March 21, 2014
Predictably, filmmakers, television producers and their associated special interest groups immediately sprang into action when the N.C. General Assembly passed a tax reform law in 2013 that would allow the state’s tax credits for film production to sunset Dec. 31, 2014. Not surprisingly, their goal is to preserve these sweetheart tax loopholes for their industry going into 2015 and beyond.
What was surprising, however, was the response by State Commerce Secretary Sharon Decker to this special interest push. Decker announced plans to have legislation ready for the short session of the General Assembly, with hopes that there will be no gap in state film incentives.
Recently, at the N.C. Governor’s Conference on Tourism in Charlotte, Decker, said, “It’s an issue that is a great concern to us because the film industry is very important to North Carolina.” She continued, “It is an industry that has impacted both our cities and our small communities.”
But has North Carolina’s film tax incentive really benefited our economy?
Proponents of the film production tax credit spin this tax loophole as a program to create jobs. Any economic study worth its salt will analyze the effect of the program itself, then analyze the opportunity cost for the same amount of money in a different area. Fortunately, that is exactly what the nonpartisan Fiscal Research Division at the N.C. General Assembly did.
Last year, the Fiscal Research Division analyzed the economic impact of North Carolina’s film production tax credit program for 2011. The analysis concluded that the state awarded $30.3 million in film tax credits during that year, which resulted in 55 to 70 jobs and generated approximately $2 million in personal income.
The analysis concluded that an “across-the-board tax reduction of $30.3 million would have yielded between 370 and 450 new jobs and $14 million in personal income.”
It does not take a degree in economics to determine which of these scenarios creates a better economic outcome for North Carolina.
Decker has fallen for the myth that special interest tax credits and incentives – tax changes designed to steer benefits to a specific industry – are the best way to create jobs. Although targeting benefits in this way often seems like a good idea, such tax credits only lower taxes for a select few and cause distortions in the tax code. By reducing the tax burden of a single targeted industry or company, the marginal tax rate for everybody else increases if overall government spending is not also reduced by the amount of the credit. In other words, tax credits are corporate welfare. All taxpayers bear the cost, but only a handful of special interests and favored industries benefit.
The film tax incentives are not proven job creators or overall government revenue enhancers, despite what proponents say. In state after state, from Connecticut to Louisiana to Ohio, film incentives have been found to be net revenue losers.
And job creation? Iowa, Kansas, Missouri and Wisconsin have two things in common. All four have terminated their film incentive programs – and all four have lower unemployment rates than North Carolina, according to the federal Bureau of Labor Statistics.
If the North Carolina state government is serious about growing the economy and decreasing unemployment, then it should continue on the path that the General Assembly and Gov. Pat McCrory started in 2013. It should widen the tax base by eliminating targeted tax credits and cut overall tax rates instead of subsidizing its favorite industries with tax credits.
The Commerce Department should stick to its mission, which is “to improve the economic well-being and quality of life for all North Carolinians,” instead of trying to pick winners and losers.
Donald Bryson of Garner is the deputy state director for Americans for Prosperity’s North Carolina chapter.
By Donald Bryson