Dazzled by the stars

Last week, I voted with a surprisingly small minority to curtail the state’s film tax credit, which was expanded under the leadership of former speaker Sal DiMasi. Mike Widmer, the President of the Massachusetts Taxpayer Foundation, has stated that “All the evidence shows that it is a very costly tax credit with minimal economic impact, and the failure to limit it will require deeper cuts in other state programs, including aid to cities and towns.” Governor Patrick had proposed curtailing the credit as part of a recent budget measure.

But the Boston Globe and the overwhelming majority of my colleagues favored preserving the credit. Why? First, the film industry is naturally appealing. Second, the numbers are confusing — for example, one representative supporting the credit made the argument that “If an actor makes $20 million, they pay $1 million in income tax. It’s probably a bargain to get that money and run.” But that’s a losing proposition because, through the film tax credit, the state paid $5 million of that salary.

Couple the quantitative confusion with a with a very effective lobbying campaign by the industry. Representatives heard from local workers in set construction, makeup, etc. who owed their solvency to films attracted by the credit. Many of these individuals would have been unemployed, but for the tax credit. There stories were all truly moving and jobs are certainly paramount.

I heard personally from a number of very good local people about how important the jobs created by the credit were to them. But, on behalf of citizens not in the film industry, I had to ask these film industry professionals: “Where is my bail out?” There are hundreds of thousands of unemployed people in Massachusetts who are receiving no benefit whatsoever from the film tax credit.

A couple of things are crystal clear — first, the film tax credit does generate economic activity in Massachusetts; second, taxes on that activity do not come close to paying back the state treasury for the cost of the credit. So, the credit is an expenditure that does create jobs.

There are many alternative ways that the state could spend money that create jobs and also have lasting benefits for the Commonwealth. How does the credit compare to alternative uses of the funds? The Massachusetts Department of Revenue has analyzed the credit and produced a report including these conclusions:

  • 91% of the credit goes to feature films visiting the state (as opposed to local productions) (p.6). Note that the UMass report on this subject documents expanded employment apparently due to these films, but also pre-existing momentum in other production activities like non-fiction documentaries.
  • Of all the wages paid directly by enterprises receiving the credit, only 18% were paid to Massachusetts residents, and over 41% went to non-residents who make more than $1 million per film (p.1)
  • In 2008, the biggest year analyzed so far, a total of 1,807 full-time equivalent jobs were created, including indirect jobs and multiplier effects. Of these, 1076 went to Massachusetts residents (p.17). (Note that for comparison the UMass study, at page 13, displays employment survey data showing job increases of the same order of magnitude — the data are hard to interpret more precisely though because of reclassifications, mentioned at page 15, inflate the 2008 numbers.)
  • In 2008, the cost of tax credits handed out was $112.6 million (p.5), of which approximately 16% (p.20) was offset by new state revenues for a net cost of $94.6 million. Note that this is the value of the credits awarded — they have not, for the most part, been redeemed yet, but they are transferable and will be used when they have the greatest value to their purchasers.
  • Doing the math, the credit cost per full-time-equivalent job created for Massachusetts resident was $87,903. The actual wages on those jobs was about $67,775 (p.13) for those actually working directly on films (and probably less for those having indirect spinoff jobs, like people working in hotels, etc.)

In other words, the state tax expenditure per resident job exceeded the direct wages of the average resident job created. So, the credit, on this basis alone, compares unfavorably with any other form of public job spending. When you factor in that most of the output of the film jobs went to serve out-of-state production companies and their personnel instead of creating lasting value for the people of the Commonwealth and when you further factor in that every job created (public or private) also creates multiplier effects (see the Tax Foundation report at page 10), the comparison becomes even more lop-sided.

Some credit advocates have raised the possibility that, with the credit, Massachusetts could become a new hub for film production. This seems like a long shot. Massachusetts, although growing, captured only about 1% of spending on films in 2007 (UMass Report, p.8). According to the Tax Foundation, twenty eight other states are now offering film tax credits and forty-four offer at least some form of movie production incentive. Many other states have the same ambitions as Massachusetts to become production hubs outside Hollywood, for example, Louisiana and Michigan. Given Massachusetts’ unpredictable weather, it seems wishful to think that Massachusetts is going to be a new central home for film production.

