a 2007 study by Oxford Economics, the film industry has a multiplier of only 2.0. This is lower than the multiplier for the economy average, and indicates that the indirect impacts on employment and output from the film industry are not very far-reaching.

(5) Missouri should leave filmmaking to states that have a comparative advantage in it.

Why is it important that Missouri try to compete in the national or global marketplace in filmmaking? I disagree that states like Missouri should focus on developing industries for which they are at a competitive disadvantage. 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, manufacturing) and then traded with other states. I agree with Josh Smith that the statement “Other states are doing it, so Missouri should too” is an insufficient reason. He observes:

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.

Also, the Michigan economy is in terrible shape! Why would Missouri want to model its tax policies after Michigan’s, even when legislators there are already discussing discontinuing the program? Right now, Michigan has a unemployment rate of 15.3 percent, which is the highest in the country. (By comparison, Missouri’s current unemployment rate is 9.5 percent, which is below the national average of 10 percent). Even before the recession sharpened, Michigan had the highest rate; in September 2008, it was 8.9 percent.

As its comparative advantage, California has more sunlight than the Midwest, which allows for longer shooting hours, as well a variety of landscape types within driving distance, which can stand in for locales around the world. (Remember how Austin Powers remarked, “You know what’s remarkable? That England looks in no way like Southern California!” while driving on an “English” country road in Austin Powers: The Spy Who Shagged Me?)

(6) Subsidized industries have difficulty weaning themselves off government assistance.

When a state coddles an industry that does not have a competitive advantage (a so-called “infant industry”), the industry tends to remain dependent on that aid. 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 additional negative implications of these infant industries.

The infant industry argument is a smoke screen. The so-called infants never grow up. Once imposed, tariffs are seldom eliminated. Moreover, the argument is seldom used on behalf of true unborn infants that might conceivably be born and survive if given temporary protection; they have no spokesmen. It is used to justify tariffs for rather aged infants that can mount political pressure.

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13 Comments »

So many misleading points in so little space. . . Seems like any new business is good business in these times of overall reduction in almost all industry in the USA. The Michigan film industry is around 4th in the country now in film production and growing at a time when all other industry has collapsed there. $3 million back in rebate on $10 million spent times your 2 factor equals $20 million new money spent in Missouri compared to 0 million if no one films there. That is just one project. Unfortunately the film business will not spend their billions in the USA without incentives as many countries have similar incentives and better exchange rates. Not all production crew and almost no vendors are from out of state on a movie. The rates for skilled local crew are not low paying unless you consider $10- $50 per hour low paying. Hiring local crew and building or adding to local infrastructure for filmmaking does add long lasting jobs and new business to the communities where film production occurs, just ask any crew person or vendor who does business with filmmakers. These local crew people and businesses spend locally, pay taxes locally, and own property and homes in the area they live. The film business is also very green and very low impact. I invite you to take a look at the Missouri Film Commission Production Guide and see how many Missouri based companies and crew people actually make a living in the film business- http://www.missouribusiness.net/film
Thank you for your time and consideration!

Comment by Scott Clark — December 14, 2009 @ 7:20 p.m.
WHY didn’t you pick the states that incentives are working in to give a balanced look at credits in general? Lots of states have benefited from the Incentive programs, Georgia, North Carolina, Louisiana, New Mexico, Colorado etc. You seem to only want to expound on the negative, and some of your arguments aren’t quite factual.
England’s Film industry can’t be compared with the US industry. Their wages are lower, they don’t have as much production as in the US, their Actor’s Equity isn’t on par with SAG.

40 percent of every budget stays in the community it’s working in…for every Dollar spent it goes out 20 times…so the dollar spent is multiplied by 20.
Des Moines Iowa was sad to their film industry come to a screeching halt because of the way the governor handled the whole incentive mess there.
Des Moines welcomed the film makers, because we were there staying in their hotels, eating in their restaurants, shopping in their stores, buying gas, airfares, etc. That is the same as turning away Tourism in this state.
California has lost the bulk of it’s production business. Many people I know in this industry are looking to move out of California because it is no longer the center of film making. Productions go on location alot more, and if they don’t stay here and film, they go places like Hungary, or Budapest, or Canada, who because of NAFTA descriminates against US crews working there, but the US lets them come here to work with no limitations.

