A common mistake in evaluating tax credits, is to confuse them with taxes.
Each was enacted for a very different purpose.
On a baseball team, for example, pitchers and power-hitters have different roles. You don’t expect a 20-game winning pitcher to hit home runs, or your clean-up hitter to strike people out. They are each on the roster for different reasons. And each must be evaluated differently if you want your team to win
Same in government. Taxes are very different from tax credits. “Taxes” are intended to bring money into the public treasury. “Tax Credits”, on the other hand, bring money into the private economy.
The language of the film tax credit law makes its purpose very plain. No credits may be issued to any filmmaker, until after the filmmaker spends at least 4 times the cost of the credit in Massachusetts—and pays taxes on that new spending.
That means the Massachusetts economy gets the benefit of both the new spending, plus any new taxes collected on that spending before a single tax credit is ever issued, let alone redeemed.
COMMON SENSE ANSWERS TO THE FIVE MOST
COMMON QUESTIONS ABOUT THE FILM TAX CREDIT:
1. Does the film tax credit pay for itself?
In two separate 2009 studies (of New Mexico & New York), Ernst & Young said that it brings more money into public treasuries than it costs. Economic Research Associates, in their 2009 study of Pennsylvania, reached substantially the same conclusion. But even if these respected industry analysts are both wrong, always remember that “tax credits” were never primarily intended to bring money into the public coffers. That is what “taxes” are designed to do.
The primary purpose of spending ten cents on a film tax credit was not to bring a dime into the state treasury, but rather to bring a dollar into the state’s economy.
2. Why should the credit apply to big stars who don’t live here?
A. Big stars do live here while they are working. They usually bring big movies which spend big money–and we want that money spent right here in Massachusetts.
B. Additionally, big stars pay big income taxes, and we want those taxes paid to Massachusetts.
C. Stars also earn big residuals on their films–for years to come. We want all those future income taxes paid to Massachusetts.
D. Finally, big stars attract big investors who want to build big sound stages, which in turn employ lots of people in both their construction and operation. We want those jobs to be created here in Massachusetts.
3. Why should the credit apply to goods and services that are used in Massachusetts but originate elsewhere?
Studios do not bring goods and services into the Commonwealth unless they cannot find them here. Producers much prefer to hire and buy locally because it’s cheaper for them than paying air fares, hotel rooms, per diems, and shipping costs. Even though producers can’t always find everything they need here, they still use everything we have to offer. In only 24 months, we’ve seen tremendous growth in our state’s crew, infrastructure, and production service base. According to a 2009 study by the Mass. Department of Revenue (DOR), the number of local residents working on films has already increased by 537% at an annualized salary of $67,750. DOR also reported that 60% of all new direct and indirect jobs created went to Massachusetts residents, and that this percentage will likely increase as the local industry matures. Stopping that job growth—especially in this terrible economy—is a very bad idea.
4. How do we know that the tax credit is working?
a) Because more people are working.
b) Because membership in all the production related unions is up.
c) Because local production service companies (like BRICKYARD VFX, and POWDERHOUSE PRODUCTIONS) are expanding their footprint and hiring new people.
d) Because four separate groups of private investors are now competing for the opportunity to spend over a half billion dollars of private money to construct state-of-the-art soundstages in Massachusetts.
e) Because California Governor Arnold Schwarzenegger is publicly complaining about the business and jobs he is losing to Massachusetts.
5. Do we have any hard numbers to back up these claims?
Since the first film tax credits were enacted in Louisiana over a decade ago, Arthur Anderson, Cornell University, Ernst & Young, Economic Research Associates, and many others, have devoted literally thousands of pages of analysis to this subject. Different institutions, looking at different programs, in different states, using different methods, have all reached the same conclusion:
The most recent study of the film tax credit in Massachusetts concluded that during the first three fiscal years of the program, $676 million of new direct spending in Massachusetts was generated—at no cost to Massachusetts taxpayers.