It is more realistic to hope that Massachusetts could be a desirable location for post-production technical work. This seems possible given Massachusetts technical depth and given that video post-production is becoming less and less coupled to the location of actual filming as a result of the internet and micro-computing. However, post-production is only eligible for the tax credit if the film was predominantly shot in Massachusetts, so much post-production activity would not be eligible for the credit. In the floor debate, it was explicitly acknowledged that one major hoped-for investment in production facilities was entirely independent of the tax credit.

The recent globe expose of another tax credit program showed the abuse of tax credits for big box retailers like Target, Wal-Mart, Home Depot, Lowe’s, Ikea, Bed Bath & Beyond, and Kohl’s. These are companies that want to come to Massachusetts to reach our markets — they do not need incentives to be here. Moreover, they take sales from existing local businesses.

I believe that the state is, as a general matter, on very shaky ground when it seeks to pick winners and losers in the economy through tax credits. I think we do live in a very competitive environment and have to keep that constantly in mind. We want to create jobs. But, I think we would be better off having lower business tax rates and a simple, stable tax code with few industry specific benefits. We wouldn’t be able to take political credit for feature films, but most of us would probably be better off overall.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

10 replies on “Dazzled by the stars”

  1. I agree with your rationale and assessments. I view it as a gimmick that plays well on the Globe’s “Names” page (back of Metro section). As that one movie goes, “show me the money”. Even if we can temporarily come out “ahead”, some other else will soon join in the race to the bottom. (ie, we’ll have to top another state’s credits) We’ve seen this with other corp tax incentives, whether statewide, or between competing municipalities.

  2. Once again, THANK YOU Will! — not only for your vote, but for explaining in clear language what the bill would do, and what the economics of it are. I had read a little bit, and was very surprised at the bill passing, without limits.

    Do we all want to create jobs? Yes. But is the film tax credit the best way to create jobs? Clearly no. People often forget to ask: what else could we have done with that money. What could $94 million have bought? Let’s see, with child care salaries at $30,000 a year at MOST — we could have created twice the number of jobs — and all would have been Mass. residents.

    Ask us taxpayers. Given the choice between spending $94 million to pay some very wealthy stars and a few average folks to do movies OR spending the same amount to create 2000 high quality child care jobs or training insulation installers, I bet overwhelmingly we’d pick the create more instate jobs option. It’s only when someone confuses the facts deliberately or tries to avoid very valid comparisons of alternative uses for the money that the film tax credit gets support.

    Meanwhile, the state is cutting local aid and many school districts can’t afford art teachers or music — yet the state can give away $94 million FOR NOTHING IN RETURN? No wonder folks are frustrated.

    Patty Nolan
    Cambridge resident (and School Committee member)

  3. Thanks Will for clarifying why this film industry “partnership” is not working for Massachusetts residents, and never will.

    Please, Will do the same type of analysis for the proposed gambling/entertainment casinos. My gut instinct is that this industry would do even less for the Commonwealth than the film industry boondoggle.

    Any marketing report should include the fact that there are casinos in neighboring states with which we would be in direct competition. There would, in my opinion, be a diminishing return should we think we could take away sufficient market share from those established casinos. It would take years, with limping along returns, for us to garner a reasonable rate of return on investment for Massachusetts’ taxpayers. Not worth the “gamble.”

  4. Will, Thanks for your thoughtful analysis. Once again you have demonstrated your concern for the average citizen by researching an issue and making an unpopular vote. I couldn’t agree more that our elected officials should cease trying to pick “winners and losers” and should instead rely on “lower business tax rates” to create jobs.

    Where can we find how the other reps voted?


  5. Thanks, Will, for the thoughtful, conscientious voting. Tax credits scare me. Keep it up.

  6. Terrific vote to oppose film industry credits. These specialized tax breaks are exactly the type of items that promote political favoritism, bribes and lobbyists. Best way to increase jobs in the state is to lower tax rates across the board. Legislature should not be picking and choosing its favorite industries.

  7. I agreed with you then, and the Globe agrees with you now.


    “A quarter of the tax breaks given movie companies under Massachusetts’ film tax credit program have gone to help cover the salaries of millionaire movie stars.

    An Associated Press review of a Department of Revenue report on the program found that $82 million of the $330 million in film spending eligible for the tax credits in 2009 went to pay the salaries of nonresident actors earning more than $1 million.

    Under the program a film production can apply for a tax credit equal to 25 percent of a film’s production and payroll costs. In 2009 film companies applied for a total of $82.4 million in credits.

    Critics have complained the state shouldn’t be giving tax breaks to Hollywood stars, but supporters say that without the program, there would be virtually no feature films shot in Massachusetts.”

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