Film Subsidies

Californians Are Paying More in Taxes So LeBron James Can Play Basketball with Bugs Bunny

Hollywood, just like Amazon, shops around for massive deals from the government that the rest of us have to pay for.


LeBron James
Gary A. Vasquez/USA TODAY Sports/Newscom

Californians pay some of the highest tax burdens in the nation (even Politifact agrees). On the November ballot, state leaders begged citizens to protect a recent gas tax increase or else the state's highways and bridges would crumble away (in reality, a lot of that money is being siphoned off to a whole bunch of special interest mass transit projects of dubious public value). Three other November ballot initiatives asked California citizens to approve general obligation bonds for projects totaling billions of dollars. Two passed, committing residents to more debt.

But after insisting that it needs every nickel and dime we can give up in order to keep the state's infrastructure from collapsing, it is, of course, turning around to give hundreds of millions of dollars in tax breaks to its richest industrialists: Hollywood filmmakers.

The heavily overtaxed worker bees in California are going to have to make up the difference for the revenue the state will not be getting from the production of Warner Bros. Bugs Bunny/Looney Tunes branding and marketing festival known as Space Jam 2. The blockbuster has been granted up to $21.8 million in tax credits from the state of California. The Los Angeles Times notes that it's the second largest grant from the program, which is currently scheduled to sunset in 2025. The Transformers spinoff, Bumblebee, which will no doubt be a fiscally successful, narratively incomprehensible car crash of a movie, was granted up to $22.4 million in credits.

The California Film Commission gets to hand out $330 million in these credits every year. It used to be $100 million a year, but the pool was dramatically increased in 2016, in an effort to attempt to lure movie and television production back from other states like Georgia. Much like the recent Amazon HQ2 competition, it's a race to see which governments can give the best bribes to the nation's wealthiest to convince them to do business there. (Though to be fair, California's budget would be absolutely hosed were it not for its wealthiest residents.)

Yet, despite the obvious comparison to the Amazon HQ2 coverage and criticism, Times writer David Ng doesn't seem to want to bite into or even so much as question any claims that these tax breaks are beneficial job creators for Californians. He notes in his coverage that the tax breaks can recoup the costs of salaries for crew and set production but cannot be used for star salaries or high-end compensation. But this is an absurd claim. Money and budgets are fungible creatures. If Warner Bros. knows that they're going to recoup $21.8 million in expenses on crew, that inherently frees them up to offer more money to LeBron James to lure him in to pretend to play basketball against a dude in a motion capture outfit that will eventually be animated to become a space monster. This program does, in a roundabout fashion, subsidize the costs of stars' salaries.

This system of tax breaks is the government at its most intrusive in selecting winners and losers. Major film studios get to suck up 35 percent of the available funding. Indie features get a measly five percent. And even then, there are obviously more projects that would like to have access to these credits than the state is able to award given the size of the pool. So these big budget blockbuster pictures from studios that are rolling in money—Captain Marvel and Top Gun: Maverick are among the beneficiaries—are getting these breaks while smaller competitors may be frozen out (Hollywood Reporter has the latest list of winners here).

And, of course, California's state spending is not being reduced at all to account for this annual loss of tax revenue, is it? This means that, fundamentally, those of us who live in California have to make up this revenue gap, including those who are connected to film and television shows who did not get these tax credits! All those roads and bridges that Warner Bros. won't be paying for because they're organizing a basketball game on Mars or wherever are just going to be paid for by others.

Libertarian Rep. Justin Amash (R-Mich.) posted an excellent Twitter explainer in June about the fiscal problems and the fundamental unfairness of these kinds of tax credit deals and has been pointing back to it in response to what Amazon is getting from Virginia and New York for its new offices. He puts it in simpler terms than I do here, but it should be obvious that massive tax breaks for major movie blockbusters do not benefit the citizens of California when the state is drowning in debt and pension commitments and leaders are openly looking for mechanisms to try to extract even more money from everybody else. Amash's example applies here as well.

Bonus link: Reality shows like The Bachelor travel around the country looking for financial incentives to shoot episodes there. I explain why the claims that these tax breaks and sometimes direct subsidies produce "economic activity" are bunk and take note of the hidden costs that people don't like to talk about.