Corporate Welfare

Subsidies for Zombie TV Shows, Like Zombies Themselves, Prove Damn Near Impossible to Kill

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As children get ready to storm the streets in zombie and vampire costumes for Halloween, a state Senate race in Washington might hinge on whether the government should continue subsidizing the production of Z Nation, a SyFy channel series about a zombie apocalypse.

KXLY reports:

On one side is incumbent state Sen. Michael Baumgartner, a Republican who is working to keep his seat. On the other side is Democrat Rich Cowan, owner of North by Northwest, the production company that helped bring the Z Nation production to Spokane.

Cowan has been noted for helping bring hundreds of jobs to Spokane for the production. Baumgartner has fired back at Cowan with a radio ad that said those jobs were only temporary and at the taxpayer's expense.

"The way he makes his movies is there's a $7 million subsidy that the state gives to filmmakers to go out and make movies," Baumgartner said. "So every job Rich Cowan creates is actually paid for by the taxpayers."

The Washington State film incentive gives tax breaks to motion picture companies. According to the bill's roll call, Baumgartner voted for it in 2012.

The principled case against zombie subsidies is pretty straightforward. Just as the government shouldn't subsidize the production of, say, shoes, it shouldn't subsidize movies, TV series, documentaries, or media of any sorts. Governments that shirk the rule of law in favor of rule by favors lose public trust and suffer as a result.

If a moral argument doesn't sway you, then maybe a utilitarian one will. From a basic cost-benefit analysis, these handouts simply don't make up in economic gains what it cost taxpayers in the states. Several rigorous studies have examined whether subsidy programs create useful economic growth in-state. The answer: Nope.

 For instance:

Massachusetts did a study that found the overwhelming number of jobs generated by location shoots went to out-of-state workers.

College of Charleston economic analyst Frank Hefner found that of each tax credit dollar offered by South Carolina, just 19 cents came back to the state.

The Louisiana Legislature's chief economist, Greg Albrecht, reported that incentives were likely costing the state millions more than it was generating. "Does [the state] receive more tax receipts back, either directly or indirectly, than what we're paying out?" he wrote. "The answer is definitely no."

Meanwhile, critics of incentives were increasing. Economist Bob Tannenwald of the Center on Budget and Policy Priorities said "the revenue forgone via film tax credits has to be made up elsewhere, either in tax increases or spending cuts. Both depress the economy and cut off the incentive's stimulus effect."

In California, there was evidence that the number of film jobs created after tax incentives were enacted declined. TV and film production jobs went from almost 123,000 in 2004 to 107,400 in 2012. The state's legislative fiscal analyst reported twice—in 2010 and 2014—that incentives were of dubious value to the state. (It didn't help that they may have fostered corruption. Sen. Ron Calderon, a Democrat from California's 30th senate district, is under indictment for allegedly accepting money to try to expand the state's movie incentive program to independent producers.)"

The evidence against targeted benefits for specific interests or industries is not limited to the movie and TV industry either.

A recent study by George Mason University's Chris Coyne and Lotta Moberg shows that targeted benefits generally fail to achieve their stated goals whether they take the form of grants, tax credits, or subsidies. Among the major negative consequences that targeted benefits create are misallocation of resources, increases in lobbying and rent-seeking, increases in cronyism, and a bias toward large firms, say Coyne and Moberg.

With that in mind, let's look at just how much assistance states give away to private companies across the United States.

Spoiler alert: It's a lot. 

The following charts show corporate welfare is a significant problem at the state level, with New York leading the country in terms of total dollar amount (almost $22 billion) and the number of individual deals (70+). Washington state, home of the Great Zombie Subsidy Debate of 2014, clocks in at number two.

Mercatus.org

Just nine states account for a majority of dollars spent subsidizing private companies:

(For more information about the data go here.)  

There are different ways to cut the numbers, obviously. If we look at the total subsidy amount by state GDP for the years that the majority of each states' subsidies were awarded, New York drops to 19th out of 50. While New York had the highest amount of overall total benefits, the $21.7 billion in known subsidies only constitutes 0.23 percent of the roughly $9.5 trillion in total state GDP since 2006 (the year after which the majority of the states' known subsidies were dispersed).