Yeah, I’d love to work in the same state I live in. For me I can live here cheaper than I can in New Mexico or Louisiana. I will never work NEAR where I live, but to work IN state would be a huge advantage for me personally. Situations often cause you to make sacrifices. I’d love to live in New Mexico, but I have older relatives who often need me here, so going to live where I would/could work, is not an option I have at the moment.

This state allows the sale of tax credits, and as I said before, those buyers are companies in this state looking to reduce their tax burden. So basically, MO maybe giving a film Production a $3Mil credit, that credit in turn is going to be sold for 80-90 cents on the dollar. While a production will recoup $2.4 Mil on the sale of the credit, Walmart, or an oil company is going to use the entire $3 Mil to offset their taxes within this state…so basically you are subsidizing other industry like the big ones because they aren’t paying all the taxes they should be. You aren’t coddling film production, you are coddling Walmart..and that’s worse.

I don’t understand why this state continually wants to turn down revenue to the state. Regardless of what business it is. The Economic Development Office in this state doesn’t understand Film Production, so they choose to be adversarial to the industry in general.
People will come to locations they see in films, because it intrigues them, they want to see where FIELD OF DREAMS was shot. Build it they will come…We need to not be so short sighted here. If you fear what you don’t understand, you’ll never see the benefits of the industry to Missouri economy.

Comment by Pam Garrett — December 14, 2009 @ 8:23 p.m.
1) the fact that opposition exists to your arguments is not an inidication that the opposition is wrong because they argue “plausibly and persisitently.”

You are arguing just as vehemently. By your suggestion one would be forced to question your motives as well.

Let’s talk about the real issues, please.

Bastiat’s parable is still not applicable. It deals with the circulation of a finite amount of money ALREADY existing in a community and how to distribute it amongst the community. It does not take into account an industry that brings money into the community from an outside source and you have still failed to recognize the scope of the community that the new money reaches.

Not every parable or theory applies to every situation. The film industry did not exist when Bastiat was alive. Theories expand and change to accommodate the changing times and industries.

Let’s talk about hidden costs. The word “hidden” refers to the unknown, and by definition, unknowable, otherwise they would no longer be unknown.
Whatever the money is spent on, there will be hidden costs.

This is not just a opportunity to combine your econmic and french majors. http://twitter.com/idiosynchrissy

Comment by joe collins — December 14, 2009 @ 9:15 p.m.
spending the money on another project while ignoring the local film community leaves the film community as a hidden cost. A lost opportunity.

2) the demand is there. Filmmakers want to come to the state to shoot their projects. As Ms. Garrett has pointed out there is a shift in film making from California studios to location shooting. Missouri should invest so they don’t lose more money to other states and countries. Money going somewhere else is money lost for the state of Missouri.

3)I don’t think I could possible state it better than Ms. Garrett, so I won’t try. The state benefits with new and more money coming in. The tax incentive IS a commodity used in trade to attract new business and money.

4) No, an individual film does not result in permanent jobs, but attracting filmmakers throughout the year most certainly will. Her plan for a “NO CAP” tax incentive will make that happen. Again, “NO CAP” does not mean money continuously pouring out of the state, but rather opening up the opportunity for more films to come and spend production money BEFORE receiving any tax incentive. It just means that MO will no longer limit how many films can basically shoot here in a year. But it will still maintain a positive flow of money into the state.

5)Every state has unique advantages to filmmaking with it’s own landscapes and attractions unlike any other state. Sadly, those attractions aren’t always utilized because of lack of financial incentives. I have no idea why Austin Powers did not shoot in England. Perhaps they wanted to, perhaps they would have liked an actual english countryside, but maybe England did not have enough financial incentive forcing them to make said joke.

