‘This is the unholy intersection of Hollywood and politics’

‘This is the unholy intersection of Hollywood and politics’

Elected officials feel they need to show they’re doing something about jobs, and what could be a bigger spectacle than a Hollywood crew shooting a new film in their state? There has been a proliferation of states offering to pay large parts of a film production’s expenses with taxpayer dollars. And there is also an ideologically diverse group of people — including the Mackinac Center — who think that’s a waste of money. I speak with Jacob Whiton and Greg LeRoy of Good Jobs First about our opposition to film subsidies.

“They make no sense,” LeRoy says.

Paying a large percentage of a film’s expenses — 25% or more, as some states do — is a huge expense.

LeRoy also notes that states only get ahead of each other by having their taxpayers pay more than those in other states. “New York says they’re spending $460 million, now we have to spend $700 million. Georgia has no cap, and it’s now at $1 billion. There’s no end to it. It’s a race to the bottom,” he says.

Lawmakers try to justify the expense as necessary to provide the economic benefits of film production. “So we have to take seriously the estimates of economic impact and weigh those against other forms of public expenditure that we know deliver much bigger bang for your buck,” Whiton says.

That is, you can pay for 25% of a Hollywood film’s expenses or you can fix some roads or spend it on education or any other government service. They both have broader economic impacts, and Whiton thinks it’s clear that there are superior alternatives.

LeRoy does, too, looking at other economic development programs. “Film incentives are so over the top, huge compared to other kinds of economic development incentives,” LeRoy says.

Lawmakers also fail to provide the kind of basic transparency over the film subsidies that people ought to get, like who is collecting their money and what movies and TV shows are receiving taxpayer funds.

“Georgia is the biggest bankroll of all, at about a billion dollars a year now. Georgia doesn’t even tell you which movies got how much money. They don’t even disclose the recipients, the production companies or the productions. It’s a complete black hole,” LeRoy says.

Film subsidies tend to come in the form of transferrable tax credits. Film production companies receive tax credits that are worth much more than any tax state liabilities that they have. But lawmakers allow the production companies to sell their credits to other taxpayers. “The film production company gets cash in their pocket and Walmart or the bank or whoever gets a dollar-for-dollar reduction in their corporate tax bill.”

“Good Jobs First has been regularly FOIAing [requesting documents through the use of the Freedom of Information Act] it from the State of Illinois,” Whiton says. “Between 2014 and 2021, 98% of the $540 million credits awarded were sold to someone other than the original recipient; 60% were sold to just five companies: US Bank, Walmart, Comcast, Verizon and Bank of America.”

Subsidizing films through tax credits also subjects the payments to different disclosure rules than normal expenditures. So, taxpayers wind up not being told who collects their money or how much they collect.

Despite the obvious problems of expense and intransparency, lawmakers find it compelling to offer film subsidies.

“This is the unholy intersection of Hollywood and politics,” LeRoy says. “Celebrities show up to lobby to get taxpayers to pay a big part of their expenses. “There’s a very personal, deep financial self-interest involved here,” LeRoy says.

“Somebody once said, if you have a big name, you can play a big game,” LeRoy says. “It’s true in tech. If you’re Microsoft or Apple or Amazon, what governor or mayor doesn’t want to stand next to your executive at a groundbreaking ceremony or issue a press release with you? In the same way, Hollywood has a glitz and glamor to it that people think is magic.”

Film subsidy proponents also pitch other doubtful benefits.

“We heard that this is a way to attract and retain young workers,” Whiton says. “And there seems to be a lack of appreciation for the impact relative to alternative ways to pursue that objective. Do we really think that this is the best way to attract young people to the state? Maybe improving the K-12 education system, something we know is decisive when people are making decisions about where to live, is a better way to revive population growth among young people in Michigan.”

LeRoy says that sometimes states eliminate their film subsidies, as Michigan did in 2015. “You had a budget crunch, which some states do, and they get rid of wasteful programs when they have budget crunches,” LeRoy says. “And you also had a scandal, right?”

Yes, some people exploited the state’s subsidies to build film studios for personal profit.

There is also opposition from people who notice the waste and ineffectiveness of film subsidies.

“Those of us on the progressive left and those of you on the libertarian right, we could almost write each other’s talking points about our criticisms of these programs. It’s obvious if you’re intellectually honest and look at these programs carefully, you just can’t defend them,” LeRoy says. “It’s the squishy middle, it’s the centrist Democrats and the business Republicans who just can’t resist it.”

“It was lawmakers who were most susceptible to anecdotal influence,” Whiton says. “We should really be trying to stress the importance of taking seriously the evidence we have when evaluating good and bad policy.”

“To the extent that we see progress, it’s because there are groups digging in,” LeRoy says. “We think disclosure is really important. If and when Georgia ever begins to disclose who’s getting those credits and how much they’re getting, we think there’s a good chance that lawmakers will shrink the program.”

“History teaches us that austerity forces states to make tough choices, including getting rid of stupid programs,” LeRoy says.

Check out the conversation at the Overton Window podcast.

Editor’s note: This piece originally was published by the Mackinac Center for Public Policy.

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