Subsidizing Hollywood, Shortchanging Taxpayers

The allure of Hollywood is almost irresistible. Everyone wants to see a movie star up close. Everyone dreams that they might someday be in the movies, if only as an extra. When the movies come to town, it somehow validates your community as a special place.

The movies have come to Massachusetts in a big way. Tom Cruise and Mel Gibson were here recently. It seems that every week there is another story in the news about the success of the film production tax credits enacted by the Legislature in 2007. Hundreds of good high-paying jobs! Hollywood east! There is even serious talk about building one or more movie studios here.

What the fawning press fails to mention is the cost to you, the taxpayer. Movie producers are eligible for a 25% tax credit. Don’t confuse this with a tax break. Movie people don’t pay any sales tax – that’s one of the minor perks of doing business here. A tax credit is like an IOU from the taxpayers. For every dollar Sony or Fox spends, they get an IOU for twenty-five cents. When they spend $20 million on a big-name star, you shell out $5 million. That actor doesn't spend his or her money here; he takes it home to California. While here, the studio puts him up in fancy hotels and the taxpayers pick up 25% of that tab too. The same deal applies to TV shows and commercials shot here.

According to the Massachusetts Department of Revenue (DOR), we spent $113 million in film subsidies last year. What did we get for our "investment"? Only 1,076 full-time equivalent (FTE) jobs for Massachusetts residents and $17.5 million in new tax revenue. In other words, for every dollar we spent on film subsidies we lost 85 cents. By the way, this includes both the direct and indirect economic "benefits" including spin-off jobs in other areas. To look at it another way, each job going to Massachusetts residents cost taxpayers $88,754. Unfortunately, according to the DOR, the average film salary paid to Massachusetts residents was only $67,775. Each job costs taxpayers $21,000 more than it actually pays! These are not full-time, permanent jobs. Workers hoping to make a living in the film industry must string together a series of temporary jobs (to create a full-time equivalent job, or FTE) as they move from project to project.

It gets worse. This represents not the cost to acquire these jobs, but the cost to rent them for just one year. Once film tax credits are ended or substantially reduced, film production will shift to other states offering more generous benefits. There are currently 15 states offering subsidies of between 20 and 29% and 8 states offering subsidies of 30% or more -- topping out at 50% in Iowa! (See Massachusetts Reports)

The main beneficiaries are the mega-media conglomerates that dominate the world of film and television production. Their lobbyists and proxies have convinced public officials in 43 states to subsidize their projects with taxpayer money. (Production Incentives by State)

These subsidies are aggressively tracked and marketed by the film industry. Taxpayer subsidies are now a significant source of funding for film projects and have become a major (if not the major) determinant of shooting location. In this industry-driven competition among the states there is a race to the bottom. According to a recently released report, NY (in spite of having studios) lost $750 million in film projects to CT and MA in 2006 due to subsidies. (Studies Commissioned by Film Industry Supporters) As a result, NY increased their subsidies to 35% in NYC and 30% elsewhere in the state. Given the aggressive way these subsidies are marketed by industry supporters, it is unlikely that Massachusetts, or any state, can build a sustainable film sector. (See Incentive Office Guide to Incentives and The Incentive Office)

The benefits of these public subsidies flow to just a handful of giant conglomerates that dominate the industry. They own, among other interests, the member companies of the Motion Picture Association of America; Paramount Pictures Corp., Sony Pictures Entertainment Inc., Twentieth Century Fox Film Corp., Universal City Studios LLP., Walt Disney Studios Motion Pictures, Warner Brothers Entertainment Inc. These giant media conglomerates are:

Sony
Viacom
General Electric
Time Warner
The Walt Disney Company
Newscorp

The media holdings of each of these companies can be found in Who Owns What.

More on Film Tax Credits

Independent Evaluations Conducted for State Governments
These studies were conducted for and by state governments for the purpose of evaluating the impacts of film subsidies. For the most part they attempt to account for direct and indirect benefits as spending circulates through the economy.
(Read More)

Mass DOR Reports
The Department of Revenue (DOR) is required by law to issue an annual report evaluating the impacts of film incentives. The 2009 report shows that the figures for 2008 were even more alarming than were originally estimated in 2008. Spending was $113 million, net revenue generated was only $17.5 million, or a loss of 85 cents for each dollar spent on film subsidies.
(Read More)

Plymouth Rock Studios - Trojan Horse
Proponents argue that we can turn the film industry into a sustainable sector of our economy by attracting investors to build movie studios here. Nothing could be further from the truth.
(Read More)

Studies Commissioned by Film Industry Supporters
Supporters of the Film industry have responded to the critical evaluations of state officials by commissioning studies of their own.
(Read More)