Also, the Michigan economy is in the dumps because it “focused” its resources into “what it did best” and unfortunately has found out over the last 30 years that somebody else did it better. It was not the film industry that brought the economy down in Michigan, but rather it may be that the state’s choice to invest and diversify into the film industry is keeping it from getting worse.

6) All industries are “infant” at one point or another. No industry has sprung fully formed. Also, the fact that the film community uses tax incentives to entice new money does not make it necessarily infant, but rather innovative and diverse in the way the state chooses to invest and grow its economy.

Chris, you are allowed to believe whatever you want. That’s what’s great about the country, BUT you don’t have to necessarily agree with someone in order ACKNOWLEDGE that their argument is still valid.

For example, YES, the money can be spent in other beneficial ways as well. There are lots of beneficial ways to spend money all of which may or may not have hidden costs.

But, you should acknowledge that spending it in the local film industry is one of those ways. The local film community has a legitimate claim to that 4.5 million. Acknowledge that what they have done by bringing a large amount of out of state money into the state with their trade is beneficial for a large amount and wide variety Missourians.

And again, it does not favor one particular group (ref: Mr. Rutherford, Ms. Cacciatore) or even location. Up in the Air was shot in Saint Louis, but it pulled people and resources from all over the state including K.C, Columbia and Springfield. Also, the next film project might very well shoot in one of those locations. Such as “Last Will” – K.C, “Winter’s Bone” – Springfield and “Saving Grace B. Jones” – Booneville.

It is a versatile industry that has a unique ability to add anywhere from a few hundred thousand dollars to even more than 12 million to any part of the state in any variety of ways.

It is an option that should be heard AND SERIOUSLY CONSIDERED by the state government as a way to further improve the state economy.

Comment by joe collins — December 14, 2009 @ 9:55 p.m.
An excerpt from a post by Senator Wayne Fontana of Pennsylvannia:

“New businesses have begun or expanded because of the business that the film community brings – including Shooters Post & Transfer located in Philadelphia that has invested $2.5 million to upgrade its visual effects division; Location Lighting, Inc. of Oreland has utilized products and services from businesses in Jonestown, Leesport and Elroy; two new studios are being constructed in Pittsburgh; and over $155 million is being invested in three new studio projects in Southeastern Pennsylvania. These are just a few examples of businesses that are retaining jobs and creating new jobs, as well as new businesses that are opening in Pennsylvania because of the Film Production Tax Credit.

“We are building a new industry in Pennsylvania. Community College of Allegheny County has developed curriculum to train students for local jobs needed by the film industry. The program has been modeled after a similar program offered by Oakland Community College in Michigan which has been utilized in films such as “Gran Torino” starring Clint Eastwood. Membership in IATSE 489, the studio mechanics union for Pittsburgh and the surrounding area, has more than doubled since July 2007.”

Comment by Econdiva — December 15, 2009 @ 7:20 a.m.
New York Time article on the Michigan’s film program:

http://www.nytimes.com/2009/09/09/realestate/09film.html

Comment by Econdiva — December 15, 2009 @ 7:23 a.m.
I think the Economic Impact Report for ‘Up in the Air’ puts all of Ms. Harbin’s misinformation into real perspective: Film Tax Credits cost less than the money that the film industry brings into the state. Please read the report by clicking the link below.
http://ded.mo.gov/researchandplanning/pdfs/up_in_the_air_final_report.pdf

Comment by Cat Cacciatore — December 16, 2009 @ 7:01 a.m.
The report does no such thing, Cat. The film took $4 million in tax credits. It generated $5.3 million in wages (according to the report), so that leads to state income taxes (6%) of $318 thousand. Assuming that every bit of the $12 million that was not wages was spent on taxable goods and services, at an average combined state and local sales tax of 8%, that leads to sales tax collections of $536 thousand. So now we are at $854 thousand in tax revenues generated, which we will call $1 million because of the higher sales taxes on hotels and rental cars, which are a portion of those expenditures. So $4 million in tax credits generates roughly $1 million in tax revenues, which means that Missouri taxpayers subsidized the entire operation by about $3 million.

