Film Subsidies

How Much of That Oscar Statue Did You End Up Paying For?

Governments do their job of propping up the rich


The swords are used to lop off parts of their tax bills. (Unseen: The statue that subsequently passes those parts out to taxpayers))
Credit: ebbandflowphotography / Foter / CC BY-ND

It doesn't matter whether or not you saw any of this year's top Oscar-nominated films. Depending on what state you lived in, you may have paid for it anyway. At the Economic Intelligence blog of U.S. News & World Report Matthew Mitchell points out that each of the top films has received huge tax credits or subsidies (both in the United States and the United Kingdom) and provides a fine list of reasons why these are such bad deals for taxpayers, presented in award show format:

1. Best economic argument  film subsidies don't work as advertised: Film companies and their lobbyists have sold these schemes to some 45 states on the grounds that subsidies and tax breaks today will somehow "pay for themselves" through more revenue tomorrow (call it M.C. Escher economics). But if this sounds too good to be true, that's because it is. As my colleague Adam Thierer has noted, eight out of 10 studies of the subject find that these schemes lose more revenue than they generate. The two studies finding positive effects were both paid for by state film offices.

This finding is consistent with a large literature on firm-specific or "targeted" economic development strategies. As a recent study puts it, "the wisest course of action for most cities would be to eschew particularized development incentives, especially those that require tax expenditures."

2. Best supporting economic argument  film subsidies encourage unsustainable economic models: With its abundant sunshine, Florida is ideally suited to the production of citrus; and with its large concentration of engineers, Silicon Valley is ideally suited to the production of advanced technology. These comparative advantages may change as tastes and technology change. At least for now, however, it makes sense to grow oranges in Florida and to develop technology in Silicon Valley. That's because these economic models are based on what economists Frederic Sautet and Pierre Desrochers have called "regional realism."

The fundamental problem with targeted economic development incentives is that they attempt to foster fundamentally unrealistic economic models. If film producers in your state do not have a comparative advantage in producing a particular movie, they shouldn't be producing it. Policymakers are building unsustainable economic models when they incentivize the development of an industry that cannot survive except by dint of its government-granted privileges.

There are seven additional arguments that follow. Read them all here. A list of subsidies/tax credits for the top-nominated flicks can be found here.

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  1. Serious question: Do the cinematic computer games get subsidies? They’re often bigger in terms of budgets and in revenues than films, after all.

    1. Yes. Actually, sometimes they are able to qualify for the same tax credits and compete with movie studios for them.

      1. Crap, I was hoping they weren’t, so we could compare and contrast.

  2. Policymakers are building unsustainable economic models when they incentivize the development of an industry that cannot survive except by dint of its government-granted privileges

    I’m pretty sure most of these productions could easily survive without tax breaks and government privileges. But why would they when they can get free money from the states?

    1. Well, if you use Hollywood accounting, no movie ever has made any money. At all. No, really, it’s right here in the books.

      1. Oh, I am fully aware of Hollywood “accounting”. But it doesn’t change the fact that they were making tons of, uh, “profitable” movies and TV shows before they were getting any kind of breaks or subsidies.

        It’s funny because it’s LA’s and California’s skimming off Hollywood that caused this phenomenon in the first place, since places like British Columbia started realizing that if they offered some kind of incentive, the productions would immediately move out of LA to avoid all the hassles and costs.

        1. This is why I asked the gaming question above. Games are becoming at least as big as movies, yet I suspect they aren’t subsidized, at least not to the same extent.

          1. Games don’t need to shoot on location. One greenscreen warehouse is as good as another.

            1. That’s true enough, but budget-wise, they’re about the same as major movies (for major games, of course) and often use a considerable amount of voice talent.

              It’s not a perfect parallel, no, but gaming is close enough to contrast with film, if the former isn’t subsidized and the latter is.

              I believe gaming is still not all sorted out as far as the various guilds are concerned, which is an advantage for the game companies, if still true.

              1. See my answer above. The New York Times did a piece on them sometime last year. I don’t have a link but I think it’s easy to Google.

                1. Oh, dear Zeus was I off-target. From the article:

                  Those tax incentives–a collection of deductions, write-offs and credits mostly devised for other industries in other eras–now make video game production one of the most highly subsidized businesses in the United States, says Calvin H. Johnson, who has worked at the Treasury Department and is now a tax professor at the University of Texas at Austin.

                  Not that I trust anyone from Treasury, but I’ll assume for the moment that it’s at least partially true. I think the article is also suggesting (only skimmed it) that accounting ju-jitsu to avoid taxes is a “subsidy,” which, of course, is nonsense.

                  1. So you’re saying Kurt Schilling had to be a special kind of stupid to lose $16M (or whatever the number is) opening a game studio?

                    1. What I don’t get is why an industry with its kind of profits “needs” subsidizing. What is it with entertainment getting so much government help in this country, when, all told, it’s one of the more profitable industries?

                    2. Politicians like to rub shoulders with celebrities. So, if they can get Clooney and Damon to come to Louisiana for their next film, the local politicos will go down to the set for a photo op.

                    3. “What I don’t get is why an industry with its kind of profits ‘needs’ subsidizing.”

                      Because it’s your money, and I want it. It’s really that simple.

              2. Sometimes they get $75 milion loans, and then go bankrupt.

                1. Other than former baseball players, are any “indies” getting the special treatment – or is it just EA Games and the like? Because I play mostly indie games and those folks are not pulling in a lot of money and they’re sure not getting tax dollars.

                  1. Small companies rarely have the lawyer muscle needed to exploit loopholes, regardless of industry.

                    1. I marvel at all the shit small business owners, indie developers, and the like put up with. I would probably blow my brains out before I had any chance to be successful.

        2. Florida has thrown a bunch of cash at Hollywood and it “works”. I mean, now we’re not all Cubans and Puerto Ricans shooting each other over drugs. Now we have white trash made good (Burn Notice). So the exposure is working!

          1. Hey, sure, Michael is white trash. But watch what you say about the Chin.

            1. The Chin man is not the issue here, dude.

              1. Campbell is always at the center of any debate.

  3. Now Hollywood is actually lobbying in Sacramento to try and reduce the tax burden it pays (not for anyone else, just them). In 2013, of the 30 highest budgeted films produced, only 2 of them were shot in California. Additionally, the number of 1 hour TV shows shot in CA has fallen by over 60%.

    I find the chutzpah of Hollywood to be staggering, since they are largely liberal and have been fine with all of the spending the state has done on the back of taxpayers in the past (We Californians have averaged in the top 5 of state and local tax burden for 30 years), but now that it’s affecting them, it’s bad for only them.…..t-looming/

    1. Some animals are more equal than others. I thought we’d established that.

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