MassBudget created a brief the film tax credit bill just passed through the state. It doesn't look good. I'm not opposed to offering incentives to help bring companies into Massachusetts - but tax credits don't seem to be the way to go. First off, what normal citizen gets tax credits for anything? No one does. We get tax deductions. MassBudget explains the difference quite well in the link above, but suffice it to say a tax deduction just reduces the overall taxable income, while a credit is a government check sent right to Steven Spielberg. There's a few things that stink about that, but mainly this: the film industry can get tax credits even if they don't pay a dime in Massachusetts taxes. To be eligible for the tax credit, all film companies have to do is film part of a movie in Massachusetts and send the Commonwealth the bill for their time spent here - and, in these difficult economic times, we'll credit the film industry 25% of their total costs, without any guarantee of making even a fraction of the costs back. 25%, by the way, is way beyond what normal Massachusetts tax credits go for - others are far more reasonable, at around 3-5%.
None of this would be a big deal, of course, if this were going to be a net-positive for the state of Massachusetts - if we'd earn enough in new taxes to at least break even. We won't.
But could the tax credit pay for itself by increasing economic activity and associated state tax revenue? A recent report by the state Department of Revenue examined this possibility. The report estimated that the total tax revenue forgone in 2006 to 2008 would be 137.7 to 238.7 million. It then examined how much of this loss could be offset by new tax revenue. The findings... suggest that it is u nlikely that more than a small portion of the forgone revenue would be offset by new revenue. This analysis is consistent with other studies on film tax credits.Again, this all stinks. This bill is going to cost this state tens of millions a year, without even keeping an industry inside Massachusetts. Outrageous. If we want to spend this kind of money to spur economic growth, can't we be more intelligent about it? More tax credits for local businesses would help new, often middle-class entrepreneurs deal with upfront costs and grow the economy in every region we want in Massachusetts. Those incentives could be set up for certain industries, as well, giving incentives not only for new startups, but also for new startups all across the state, naturally located for where they could do well.
If Beacon Hill wants Massachusetts to become a Little Hollywood - fine. But, my god, this kind of a tax credit isn't the way to do it. A tax deduction, on the other hand, makes sense for a number of reasons, even if it was up to 25% or more. First, we're not resorting to corporate welfare by giving a government handout to Hollywood, while we would never do anything so kind to the people struggling to get by in this state. Second, if a company actually wanted that 25% deduction - and I'm sure some out there would - then it would have to come to Massachusetts and build their studio here to get it. In other words, it would have to pay Massachusetts taxes.
Maybe if the times weren't so dire, we could afford to give free government handouts to large corporations that aren't even pretending they'll locate here. But, the fact of the matter is times haven't been worse, probably in the 23 years and 11 months I've been on this Earth. That doesn't mean we shut down our efforts to create economic growth and new opportunity - between the Life Sciences bill and the Renewable Energy bill, it's clear this state is making good on its promises to promote economic growth. The Film Tax bill is another decent idea to attracting a broader economy to Massachusetts - but we need permanent business, not just an extra film or two to do their shooting here, so they can write off their expenses and bill the good people of Massachusetts. If film studios are willing to locate serious assets here and pay taxes toward Massachusetts, and hire Massachusetts employees who will pay Massachusetts income taxes, then it's worth giving a tax break - but even then, not a massive giveaway.