Massachusetts is preparing another grim budget for the next fiscal year that is expected to include modest “revenue enhancers” — that is, tax and/or fee hikes on the general public — and yet another round of cuts to social services. Given those two eventualities, the state’s dubious film tax credit program belongs on top of the chopping block.
Most states (43, all told), including Massachusetts, somehow were scammed into giving generous tax breaks to the motion picture industry, each state trying to outdo the others with tax giveaways in exchange for making movies within their borders.
The theory is that the film tax credits are a form of economic development. Under the tax credit program, passed in 2007, the state offers a tax break worth up to 25 percent of the cost of the film production — even if it’s greater than their ultimate tax liability in the state — so long as producers pay 50 percent of their costs or spend 50 percent of their shooting time in Massachusetts.
If a film company spends $1,000, it receives a tax benefit of $250. If it spends $10 million in the state, it receives $2.5 million. In other words, the state pays for 25 percent of film production costs through the tax code.
The problem is that, aside from an occasional glimpse of a Cameron Diaz or a Brad Pitt on the front page of the Boston Herald, courtesy of the Massachusetts taxpayer, there is no proven payoff to the state.
The Department of Revenue estimates that the film subsidies each year cost more than $142,000 per job created for residents of the state, the Boston Globe reported recently. In addition, the productions generate only 13 cents in new tax revenue for every $1 spent.
And yet we are giving away $80 million in film tax credits in the current fiscal year while shortchanging our schools, our mass transit, and social services.
What is particularly galling, the Globe goes on to report, is that most film companies do not end up owing nearly enough in taxes to use the credits. Yet because the tax credits are transferrable, filmmakers are allowed to sell the credits at a discount to brokers, who resell them to financial firms and savvy corporations. Brokers and buyers of the film tax credits earned $33 million between 2006 and 2010 by buying up the credits at a discount and using them to lower their state income taxes.
The film tax credit has cost the state $276 million since 2006. It is susceptible to fraud – last month a grand jury indicted filmmaker Daniel Adams on charges that he defrauded the state of $4.7 million in film tax credits he received for two movies made on Cape Cod. Other tax breaks offered as economic incentives to attract various industries are not nearly this generous, and in this case there is no evidence that the tax break pays for itself through job creation or economic activity. We just get to see a few more movie stars in the local papers and on TV.
The film tax effectively exists to lure movie stars like Tom Cruise to Massachusetts for a free lunch – but he can afford his own. Clearly, we know that to share the wealth, it is necessary to generate the wealth. However, we do not see that much is left to share with this particular subsidy for the moguls of Hollywood. These are people who can afford to eat thousands of time per day. We should be hard at work finding ways to feed those struggling for three meals or fewer.