When Congress finally passed a bill in the early morning hours of Jan. 1 preventing the nation from falling over the so-called fiscal cliff, it also gave a gift to Hollywood. Among the bill’s provisions is an extension for one more year of federal tax breaks for film and television productions filmed in the U.S.
Under the provision, TV and film producers can deduct up to $15 million to $20 million in production costs per project. To qualify, at least 75 percent of the production cost must be spent in the U.S. Supporters such as SAG-AFTRA and the Motion Picture Association of America argue that such tax credits counteract the financial incentives offered by other countries to shoot abroad, thereby bringing jobs back home.
In a statement to Backstage, MPAA spokesperson Kate Bedingfield noted that 2.1 million American workers “are employed as a result of the American film and television industry, and our industry is responsible for $137 billion in total wages to American workers. A strong American film industry contributes to a strong American economy.”
Tax hawks, however, argue that the benefits to the industry do not justify the means by which they’re obtained.
“It’s a truism that if you subsidize something, you’ll get more of it,” said Joseph Henchman, vice president of legal and state projects at the conservative Tax Foundation. “We’re subsidizing U.S. film and TV production, so we get more of it than we would have had. But the real question is whether that tradeoff is worth it—whether the tax dollars used for tax subsidies could have been used more effectively with another incentive, a spending program, or kept with the taxpayer. Since the industry is highly profitable and most of their jobs are transient—they’ll move as soon as someone offers a better deal—it’s likely not creating any long-term economic value.”
And with some politicos still clamoring for a so-called “grand bargain” that would include an overhaul of the tax code, the long-term future of the incentives is far from secure. One person’s tax incentive is another’s loophole, after all.
“In the last big tax reform in 1986, narrow industry-specific incentives were the first to go,” Henchman said. “Lower taxes for film and television production certainly benefits the film and television industry, but if keeping it means higher taxes for everyone else or more federal borrowing, it’s likely to go.”