States Should End Tax Breaks to Big Studios and Fund Local Arts

If you’ve ever spotted a logo with a peach and the word “Georgia” during the credits of a movie or TV show, you may have wondered what role the state played in its production. That logo is for Georgia Entertainment Industries, a state tax incentive program for productions filmed in the Peach State.

Around two-thirds of states provide some form of tax break as incentives for productions within their borders. They may seem reasonable enough—the studios will need to hire some local workers. And perhaps seeing that cool logo at the end of “Borat Subsequent Moviefilm” will drive tourists to Georgia in droves.

As you might have guessed, these programs are terrible tax policy, and there’s no indication they provide a positive impact on state economies. They’re sold through trickle-down economic plans for wage workers but amount to little more than big payouts for massive studios.

In the past, public expenditures have funded public art directly by putting money directly in the pockets of creators. It’s not like we don’t know how to finance the arts—we’ve merely forgotten.

Today in the US, we have an offset approach to providing public funding for arts and entertainment. We don’t give incentives to athletes; we build hundred-million-dollar stadiums for the billionaires who own teams. We don’t have financial assistance programs for folks in the performing arts that many countries do; we provide massive state tax breaks for studio heads.

Three states now sit atop the production incentive program heap: California, New York, and Georgia. Last year, Georgia gave $1.3 billion in tax incentives to studios. To put that in context, the state’s budget for K-12 public schools was $10.7 billion, or about 3.16% of its total GDP, for fiscal year 2023. In the international context, that would place the state right between Turkmenistan and Cameroon in terms of percentage expenditure for public education.

Hawaii and Minnesota, which offered 5% capped tax credits in 1997, were the first states to adopt purpose-built production incentive programs. By 2010, these programs peaked with 41 states adopting some form of direct or indirect credit or grant structure. Just this month, New Jersey expanded its production incentive program and is expected to spend an additional $200 million yearly to keep movie studios such as Lions Gate Entertainment Corp. in the Garden State.

Some states have since realized that these programs don’t carry the benefits they purport. Pennsylvania’s Independent Fiscal Office found that for every tax credit dollar it paid out, the state saw a 13.1 cent tax revenue bump. This policy clearly isn’t a terrific investment.

If we accept as true the studies that indicate these credits don’t stimulate state economies—and they persist in around two-thirds of states—the question is how those two premises make sense.

Graft and corruption might be one suggestion, but there haven’t been any overt accusations of politician pocket-lining by studio heads. And the icy relationship between the Georgia Republican Party (which controls the state) and Hollywood would make a cozy pairing unlikely.

More likely, there’s a soft understanding between states offering the most competitive incentives and Hollywood—they need each other. The former is looking to keep a hand in the culture and remain a part of the national media conversation, while the latter is looking for a cheap place to shoot. These interests can create uncomfortable bedfellows, such as when a state passes regressive voter laws, and an otherwise vocal entertainment industry falls uncharacteristically silent.

A view inside the theater during the screening of “Black Panther: Wakanda Forever” at the Fox Theater on Nov. 09, 2022, in Atlanta, where much of the movie was filmed.

Photographer: Paras Griffin/Getty Images for Disney

The strikes of SAG-AFTRA and the Writers Guild of America bring our distorted view of funding the arts into focus. If any politician suggested that supporting the strikes wasn’t enough and that a tax incentive for writers and actors had to be enacted, they’d be a laughingstock in the public eye.

Who’d want to set aside $2 billion to fund tax credits for purchases made by writers in furtherance of their craft and to support their livelihood? How about for actors learning their trade while trying to get by on minimum wage? Before you answer, remember that our tax code contains income thresholds for performers that have gone unchanged, without any adjustment for inflation, since 1986.

As fantastical as using public funds to support the arts sounds, it isn’t without precedent. In the 1930s, as part of the post-Depression Works Progress Administration, there was a New Deal program called the Federal Writers’ Project. It employed thousands of writers, researchers, editors, and historians to produce publications ranging from state guides to children’s books.

Around $600 million in public funding was spent on the project, adjusting for inflation—and this was an expenditure made immediately on the heels of the greatest financial disaster this country had ever seen.

And yet today, none of that is anywhere near the Overton window unless these proposals are gilded in tax breaks for multibillion-dollar conglomerate studios. At that point, the argument is made and accepted—despite all evidence to the contrary—that this is being done to aid the lowly writer, the craft services employee, or the key grip.

Somehow, the addition of an intermediary corporation makes the expenditure of public funds more palatable, but why should that be the case? In 1935, the Federal Writers Project director Henry Alsberg called on the program’s writers to create a “self-portrait of America.”

Maybe we aren’t interested in rethinking how we spend our tax revenue and pursuing a 2023 equivalent, though—because we wouldn’t like what we’d see.

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.