What If Tax Incentives Fell Out of Favor?

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The announcement by the City of New York that film production companies will have to pay seemingly exhorbitent fees — some $3,200 a day — for the privilege of shooting inside of certain municipal buildings raises the question of whether the era of tax incentives for film projects is officially over.

Broadening the discussion a bit, there is concern in many quarters as to what will happen when the $8,000 credit for first-time home buyers expires in April. Broadening the discussion still further, consider this scenario: the GOP, led as by the most radicalized right-wing base of the party, not only makes major inroads in the midterm elections but is able to achieve a dollop of power — a 50-50 split in the Senate, say. The drive within the party for ideological purity keeps things moving ever more rightward, which in terms of fiscal policy could easily lead them to try to roll back various kinds of tax incentives at the federal level — parroted, quite likely, by similar “reforms” at the state and local levels. Remember Steve Forbes’ flat tax, maybe with no more mortgage-interest deductions? What would happen if all kinds of tax incentives, or many of them, were simply removed?

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Returning to tax incentives for film — and for those weak of memory — at the top of the 2000s there was an outcry in Hollywood over “runaway” production: projects that abandoned the U.S. in favor of shooting elsewhere because doing business there was cheaper than doing business here. Toronto, Canada, in particular, located a fundamental economic truth: Underprice well enough and you’re business will grow. In the era of Bush-driven nationalism, America was not to be outdone. Like lemmings (though smart ones), state legislatures and many cities enacted incentives to encourage filmmakers to come back to the U.S., which they largely did. In time, states enacted incentives intended to undercut other states, jeopardizing whatever gains, in terms of jobs and economic impact, could be achieved.

Scan through any of the 100-plus posts of the Clyde Fitch Report’s Arts Advocacy Update and you’ll notice piece after piece (with commentary) on the subject of legislatures looking at the fiscal efficacy of the tax-incentive policies they enacted. Do they or do they not create jobs? Does production generate enough fiscal growth to outweigh the loss of tax dollars generated by production? Some states say yes, some states say no. But mostly there’s disagreement, in the grand American tradition of short-term thinking taking priority over long-term strategy.

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Just today, by the way, comes this story out of Columbus, Ohio:

….four movie projects will contribute about $25 million to Ohio’s economy as a result of the credit enacted last year. That includes jobs, at least temporary ones, for production-crew members and extras for nearly 3,000.

There is a vast difference, of course, between Columbus and New York City; Gotham, when it comes to the parameters by which films are shot, can afford to some extent to be cocky. And one has to feel a certain amount of pity for Mayor Michael Bloomberg, who spent his first two terms in slavish devotion to unchecked and criminally unresponsive real estate development and now finds himself with little choice but to spike revenue by forcing production companies to pony up thousands of dollars to shoot in public buildings.

As the Associated Press noted, the shooting fee won’t destroy the $5 billion film-production industry in New York and will only affect about 5 percent of films. And major studios can afford the fee in any event. What it will do, the AP said, is make New York City a distinctly unfriendly town if you’re not well-monied:

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The city has become so friendly that the volume of films produced in the city has risen considerably over the last decade, she said.

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Mark Daly, a spokesman for the Department of Citywide Administrative Services, said the city’s buildings are such popular locations for filming that 160 productions used them last year. With that much filming, hundreds of thousands of dollars can be raised with the new fee.

[John] Johnston [executive director of the New York Production Alliance] said the fee was unlikely to scare away producers of movies or television shows but might cause film students, small independent movie producers and those shooting pilots for television series to look elsewhere.

Daly said it did not make sense for the city to vary the cost of the permit depending on the size of the production.

“Administrative costs are the same no matter what the size of production,” he said.

Looking ahead, the fee may, in time, beg the question of whether the New York State Film Production Credit will come to be undermined. As noted, many state and local legislatures are as hungry as New York City for revenue. They are revisiting production credits and sometimes eliminating or substantially modifying them, knowing perfectly well that whatever brand equity a particular locality has built will be so much dust in the wind as a result.

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So, what happens if and when many kinds of tax incentives and credits go by the wayside? Will the housing industry be able to stand tall after April? What happens if it doesn’t? Extreme free-marketers say that’s how it goes. But if it’s your film — or your house — that may be how it goes up in smoke.

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