Even if I gave you all the presumed credit for economic multiplier effects, which, as has been noted elsewhere is lower for the film industry than for many others, you still come nowhere near $4 million. The people commenting here should just admit that they like the film tax credit because it directly takes tax dollars from other people for their benefit. At some point in our lives probably all of us will benefit somehow in that way. But that does not make it right, and it does not make it good economics.

Comment by David Stokes — December 16, 2009 @ 10:25 a.m.
I would just like to thank Cat, Econdiva and others for pointing out the problems with Chris Harbin’s way of thinking and for providing the necessary information to correct her misunderstanding of the tax incentive.

I just hope that people such as Steve Walsh and David Niklaus are continuing to read this blog so that they are provided with such information as well.

And also that the Columbia Missourian gives equal space both in the printed press and on the internet for these arguments that show the benefits of the film tax incentive.

Comment by Chris Reams — December 16, 2009 @ 10:27 a.m.
None of the commentors have yet made a compelling case that it is the film industry rather than any other industry, that we should use tax incentives to attract. Any business will spend money to buy supplies and employ people, and will create a product that people want to buy. I understand that film making is glamorous and that a lot of money gets spent, but we are performing zero-sum competition with other states to attract filmmakers in order to employ Missourians with special skills used in the film making industry: what about other Missourians whose special skill is not particularly applicable in this state (without tax incentives attracting an employer)?

There may be benefits to lower taxes in general in order to attract businesses that would otherwise locate in other states, but let the businesses decide whether to locate here based on the comparative advantages the state offers in terms of employees and other resources: not based on our choosing a particular industry to favor.

Also, let us please, please consider the costs. Other businesses in Missouri also employ many people (approx 2.7 million people) and spend a great deal of money on supplies and salaries. That money also multiplies out into the economy when it is spent by the people whom they pay it to. Yet these businesses pay taxes and do not threaten to relocate to another state without a special tax break to keep them here.

If other states wish to subsidize film production, we get the benefits of a finished film, and pay only the cost of admission. We get to sell our ice and other supplies to someone who pays taxes and employs our residents in other, productive, tax-paying industries.

Comment by Josh Smith — December 16, 2009 @ 10:42 a.m.
I want to point out that the chief attraction of the film industry seems to be that a lot of money is spent upfront, as opposed to over a long period as happens with other businesses. This is largely a result of the structure of this particular industry. Let me give a rundown. An artist wants to make a movie and takes his script to a film studio. The studio pays a lump sum of investors’ money, taking an immediate loss often in the millions of dollars, with a hope of a positive return in the long run. Not all films make money, but most do. The return on their investment happens some number of years hence when the total revenue from ticket and DVD sales recoups their initial investment plus some, thus closing the loop. Most businesses do not work this way. If you own a tractor manufacturing plant, you are constantly, year-round buying the raw materials to manufacture tractors, as well as paying the salaries of your factory workers and engineers year after year in order to produce tractors to sell. Someone else in the economy procures the materials, and you buy them, thus multiplying your tractor revenues throughout the economy.

All of business works this way. You employ factors of production (typically workers, machines and raw materials), and pay for them with the revenues from the stuff you produce. Film is a little different. Almost all the costs are upfront, and once it is produced it can be resold 100 million times with very low marginal cost.

The attraction, then, seems to be that “we want to be the state where that initial windfall is spent.” But other industries provide jobs and money coming in, it just happens over time and far less visibly. The windfall of movie studio dollars is what is seen. The many other employers toiling to bring a product to market while paying their taxes and employing 90% of the population of this state seems to be what is not seen.

