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The Hidden Cost of Tax Incentives (or, Be Careful About Inviting Hollywood to Your State)
Lights, subsidies … influence!
I recently had an eye-opening experience. My state is a leader in offering tax credits and incentives to the entertainment industry, and I attended an event promoting and defending these incentives. They had a state senator who spoke on the incentives’ behalf, and told the crowd that they needed to fight to have a place at the table (or trough, though he chose not to use that word). His background was in the auto industry (I presumed, in dealerships) and serving the entertainers feeds his family, just like making films and TV shows feeds theirs. So, “get down there and fight for your interests,” he said.
Another speaker then recounted some recent business and reported that the group had sent a letter to the governor, which he proceeded to read to the room. The governor had, at the time, been considering a religious liberty bill. This letter merely reminded him of the negative economic impact that would follow if he signed it: Many current films and shows, including well-known blockbusters, would move their production elsewhere. Companies like Apple, Disney/Marvel, AMC, and others had all threatened to pull their business out of the state if this law was enacted. He also warned that the Koch Brothers had a SuperPAC that was coming to the state to lobby against the tax credits. This brought hisses and murmuring at the mention of their name, of course. As you’ve likely heard, Georgia Governor Nathan Deal subsequently vetoed the bill.
Aside from that weird emotional reaction that you have when you realize that you are standing in a crowd of people who would instantly condemn you as a bigot (or worse) if they knew your opinion, I had another thought. If a state is going to court specific businesses and industries like this, then it needs to think carefully about the consequences. When you invite them in, exempt them from taxes and regulatory burdens, encourage them to put down roots and employ many thousands of people, and bring in many millions or billions in revenue, you need to realize that they will also exert their influence on your state. This is a conservative state, but the governor ended up fearing the culture and power of these interlopers more than he respected the prevailing culture and power of the majority of his own constituents.
There are arguments for and against such incentives for industry. But whatever one’s view, one must realize that when you lure powerful interests into your state, they bring their culture, their values, and their lobbyists with them.
Published in General
I have no problem with tax incentives for industry.
I have a problem with tax incentives for particular industries.
I don’t understand why a restauranteur, auto mechanic, or widget factory owner shouldn’t get the same tax considerations as a film or television producer.
I favor the ultimate tax incentive for business, no business tax. Otherwise, lets make it as low and flat as fiscally possible.
States often do make lousy deals with Hollywood. The attraction isn’t glamour. A film production is a Cargo Cult incarnate; outsiders come in, spend tons of money, and disappear. They make no demands on the local school system, pollute no landfills, and generally bring their own electrical generators with them.
Your state doesn’t fear the culture and power of these corporations.
Your state wants the money. Fear has nothing to do with it.
Well, that’s another way of saying the same thing. Fear has a lot to do with it…fear of losing their money and those jobs. But I think that fear of that culture has a lot to do with it as well. A lot of people are brought into your state to work in the industry, to make deals, etc. They bring their culture. You have been eager to show them how you are not a backwater, you are a cosmopolitan place, they can be comfortable working and living here. You need to now cater to that culture or they may pack up and leave and, of course, take their money with them. Thus, you fear them.
You fear not getting their money, so you do what they want. Sounds like capitalism to me.
It’s worth remembering that the modern system of film tax credits, among the greatest excesses of big government, was created by Gary Johnson, then governor of New Mexico, now the Libertarian Party Presidential nominee for 2012 and presumptive 2016 nominee. It’s the jewel in the crown of the LP’s total lack of principle or pretense at libertarian values other than pot appreciation.
Gary’s explanation is the charitable version. Less charitably, Johnson gave public money to support hobbies of his; he created big space subsidies, too. There are plenty of politicians who are happy to hand over tax payer money for the privilege of getting to hang out with celebrities and being mentioned in news stories about people more interesting than they are.
James points out that this is a wider picture: it’s not just Hollywood. How much money has Dixie spent “helping” northern industry relocate? How much taxpayer dough, directly and indirectly, did Kia/Hyundai get?
New Mexico, and to a lesser extent Tennessee, do back up his premise that in addition to economic issues, it’s fun to hang out with celebrities and see your state on television. For most states and cities, most of the time, it’s the money.
In theory, traditionalists have two options here: Retaliate. Boycott Hollywood. Deny their offices use of Georgia-Pacific paper products, etc. Warner Bros. has no constitutional right to have local business cooperate with them. You can turn them down. Georgia has chosen not to do so.
Or compete. I’m serious. Make your own movies, with your own values, and market them. If there are really so many people who care about this issue, you’ll build a business.
It’s capitalism when businesses do it. It has a different name when the state does.