In terms of subsidies per state GDP, New Mexico is the worst, doling out 2.24 percent ($4.1 billion) of its $181.4 billion state GDP since 2012 to targeted benefits to corporations. 

Regardless of we cut the data, one thing is sure: States are spending a whole lot of money catering to private businesses. And state corporate welfare is bipartisan activity. So much for Democrats being the defenders of the little guys and the Republicans claiming to believe in free markets. 

To bring it back to the state of Washington, it's worth mentioning that subsidies to TV shows about zombies aren't its biggest handout. The Evergreen State is, after all, home to Boeing, one of the very biggest corporate-welfare recipients by any accounting. The airplane manufacturer is also the biggest recipient of Export-Import Bank subsidies from the federal government. And it eats Department of Defense dollars the way that zombies eat brains: for every meal of the day and every day of the week.

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  1. Like anything with the word “zombie” on it needs a subsidy these days.

  2. It will work itself out…eventually the zombies will all starve as they vainly search Washington state for brains.

    1. Hey! Some of us live here!

      Oh wait…

      1. What are you talking about, Paul? We live in Seattle.

        Oh wait…

  3. Out of state workers don’t deserve jobs too? Veronique, you’re cold-hearted.

  4. Geoff Montgomery: It’s worse than horrible because a zombie has no will of his own. You see them sometimes walking around blindly with dead eyes, following orders, not knowing what they do, not caring.

    Larry Lawrence: You mean like Democrats?

  5. A tax break is not a subsidy. It’s more like a reprieve. The state is agreeing not to rob them.

    1. I used to think the same.

      Asking for a tax break, without a corresponding reduction in spending or without across the board tax break for everyone else, is like a potential victim of a robbing convincing his would-be robber to rob someone else instead.

      It would be much more ethical to just evade taxes than to collude with legislators for laws that favor only you or your peers.

      1. “Asking for a tax break, without a corresponding reduction in spending or without across the board tax break for everyone else, is like a potential victim of a robbing convincing his would-be robber to rob someone else instead.”

        The net effect may be similar but it is not the same. What if that victim convinced that robber to leave the victim alone by holding up a gun which lead to the robber robbing someone else? Is the victim responsible for that? Should they have not defended themselves?

        “It would be much more ethical to just evade taxes than to collude with legislators for laws that favor only you or your peers.”

        Because that wouldn’t force the government to raise the taxes on others to make up the difference?

        1. Because that wouldn’t force the government to raise the taxes on others to make up the difference?

          No, and this is the same as your first part, because you are not participating in the robber’s plans.

          The robber has certain rules he is following i.e. laws, and by crafting laws that favor you, without the reduction in taxes or spending for others, that necessarily implies it must comes at the expense of someone else.

          If you don’t participate in crafting those robber’s plans, you are not and cannot be “forcing” the government to steal from someone else.

          It’s the difference between a positive and negative action.

          1. You second part is equivalent to saying that it’s more ethical to steal the money yourself than to have someone steal it for you. A difference without a distinction.

          2. And your first response isn’t correct either. Asking for a tax break doesn’t force the government to raise taxes on someone else just like convincing the robber not to rob you does not force them to rob someone else.

            The robber’s rules are that he’s going to steal $50 tonight. You hold a gun up and say you’re not stealing from me. He then steals from someone else in order to obey his rules. Again, no difference in the two examples.

    2. It’s not a reduction in taxes (as if the movie industry paid taxes).

      Film & TV subsidies are computed based on your spending, not your tax bill, so as long as you spend the money in a state (it doesn’t have to go to anyone who lives in that state, it just has to be spent through a production company that’s established in that state) then the states will typically refund you 25-35% of your total spending.

      They’re called “refundable/transferable tax credits” but make no mistake, these are subsidies. These states are unwitting movie financiers covering a third of the cost of making a movie for no return on the profits (as if any movie can ever be shown to have made a profit).

  6. Are these actual cash subsidies from the State or just tax breaks? The former is a true taxpayer subsidy, the latter is not. It may be special treatment, but it’s not costing the taxpayer to allow the business to retain more of it’s profit.

    1. It still leads to a misallocation of resources because the true cost of the activity is reduced.

    2. They’re subsidies, they’re based on spending, not taxes, if you spend $100m in Louisiana, Louisiana will refund you $35m even though they’re probably only taxing you $5m at the absolute outside.

