The film tax credit scam

The film tax credit scam

Real Heaven Inc., a film production company, has secured a tax credit of $10,198,805.00 ($10.2 million) from the commonwealth to shoot “You Are My Friend,” a feature film starring Tom Hanks as Fred Rogers.

The credit, administered by the state Department of Community and Economic Development, requires Real Heaven to spend at least 60 percent of its budget in the Keystone State. Shooting is scheduled to begin in Pittsburgh this fall.

And it’s an opportune time to repeat what’s wrong with this kind of “public purpose” larceny.

Of course, backers of such corporate wealthfare gush over it. “This is a wonderful project that will put hundreds of our local crew and talent to work,” Dawn Keezer, director of the Pittsburgh Film Office, told the Post-Gazette last week. Government types see it as an economic generator, something akin to a Rube Goldberg perpetual-motion machine.

Never mind that such credits are oversold and leave taxpayers holding a rather large bag. As economics scholars Antony Davies and James R. Harrigan have repeatedly pointed out over many years in the Tribune-Review. To wit:

“Government stimulus proponents, including proponents of the Pennsylvania film tax credit, know enough economics to dazzle voters with jargon, but they tell only half-truths.

“The economic magic bullet behind every government stimulus plan is called the “multiplier effect.” Simply put, when the government spends a dollar or provides a dollar tax break, that dollar becomes income for someone who then spends it, creating income for someone else who then spends that, and so on. In the end, a single dollar of spending ends up creating more than a dollar of total income.

“This is the core argument that gave us the Great Society, Cash for Clunkers, Wall Street bailouts and, if certain candidates have their way in the next election, ‘free’ college education.

“It’s like planting a seed and getting a tree, which produces more seeds, which produce more trees. Before you know it, that one seed has produced an entire forest.

“Except,” Davies and Harrigan reminded in a Trib op-ed a few years back, “it doesn’t work exactly the way politicians want you to believe.”

Continued the scholars:

“It is true that a dollar of spending generates more than a dollar of income, but there is mounting evidence that it isn’t much more. What the politicians don’t tell you is that it doesn’t matter who spends the dollar.

“The multiplier effect is felt regardless of whether government or the private sector spends the initial dollar. The difference is that, with private spending, we get things we want. With government spending, we get things politicians want.”

Yes, that multiplier effect means that film tax breaks will create film jobs, which will create hotel jobs, which will create restaurant jobs and so on, the pair state.

“But we’d get the same effect if they were small business tax breaks, income tax breaks, property tax breaks or gasoline tax breaks. When the economic effect is the same, why should films get special treatment as opposed to anything, or everything, else?”

But, wait, there’s more, as Davies and Harrigan elaborate:

“Abolishing the film tax credit means that we’ll lose film jobs in Pennsylvania. And that’s a good thing. We want jobs that contribute to our tax base, not jobs that require ongoing taxpayer subsidies.

“Proponents tell us that filmmaking is different because films bring publicity to Pennsylvania. But if filmmaking is such a moneymaker, why do we need to subsidize it at all?”

Now for the bottom line:

“Businesses that can’t exist without government handouts are, by definition, not moneymakers.” Or, put another way, leeches.

As the same economists reminded in another Trib op-ed, film tax credits come out of the pockets of taxpayers who have to pay for infrastructure and state services the film industry uses.

“That means taxpayers will have to cut their spending by the same amount the film industry receives.  Each dollar of stimulus the tax credit creates is matched by a dollar of anti-stimulus the tax burden imposes on taxpayers.”

That’s hardly “wonderful.” It’s certainly no “deal.” You might call it “a shameful day in the neighborhood.” For it is a scam. And scams never are sound public policy.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).