One of my all-time favorite stories when it comes to tax credits for film companies involves a somewhat negative portrayal of my native South Dakota that was filmed in…Iowa.
http://siouxcityjournal.com/news/director-to-make-south-dakota-film-in-iowa/article_dab6a730-b80f-593e-beda-d6b506715195.html
Especially when the former are — essentially — being asked to subsidize the latter.
The only industries that should be subsidized are defense industries. World War 1 went on a lot longer because all the best clocks were made in Germany.
Ah yes. The free market of political patronage.
Somewhere Adam Smith just rolled his eyes.
I think as far as the TV and film industry goes, this issue will disappear. As more films and TV are produced for more distribution channels the power and allure of big TV or Movie production companies will disappear. The movie and TV beast is dying, or more accurately breaking into a million little pieces.
If it’s not the film industry it’s Intel, Whole Foods, General Electric, Dow Chemicals, and HP (some of the companies who threatened to pull parts of their business out of North Carolina for that state’s religious protection bill).
For any state that doesn’t already have some sort of RFRA protection in place, new bills probably won’t get past the governors desk because this will repeat itself.
Explain again why Democrats complain about the outsized influence of money in politics?
I see this is in my business all the time. A lot of people’s idea of success is just getting any deal done. Deals are hard and I have some sympathy with that. But when it takes years to see how deals work out (like when tv producers flex their veto power) it is a challenge to hold the proper people accountable if the deal was not a good one. I think that sets up a perverse incentive for deal makers.
You think that clockmaking should be subsidized?
Virtually every industry can be described as a “war industry”.
All those weapons require steel. All those uniforms require cotton. All those soldiers need to be fed.
I bet Bushnell would love a subsidy on binoculars.
Think of all the work Hollywood making propaganda and training films during World War II. What would have happened if all the best movies were made in Germany?
Did he refer to them as corporate welfare?
My response if fine. Pull out. Don’t make it here then don’t sell it here.
David French at NR has done a great job of cataloging the dismaying spinelessness of governors in red states on these issues. This particular episode gave me some appreciation for the pressure that they face. Especially if you have worked hard to lure someone to your state and you have counted on your success as a big feather in your cap or an enormous good for your state, calling their bluff takes some big pecans.
It is a good lesson then for conservative governors and a general object lesson for all: provide a generally favorable climate for business instead of targeted incentives and you are less likely to be shaken down in such a pointed and effective way. You will still be subject to shakedowns. You just may avoid facing one with such leverage over you.
#CelebrityLivesMatter
Restauranteurs and auto mechanics don’t get subsidies anywhere. Widget factories? Damn right they get subsidized, and in some cases my taxes help do the subsidizing. That’s how California keeps Tesla. The South is full of widget factories that got lavish tax breaks, paid by their own taxpayers. There’s nothing unique about Hollywood.
Personally I’d benefit if no states gave incentives. Then TV and film production would all return to where it really belongs, and the economic benefits of the entire nation’s entertainment industry would flow to Los Angeles County.
I don’t believe this. Why else would politicians invite movie stars to testify before Congress, or vote for tax subsidies for baseball stadiums? All signs indicate that they like to schmoozh with the Celebrity-Americans and their groupies, or at least not be disliked by them.
It is not true that they make no demands on the local systems. They are a disruption, and that disruption does not come for free.
I haven’t followed up on these Tax Foundation articles, but generally the economic benefit of these things is questionable.
It’s true that other industries are subsidized, too. I recommend that we play the populist card and start by eliminating those for the film industry.
I said local school systems, Reti. Unlike a new factory, hosting Hollywood location shoots doesn’t require planning new schools for worker’s children, water or sewer lines, the promise of a ten-year tax holiday, new roadbuilding, environmental impact statements, and the movie crews won’t be voting in future local elections.
That doesn’t necessarily make it a good deal. Some places are better at negotiating than others. Some places need the money more than others. What I objected to in the OP is the claim that “fear” and “power” are used to coerce poor little innocent states.
Well, I must have chosen my words poorly if that is what you got out of my post. Let’s use the word “influence” rather than those scary words “fear” and “power”. I’m not really faulting the Film industry for a little arm twisting. It is more the responsibility of the state to count the cost. Not sure how you thought that I was painting my state as a victim.
My point was mainly that a governor of a decidedly red state, elected as a “social conservative”, caved on an issue overwhelmingly supported by the people who elected him. This came under enormous pressure from, among other things, an industry that the state had courted vigorously to come and do business here. It just seemed to be a, perhaps, underappreciated aspect of the debate on such tax incentives. Be careful what you wish for. They bring their money and “prestige” but they gain influence over you when they accept your invitation.
Fair enough, Polyphemus.
Do you mean that states should impose legal barriers to interstate commerce or that it’s morally wrong for PayPal to make its services available to North Carolinians if it isn’t going to have offices in NC?