Comment by Josh Smith — December 16, 2009 @ 11:10 a.m.
Leap-frogging off Josh’s last comment: The revenue from a film, garnered after production, usually (if it’s successful) exceeds the amount spent during production. This money is not spent in Missouri, but wherever the film investors live and decide to next shoot a film.

Whereas permanent tax cuts to businesses attract businesses and employees to Missouri. These are dependable jobs, and the salaries and profits are spent (for the most part) within in Missouri.

If you want to argue about the “multiplier effect,” why don’t we create permanent jobs in MO (and have much of the profit spent here) by lowering taxes across the board?

Comment by Caitlin Hartsell — December 16, 2009 @ 12:39 p.m.
[...] tax rebates from $4.5 million to $10 million. Although I’m getting bored of blogging about the production incentives program in Missouri, I want to refute the specific points that Hunt made in [...]

Pingback by State Policy Blog » Blog Archive » The Lesson Applied to Film Production Incentives — March 4, 2010 @ 5:48 p.m.

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So many misleading points in so little space. . . Seems like any new business is good business in these times of overall reduction in almost all industry in the USA. The Michigan film industry is around 4th in the country now in film production and growing at a time when all other industry has collapsed there. $3 million back in rebate on $10 million spent times your 2 factor equals $20 million new money spent in Missouri compared to 0 million if no one films there. That is just one project. Unfortunately the film business will not spend their billions in the USA without incentives as many countries have similar incentives and better exchange rates. Not all production crew and almost no vendors are from out of state on a movie. The rates for skilled local crew are not low paying unless you consider $10- $50 per hour low paying. Hiring local crew and building or adding to local infrastructure for filmmaking does add long lasting jobs and new business to the communities where film production occurs, just ask any crew person or vendor who does business with filmmakers. These local crew people and businesses spend locally, pay taxes locally, and own property and homes in the area they live. The film business is also very green and very low impact. I invite you to take a look at the Missouri Film Commission Production Guide and see how many Missouri based companies and crew people actually make a living in the film business- http://www.missouribusiness.net/film
Thank you for your time and consideration!

Comment by Scott Clark — December 14, 2009 @ 7:20 p.m.

WHY didn’t you pick the states that incentives are working in to give a balanced look at credits in general? Lots of states have benefited from the Incentive programs, Georgia, North Carolina, Louisiana, New Mexico, Colorado etc. You seem to only want to expound on the negative, and some of your arguments aren’t quite factual.
England’s Film industry can’t be compared with the US industry. Their wages are lower, they don’t have as much production as in the US, their Actor’s Equity isn’t on par with SAG.

40 percent of every budget stays in the community it’s working in…for every Dollar spent it goes out 20 times…so the dollar spent is multiplied by 20.
Des Moines Iowa was sad to their film industry come to a screeching halt because of the way the governor handled the whole incentive mess there.
Des Moines welcomed the film makers, because we were there staying in their hotels, eating in their restaurants, shopping in their stores, buying gas, airfares, etc. That is the same as turning away Tourism in this state.
California has lost the bulk of it’s production business. Many people I know in this industry are looking to move out of California because it is no longer the center of film making. Productions go on location alot more, and if they don’t stay here and film, they go places like Hungary, or Budapest, or Canada, who because of NAFTA descriminates against US crews working there, but the US lets them come here to work with no limitations.

Yeah, I’d love to work in the same state I live in. For me I can live here cheaper than I can in New Mexico or Louisiana. I will never work NEAR where I live, but to work IN state would be a huge advantage for me personally. Situations often cause you to make sacrifices. I’d love to live in New Mexico, but I have older relatives who often need me here, so going to live where I would/could work, is not an option I have at the moment.

This state allows the sale of tax credits, and as I said before, those buyers are companies in this state looking to reduce their tax burden. So basically, MO maybe giving a film Production a $3Mil credit, that credit in turn is going to be sold for 80-90 cents on the dollar. While a production will recoup $2.4 Mil on the sale of the credit, Walmart, or an oil company is going to use the entire $3 Mil to offset their taxes within this state…so basically you are subsidizing other industry like the big ones because they aren’t paying all the taxes they should be. You aren’t coddling film production, you are coddling Walmart..and that’s worse.