      Costs Louisiana taxpayers roughly $200 each every year.

  7. I see I am not the only one who is confused about what ‘subsidy’ means. Possibly it is different in each state, but this statement is telling;

    “the revenue forgone via film tax credits has to be made up elsewhere, either in tax increases or spending cuts. Both depress the economy and cut off the incentive’s stimulus effect.”

    Worth noting that he used the term ‘credits’ in his completely false statement.

    When dealing with these kinds of professional liars/cons it is nearly impossible to tell what is actually going on.

    *Many in the movie industry make pols look like paragons of integrity.

    1. It’s positively Orwellian:

      “Non refundable tax credit” = tax cut, it’s a reduction in your tax bill, but you can’t get back more than you put in.

      “Refundable tax credit” = subsidy, you get back a percentage (typically about 25-30%) of your total spending, regardless of how much you paid in taxes.

      “Transferable tax credit” = also a subsidy, but the mechanism of the refund involves a third party buying and selling the tax credit. Ultimately the tax money still leaves the state though (unless that state is California, where the movie/tv industry is primarily based).

      Whoever came up with the term “refundable tax credit” (which nearly all movie/tv film credits are) was a genius, because it disguises blatant corporate welfare as a tax cut, which it most certainly is not.

      1. There is zero doubt that refundable tax credits are a subsidy. But don’t call tax breaks and non-refundable credits subsidies (and you didn’t). Just like they’re not “expenditures” simply because they result in a larger deficit the same way truly increased spending does, all things being equal. It’s equivalent to saying that I made you taller by not chopping off your head.

        Targeted tax breaks which favor particular industries or asset classes are still wrong because they create an uneven playing field.

        1. Absolutely agree, but as I say, film & TV “production incentives” are invariably refundable or transferable tax credits because TV & movie companies typically have no tax liability outside of California.

          1. It seems this article was very poorly written as it was not made clear how the tax credits for films amount to subsidies. Come on Vero!

        2. Refundable tax credits are only a subsidy if the credit exceeds the tax.

          1. Which they always do, unless you think a movie production pays 25% of it’s budget in taxes.

            Even California hasn’t enacted a tax of 25% of gross revenue (not profit).

  8. So the state could have extorted money from some source but didn’t, however the money they could have stole is now considered a debt owed to the state and they (the state) are now justified in stealing it from someone else.

    have I got that right?

    fuck these asshats.

  9. This article uses faulty logic.

    If they didn’t give the tax breaks in WA, the film would have been filmed somewhere else… and there would have been no tax revenue from it anyway, as well as losing the jobs.

    Tax breaks are only equivalent to subsidies, if the same amount of the taxed activity would still have taken place even without the tax break. Which is basically never true.

    1. What if the subsidy is several times larger than the tax revenue it generates?

      The argument that “x% of something is better than 100% of nothing” is predicated on the idea that the “something” is a positive number.

      1. And also completely misses the opportunity cost of the activity. It’s all just broken windows.

        1. Either it’s an in-state company with in-state workers (and thus all the money stays in the state’s economy) or it’s an out of state company whose opportunity costs the state doesn’t have any reason to care about.

          Sure, Touchstone could have invested the money in a soap factory in IA instead of a zombie movie in WA, but why should WA concern itself with the lost soap factory?

          1. The opportunity cost is to the state, or more appropriately the taxpayers, not the movie company.

      2. Even if zero tax revenue is generated it may be a good deal due to the jobs created. Even if the direct film jobs are given to out of staters, they do spend money while in the state.

        My point is that there would definitely be zero tax revenue from a film if it doesn’t get made in your state. Now if the state is actually paying money, beyond zeroing the tax, to the filmmakers that could be a problem, but there’s no indication that’s happening here.

        1. Which is still wrong. I can conceivably come up with a positive tax justification for breaking a window and the resulting labor. That misses the fact that real wealth was consumed in the process which could have been used elsewhere–potentially much more profitably.

          1. Take sports stadiums as a prime example. They do not net out for the community. Films are no different.

            1. Films are worse.

              A typical film subsidy caps out at $25m or so, for which the film allegedly spends $100m in the state.

              I say, allegedly, because if there’s one thing that movie studios do well, it’s inflate costs on paper, they pay themselves money and then deduct it from their expenses.

