A Fix for Film Subsidies

The Oscars have come and gone, and already film studios are mapping out which of their offerings will be best positioned for front-runner status in the 2021 Academy Awards. Although the winners and losers change from year to year, there is one group that consistently comes short at the Oscars: the taxpayers.

The word “taxpayers” is certainly not one that is often thrown around during Oscar campaigns. Yet the (relatively) little-known fact is: Politicians in 31 states, eager to win votes by claiming credit for creating jobs, have created or maintained programs to subsidize filmmaking by offering reductions in production companies’ tax liabilities.

The billion-dollar blockbuster “Joker” benefited from $10 million in largesse from New York State –amounting to more than 15 percent of the production cost. But New York is far from the only state to offer some type of incentive for filming. Georgia’s lavish film tax credit program, recently under fire due to general mismanagement by the state’s Departments of Revenue and Economic Development, allocated $860 million in transferable tax credits in 2019, costing about $110,000 per full-time equivalent job with little to show as far as economic growth goes.

A comprehensive review of these programs, which cost billions nationwide, found no benefits to employment or economic growth more broadly.

It would be ideal to eliminate these programs entirely. Failing that, the best way to make these wasteful giveaways less wasteful would be to ensure that the public actually benefits from them by gaining access to the productions themselves and placing any works financed by these programs in the public domain upon release.

It’s unreasonable to allow film studios and large media companies to double-dip on both the exclusivity granted by copyright law and a reduction in their tax liability. If such programs are pitched as a benefit to the public, there is no reason the illusory benefits of production companies’ spending should be the only thing taxpayers receive.

In spite of the compelling evidence that these subsidies are a drain on public finances to the benefit of producers, legislators use these programs as an opportunity to claim credit for bringing jobs, with bonus points due to the notoriety of a big-budget production.

The optimal policy would be for legislators to take a page from Nancy Reagan and Just Say No. But the number of elected officials seeking to claim credit for policies spun as good (even in the face of overwhelming evidence to the contrary) makes restraint unlikely.

Instead of relying on legislative restraint, requiring recipients of these projects to place the final products in the public domain would capitalize on the credit-claiming instincts of legislators. If “bringing jobs” plays well at the polls, giving constituents free access to content like “Little Women,” “House of Cards” and “Stranger Things,” (subsidized by taxpayers in Massachusetts, Maryland and Georgia, respectively) would further enhance the image of the elected officials responsible.

The owners of the content financed by the taxpayers may object (as they are wont to do when these regressive subsidies come under scrutiny) to a policy that would deny them monopoly rights to their creations on the grounds that it would deny them the opportunity to recoup the upfront production costs. This would be wrong.

Simply because something is in the public domain doesn’t mean a firm or individual can’t profit from it — quite the opposite. Any symphony in the country can charge admission to see a performance of “The Magic Flute”; a movie theater can do the same to show a film in the public domain. Netflix, Hulu and other streaming services don’t charge on a pay-per-view basis, but they could still benefit financially from having a catalog of public domain movies in their library.

And, of course, productions could simply forgo the subsidy and keep their copyrights.

There are two possible avenues to achieve this goal. The first is at the statehouse. When offering these subsidies, usually in the form of a tax abatement or tax credit, the body making the offer should condition this preferential treatment on the final product being put in the public domain upon release.

This is a straightforward approach that capitalizes on the credit-claiming nature of legislators. But its weakness comes from its reliance on the discipline of legislators who should not be offering the subsidies in the first place.

The second way this could be achieved would be at the federal level. Congress could modify the copyright act to explicitly exclude works that were created, in part or in whole, with taxpayer money. Once signed into law, it would cover productions all across the United States, taking state legislators’ fickleness out of the equation. Drafting this law would be technically challenging, as it would need to circumscribe all of the various ways these subsidies are offered, but not impossible.

I foresee two likely outcomes from this proposal. The first is that, recognizing the relative value of their copyrights compared to subsidies, film studios would avoid these incentive programs.

The alternative is that studios would accept these subsidies and still financially benefit from the productions, but at the very least the public would have the benefit of unrestricted access to the fruits of their tax dollars. While it is possible that this outcome would lead to states overpaying for these projects, this is already happening: Every cent above $0.00 paid to the recipients of these subsidies is too much.

The jury is in: Firm-specific subsidies, particularly those directed at attracting film studios, are bad policy. While they could be spun as a “win” for the taxpayers, they siphon away resources from far more deserving projects.

Legislatures, governors and local governments have consistently demonstrated weakness in resisting the temptation to claim credit for bringing jobs, especially those that come with the glitz and glamour of the film industry. If this graft cannot be done away with entirely, it can at least be designed so taxpayers don’t have to pay twice.

Daniel Takash is a regulatory policy fellow at the Niskanen Center.

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