I don’t understand why this state continually wants to turn down revenue to the state. Regardless of what business it is. The Economic Development Office in this state doesn’t understand Film Production, so they choose to be adversarial to the industry in general.
People will come to locations they see in films, because it intrigues them, they want to see where FIELD OF DREAMS was shot. Build it they will come…We need to not be so short sighted here. If you fear what you don’t understand, you’ll never see the benefits of the industry to Missouri economy.

Comment by Pam Garrett — December 14, 2009 @ 8:23 p.m.

1) the fact that opposition exists to your arguments is not an inidication that the opposition is wrong because they argue “plausibly and persisitently.”

You are arguing just as vehemently. By your suggestion one would be forced to question your motives as well.

Let’s talk about the real issues, please.

Bastiat’s parable is still not applicable. It deals with the circulation of a finite amount of money ALREADY existing in a community and how to distribute it amongst the community. It does not take into account an industry that brings money into the community from an outside source and you have still failed to recognize the scope of the community that the new money reaches.

Not every parable or theory applies to every situation. The film industry did not exist when Bastiat was alive. Theories expand and change to accommodate the changing times and industries.

Let’s talk about hidden costs. The word “hidden” refers to the unknown, and by definition, unknowable, otherwise they would no longer be unknown.
Whatever the money is spent on, there will be hidden costs.

This is not just a opportunity to combine your econmic and french majors. http://twitter.com/idiosynchrissy

Comment by joe collins — December 14, 2009 @ 9:15 p.m.

spending the money on another project while ignoring the local film community leaves the film community as a hidden cost. A lost opportunity.

2) the demand is there. Filmmakers want to come to the state to shoot their projects. As Ms. Garrett has pointed out there is a shift in film making from California studios to location shooting. Missouri should invest so they don’t lose more money to other states and countries. Money going somewhere else is money lost for the state of Missouri.

3)I don’t think I could possible state it better than Ms. Garrett, so I won’t try. The state benefits with new and more money coming in. The tax incentive IS a commodity used in trade to attract new business and money.

4) No, an individual film does not result in permanent jobs, but attracting filmmakers throughout the year most certainly will. Her plan for a “NO CAP” tax incentive will make that happen. Again, “NO CAP” does not mean money continuously pouring out of the state, but rather opening up the opportunity for more films to come and spend production money BEFORE receiving any tax incentive. It just means that MO will no longer limit how many films can basically shoot here in a year. But it will still maintain a positive flow of money into the state.

5)Every state has unique advantages to filmmaking with it’s own landscapes and attractions unlike any other state. Sadly, those attractions aren’t always utilized because of lack of financial incentives. I have no idea why Austin Powers did not shoot in England. Perhaps they wanted to, perhaps they would have liked an actual english countryside, but maybe England did not have enough financial incentive forcing them to make said joke.

Also, the Michigan economy is in the dumps because it “focused” its resources into “what it did best” and unfortunately has found out over the last 30 years that somebody else did it better. It was not the film industry that brought the economy down in Michigan, but rather it may be that the state’s choice to invest and diversify into the film industry is keeping it from getting worse.

6) All industries are “infant” at one point or another. No industry has sprung fully formed. Also, the fact that the film community uses tax incentives to entice new money does not make it necessarily infant, but rather innovative and diverse in the way the state chooses to invest and grow its economy.

Chris, you are allowed to believe whatever you want. That’s what’s great about the country, BUT you don’t have to necessarily agree with someone in order ACKNOWLEDGE that their argument is still valid.

For example, YES, the money can be spent in other beneficial ways as well. There are lots of beneficial ways to spend money all of which may or may not have hidden costs.