              That’s why Return of the Jedi still hasn’t officially turned a profit, it’s why Peter Jackson had to sue for his cut of the Lord of the Rings profits because they were all, on paper, monstrous losses for the studios.

              So, you pay a movie studio $25m to come shoot a movie (which takes about 2 months), in exchange you get 200-250 full time staff, most of whom likely live in LA anyway and you get 3-4000 extras who get paid minimum wage to mill around in the background of crowd scenes, but who are very useful at filling up the minimum percentage hire of locals roster.

              So yeah, when these movies say they create 4000 jobs? Only around 200 of those are real jobs and there’s no guarantee that any of them be filled by locals, and if they’re not locals, then their money leaves when they do.

              At least football stadiums are stationary.

        2. No indication? It happens on every single film production, you can’t refund someone over 7x the amount they’re paying in taxes and expect to get that back.

          … that goes double for an industry that’s turned tax evasion into an art form.

          Every independent study shows that film subsidies are a losing proposition, only the MPAA funded studies show a net gain.

          Funny that, isn’t it?

          1. There’s no such thing as an independent study. Every study is dependent on someone.

            1. Fine, every study independent of the people who benefit from the subsidies.

              Every study by someone who wasn’t funded by a direct recipient of the subsidies has shown a net loss to the states that’s borne by the state taxpayers.

              Louisiana’s film subsidies cost every single resident of that state $50 a year, and almost all of it goes to out of state media companies, who, curiously enough, nearly always spend JUST enough money to hit the refund cap.

              Handy that, isn’t it?

  10. Just to reiterate the point that these are not tax cuts with some rough figures (I’m going from memory here, but these are all public figures).

    In 2013, Media Rights Capital (based in Beverly Hills, Ca) paid the state of Maryland roughly $110k in taxes during the production of House of Cards season 2.

    In exchange, Maryland “refunded” MRC $16.7m.

    That’s not a typo, the tax “refund” was 160x times the initial tax bill – because the tax credit was based on roughly 25% of the show’s $65m budget.

    Now, obviously that doesn’t include income taxes on the salary of the cast & crew, so let’s assume everyone paid the MD maximum income tax rate of 5.75% and let’s assume that ALL of the show’s budget goes to taxed salaries (which it likely doesn’t, but this is a best case scenario), MD recouped maybe $3.75m of that $16.7m, the rest left with the cast & crew who primarily don’t live in Maryland.

    … that still wasn’t enough for MRC incidentally, who threatened to move production to Chicago unless MD coughed up even more money, which is really the fundamental economic (never mind ethical) problem with these subsidies.

    Once you’ve attracted movie & TV shows to your state (or country, Canada, the UK & New Zealand are also major offenders when it comes to film subsidies) you have to keep paying them the subsidy or they’ll simply leave and shoot elsewhere. Such is the fickle (and highly mobile) nature of the entertainment industry.

    1. And none of the people working on the film spent any money in Maryland, the production didn’t buy any supplies in Maryland, etc. ?

      1. Plus multipliers!

        But seriously, they do, but that’s just another 7% of what they spend. Still seems like a losing proposition.

        1. You know, for a bunch of libertarians, you guys seem to only care about how much money the government gains in the deal.

          I’m talking about the money that private companies and workers in MD make off of the film production’s spending.

          1. Which is in part just a redistribution of the tax money they were given by the state. Exactly how libertarian is it to have the government picking winners and losers? Why should a movie company not have to bear the full cost burden of their activities while a neighboring factory or bakery or daycare does? Hell, it’s not even an asset class we’re talking about here; it’s a single industry.

            this isn’t about how much money the government makes. This is about a lack of equal treatment due to special carve outs, i.e. crony capitalism.

            1. Bakeries and day care centers can’t threaten to move elsewhere, that’s why. They don’t have negotiating power. I thought that’s what libertarianism was all about.

  11. I wish these graphs were larger? I can barely read them.

  12. The 3 main uses for taxes: 1. Bribery, 2. Blackmail, 3. Vote buying.

  13. Does Washington State have a printing press for money just like D.C.?

    1. Yay, more unintelligible mind diarrhea from Seitz…

      Fuck off Russell, go sell your snake oil elsewhere.

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