By: Steven Russell
What do Iron Man, Transformers 3, and Oz: The Great and Powerful all have in common? The answer: taxpayer dollars. That’s right; add motion pictures to the growing list of industries subsidized by the government. In the past decade, government subsidies to the film industry have increased dramatically. In 2002 only five states provided subsidies to the film industry. Today, forty-five states, Washington D.C., and Puerto Rico all offer Motion Picture Incentives (MPIs) through a combination of tax credits, cash rebates, grants, and other special treatment for film studios in order to encourage movie producers to shoot films in their backyards. And the price isn’t cheap. The average state spends over $31 million on MPIs each year—that’s enough money to pay the salaries of 630 teachers in each state. Although many legislators believe subsidized films provide job growth and a justifiable boost to their economies, they are mistaken. Motion picture incentives impose needless costs on states and society as a whole, and are especially wasteful in these difficult economic times.
Study after study by economists has demonstrated that film subsidies do little to create permanent jobs and spur local economies. Both the Tax Foundation and Center on Budget Policy Priorities, groups which rarely agree, found that the vast majority of spending associated with subsidized films–as much as 84 percent–goes to out-of-state employees and businesses that possess the specialization lacking in local areas. Estimates also suggest that the government captures a mere 16 percent of the subsidies’ cost through additional taxes generated by in-state spending related to the film, meaning film subsidies do not “pay for themselves” as many supporters claim. Film subsidies do not create long-term jobs or a permanent film industry in a state. The average in-state job created by a subsidized film lasts an average of only 23 days and, as has been demonstrated by the gradual decline of films produced in California, film producers merely hop to whichever state offers them the best subsidy. Budget-conscious states must subsidize films indefinitely if they want to keep the industry. The limited benefits of film subsidies simply do not justify the costs.
Even more troubling, film subsidies encourage waste and corruption. Naturally, film producers take advantage of government subsidies in every way they can. An audit of MPIs in Iowa found that subsidies were used to purchase Range Rovers. Producers specifically changed their contracts with employees to milk the subsidies as much as possible, costing each Iowan as much as $121 over the short three-year lifespan of the program. Not only do film subsidies give rise to lobbyists that constantly pester the government for political favors, but they also encourage illegal activity as well. Serious cases of bribery and corruption have already surfaced in New Mexico and Louisiana, causing previously optimistic legislators in those states to question whether film subsidies are worth continuing.
Finally, film subsidies have no overall effect on economic growth from the perspective of society as a whole. When a movie is produced in North Carolina rather than California, the jobs that would have been held by Californians are simply taken by those in North Carolina, leading to no job growth in the country whatsoever. It would be better for everyone—except perhaps the film industry—if tax rates were lowered across the board and kept at a stable level. This would encourage all industries to be located in the state that offers them the best advantage in terms of resources, people, and geography rather than arbitrary government subsidies or tax rates. Allowing industries to be located in the most productive places possible boosts the economy and creates permanent jobs.
Overall, film subsidies fail to boost the economy or create jobs, fostering unproductive lobbying, waste, and political corruption instead. As always, the government should not be in the business of picking particular winners and losers in the economy, but should leave such matters to the free market.