But, you should acknowledge that spending it in the local film industry is one of those ways. The local film community has a legitimate claim to that 4.5 million. Acknowledge that what they have done by bringing a large amount of out of state money into the state with their trade is beneficial for a large amount and wide variety Missourians.

And again, it does not favor one particular group (ref: Mr. Rutherford, Ms. Cacciatore) or even location. Up in the Air was shot in Saint Louis, but it pulled people and resources from all over the state including K.C, Columbia and Springfield. Also, the next film project might very well shoot in one of those locations. Such as “Last Will” – K.C, “Winter’s Bone” – Springfield and “Saving Grace B. Jones” – Booneville.

It is a versatile industry that has a unique ability to add anywhere from a few hundred thousand dollars to even more than 12 million to any part of the state in any variety of ways.

It is an option that should be heard AND SERIOUSLY CONSIDERED by the state government as a way to further improve the state economy.

Comment by joe collins — December 14, 2009 @ 9:55 p.m.

An excerpt from a post by Senator Wayne Fontana of Pennsylvannia:

“New businesses have begun or expanded because of the business that the film community brings – including Shooters Post & Transfer located in Philadelphia that has invested $2.5 million to upgrade its visual effects division; Location Lighting, Inc. of Oreland has utilized products and services from businesses in Jonestown, Leesport and Elroy; two new studios are being constructed in Pittsburgh; and over $155 million is being invested in three new studio projects in Southeastern Pennsylvania. These are just a few examples of businesses that are retaining jobs and creating new jobs, as well as new businesses that are opening in Pennsylvania because of the Film Production Tax Credit.

“We are building a new industry in Pennsylvania. Community College of Allegheny County has developed curriculum to train students for local jobs needed by the film industry. The program has been modeled after a similar program offered by Oakland Community College in Michigan which has been utilized in films such as “Gran Torino” starring Clint Eastwood. Membership in IATSE 489, the studio mechanics union for Pittsburgh and the surrounding area, has more than doubled since July 2007.”

Comment by Econdiva — December 15, 2009 @ 7:20 a.m.

New York Time article on the Michigan’s film program:

http://www.nytimes.com/2009/09/09/realestate/09film.html

Comment by Econdiva — December 15, 2009 @ 7:23 a.m.

I think the Economic Impact Report for ‘Up in the Air’ puts all of Ms. Harbin’s misinformation into real perspective: Film Tax Credits cost less than the money that the film industry brings into the state. Please read the report by clicking the link below.
http://ded.mo.gov/researchandplanning/pdfs/up_in_the_air_final_report.pdf

Comment by Cat Cacciatore — December 16, 2009 @ 7:01 a.m.

The report does no such thing, Cat. The film took $4 million in tax credits. It generated $5.3 million in wages (according to the report), so that leads to state income taxes (6%) of $318 thousand. Assuming that every bit of the $12 million that was not wages was spent on taxable goods and services, at an average combined state and local sales tax of 8%, that leads to sales tax collections of $536 thousand. So now we are at $854 thousand in tax revenues generated, which we will call $1 million because of the higher sales taxes on hotels and rental cars, which are a portion of those expenditures. So $4 million in tax credits generates roughly $1 million in tax revenues, which means that Missouri taxpayers subsidized the entire operation by about $3 million.

Even if I gave you all the presumed credit for economic multiplier effects, which, as has been noted elsewhere is lower for the film industry than for many others, you still come nowhere near $4 million. The people commenting here should just admit that they like the film tax credit because it directly takes tax dollars from other people for their benefit. At some point in our lives probably all of us will benefit somehow in that way. But that does not make it right, and it does not make it good economics.

Comment by David Stokes — December 16, 2009 @ 10:25 a.m.

I would just like to thank Cat, Econdiva and others for pointing out the problems with Chris Harbin’s way of thinking and for providing the necessary information to correct her misunderstanding of the tax incentive.

I just hope that people such as Steve Walsh and David Niklaus are continuing to read this blog so that they are provided with such information as well.

