A Hollywood Ending

It appears that the growing economic crises the states are facing are concentrating politicians' minds wonderfully.  In particular, a number of states seem to be awakening to the fact that tax subsidization of businesses in the hope of increased jobs and revenues rarely if ever returns benefits that justify the costs.  Two recent stories illustrate this.  Both stories concern an industry that has proven especially seductive -- to wit, the entertainment industry.

First is the report from late last year that states are now beginning to cut back on the subsidies.  Michigan, for example, last year lured the producers of a prime-time show to film in Michigan.  The show, "Detroit 1-8-7," certainly did bring some publicity to that benighted city.  But at what cost?  The state gave the show's producers a combination of tax credits, low-interest loans, and outright subsidies amounting to $193,000 for every one of the measly 355 full-time jobs created by the program.  Rick Snyder, the newly elected Republican governor, intends to cut that lavish support, which in 2012 will cost the state about $150 million.

Both Kansas and New Jersey have simply quit giving tax credits to film production companies.  And Rhode Island has put a limit of $15 million on such subsidies (which is, in my view, $15 million too high).  And Wisconsin now caps its subsidy at only $500,000 a year.

Besides Kansas, Michigan, New Jersey, Rhode Island, and Wisconsin, a number of other states are giving film production subsides the gimlet eye, as the second story makes clear.  Arizona and Iowa have both dropped their film production subsidy programs.  Moreover, a bipartisan committee in Missouri has recommended dropping them as well.  And New Mexico and Pennsylvania are both reviewing their own subsidy programs.  Just-elected Republican New Mexico Governor Susana Martinez has proposed cutting $25 million from the state's film subsidy program in the face of the $400-million budget deficit she inherited.  And Pennsylvania Governor Tom Corbett is being pushed by the legislature there to cut film subsidies as well.

One of the things that really irks taxpayers is that the tax credits given to film production companies are often refundable.  This means that even if a production company winds up owing no state taxes at all, it gets a refund check anyway.  Worse, in fourteen states, the credits are transferable -- meaning a production company that ends the year owing no taxes can sell its credits to other businesses, often in secret transactions.

Some of the abuses of film subsidies that have come to light are beginning to wake up the taxpayers.  In Louisiana, a film studio owner was recently convicted of trying to sell nearly $2 million in bogus tax credits.  And acclaimed socialist "filmmaker" (read: propagandist) Michael Moore, who a few years ago criticized tax subsidization of the film industry, recently condescended to take $1 million in taxpayer dollars to make Capitalism: A Love Story.  Really, there is no term expressive enough for this, so I will resort to a neologism: it is hyper-ironic.

As always, there are a few oddballs who don't get it.  Florida and North Carolina recently increased their subsidies.  And California, even in the face of a monumental deficit -- one that exceeds the deficits of all the other states combined -- has chosen to keep its film subsidies in place.  But then, the state just elected the aging Governor Moonbeam for his third term.

Still, these are exceptions to a trend.  The big picture is fairly clear: the states, which in 2011 face collective deficits of more than $72 billion, are beginning to question the cost-effectiveness of the nearly $3.5 billion given to film/TV/commercial producers over the last five years. 

Now, studio executives -- like every other known species of rent-seekers -- argue that transferring wealth from average-income taxpayers to wealthy producers, directors, and actors somehow increases jobs on balance.  But critics reply with the point -- so trenchantly expressed by Frederic Bastiat over a century and a half ago in his classic essay "That Which is Seen, and That Which is Not Seen" -- that subsidizing employment in one sector of the economy lowers employment in other sectors.  After all, to get the funds that subsidize whatever industries the politicians favor, the politicians must confiscate money from taxpayers, who then have less money to employ others (either directly or else indirectly through their purchases).  Subsidies don't create more jobs overall -- they just shift them from one sector of the economy to another.

Of course, faced with no logical way to defend their subsidies, filmmakers often resort to ad populum and ad baculum fallacies.  The ad populum appeals take the form of commercials featuring famous TV or movie stars begging the public to surrender its tax dollars to support starving actors and studio execs.  For instance, when the Wisconsin legislature cut film production subsidies, TV star (in "Monk") and Wisconsin native Tony Shalhoub appeared in ads aimed at getting the public to pressure the legislature to change its mind.

The ad baculum appeals take the form of industry flacks telling the public in one state that unless it forks over its hard-earned cash, the film producers will move their operations to another state, or even overseas.  For example, Joseph Chianese, who advises the film industry on subsidies, intones archly that "[t]he industry is so mobile, it could go anywhere. ... [So if] you retract these incentives, a lot of new facilities will be sitting empty."

And producer Brian Oliver has one hand with palm upward but the other hand with fist clenched when he says, "If you take that [our subsidies] away, I think that production will leave the U.S."  He added that his production company couldn't survive without public money.  He made no comment about how much longer taxpayers could survive the current fiscal crises -- he is, after all, an artiste!

But in the face of cutbacks in vital services as state budget deficits soar, the prospect of shoveling millions in public funds to movie stars seems more and more dubious to taxpayers and their representatives.  This is just the beginning of what appears to be an economic epiphany on the part of the solons who rule us.

Gary Jason is a philosophy instructor and contributing editor to Liberty.
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