And also that the Columbia Missourian gives equal space both in the printed press and on the internet for these arguments that show the benefits of the film tax incentive.

Comment by Chris Reams — December 16, 2009 @ 10:27 a.m.

None of the commentors have yet made a compelling case that it is the film industry rather than any other industry, that we should use tax incentives to attract. Any business will spend money to buy supplies and employ people, and will create a product that people want to buy. I understand that film making is glamorous and that a lot of money gets spent, but we are performing zero-sum competition with other states to attract filmmakers in order to employ Missourians with special skills used in the film making industry: what about other Missourians whose special skill is not particularly applicable in this state (without tax incentives attracting an employer)?

There may be benefits to lower taxes in general in order to attract businesses that would otherwise locate in other states, but let the businesses decide whether to locate here based on the comparative advantages the state offers in terms of employees and other resources: not based on our choosing a particular industry to favor.

Also, let us please, please consider the costs. Other businesses in Missouri also employ many people (approx 2.7 million people) and spend a great deal of money on supplies and salaries. That money also multiplies out into the economy when it is spent by the people whom they pay it to. Yet these businesses pay taxes and do not threaten to relocate to another state without a special tax break to keep them here.

If other states wish to subsidize film production, we get the benefits of a finished film, and pay only the cost of admission. We get to sell our ice and other supplies to someone who pays taxes and employs our residents in other, productive, tax-paying industries.

Comment by Josh Smith — December 16, 2009 @ 10:42 a.m.

I want to point out that the chief attraction of the film industry seems to be that a lot of money is spent upfront, as opposed to over a long period as happens with other businesses. This is largely a result of the structure of this particular industry. Let me give a rundown. An artist wants to make a movie and takes his script to a film studio. The studio pays a lump sum of investors’ money, taking an immediate loss often in the millions of dollars, with a hope of a positive return in the long run. Not all films make money, but most do. The return on their investment happens some number of years hence when the total revenue from ticket and DVD sales recoups their initial investment plus some, thus closing the loop. Most businesses do not work this way. If you own a tractor manufacturing plant, you are constantly, year-round buying the raw materials to manufacture tractors, as well as paying the salaries of your factory workers and engineers year after year in order to produce tractors to sell. Someone else in the economy procures the materials, and you buy them, thus multiplying your tractor revenues throughout the economy.

All of business works this way. You employ factors of production (typically workers, machines and raw materials), and pay for them with the revenues from the stuff you produce. Film is a little different. Almost all the costs are upfront, and once it is produced it can be resold 100 million times with very low marginal cost.

The attraction, then, seems to be that “we want to be the state where that initial windfall is spent.” But other industries provide jobs and money coming in, it just happens over time and far less visibly. The windfall of movie studio dollars is what is seen. The many other employers toiling to bring a product to market while paying their taxes and employing 90% of the population of this state seems to be what is not seen.

Comment by Josh Smith — December 16, 2009 @ 11:10 a.m.

Leap-frogging off Josh’s last comment: The revenue from a film, garnered after production, usually (if it’s successful) exceeds the amount spent during production. This money is not spent in Missouri, but wherever the film investors live and decide to next shoot a film.

Whereas permanent tax cuts to businesses attract businesses and employees to Missouri. These are dependable jobs, and the salaries and profits are spent (for the most part) within in Missouri.

If you want to argue about the “multiplier effect,” why don’t we create permanent jobs in MO (and have much of the profit spent here) by lowering taxes across the board?

Comment by Caitlin Hartsell — December 16, 2009 @ 12:39 p.m.

[...] tax rebates from $4.5 million to $10 million. Although I’m getting bored of blogging about the production incentives program in Missouri, I want to refute the specific points that Hunt made in [...]

Pingback by State Policy Blog » Blog Archive » The Lesson Applied to Film Production Incentives — March 4, 2010 @ 5:48 p.m.

December 14, 2009