TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, October 6, 2012

Hollywood: Special Tax Breaks For Us, Tax Increases on Everyone Else

HollywoodWall Street Journal editorial:  Welfare for Hollywood: The Studios That Want Higher Taxes Also Want a Special Tax Credit:

Governor Jerry Brown this week signed a two-year extension of a film and television tax credit that his Republican predecessor Arnold Schwarzenegger supported in 2009. The credit is essentially a dolled-up subsidy. For every dollar that production companies spend on a project in the state, they get credited 20 to 25 cents against their state sales and income taxes. Nice deal if you can get it.

Conan the Barbarian had Hollywood friends, but what's Mr. Brown's excuse for subsidizing one of California's oldest and most prosperous industries? "Runaway production." Hollywood's mendicants claim the state is losing production jobs to lower cost, more charitable states. ...

The California Research Bureau ... reported last year that there is no "clear evidence that any significant damage to the state's industry or economy has resulted from efforts by other states to draw movie production away from California in the past decade." Employment in Los Angeles's film industry increased by 50% between 2000 and 2009 while growth remained flat in the rest of the country. California has plenty of runaway problems—a bullet train, spending, jobs -- but movie production isn't one of them.

Speaking of jobs: Democrats and Hollywood liberals who insisted the tax credits were needed to make California more competitive are now campaigning for a tax hike. Warner Bros., Walt Disney, Sony, Comcast and Viacom have contributed money to the Governor's tax measure, which would raise the sales tax by a quarter of a cent and the top marginal income-tax rate to 13.3% from 10.3%.

While the tax hike won't directly hit the production studios, it'll wallop investors and small business, which are really at risk of running away. A recent Manhattan Institute study found that 3.4 million Californians in the last two decades have sought asylum in other, mostly lower-tax, states. We like movies as much as the next guy, but their producers shouldn't prosper at taxpayer expense.

Washington Examiner op-ed:  Repeal the Hollywood Tax Cuts!, by Glenn Reynolds (Tennessee):

For the past few years, there has been a drumbeat in favor of increased taxes from Democrats of all stripes. Make the rich pay their "fair share." Get rid of "loopholes." Make the fat cats "chip in a little more." ... 

It's no coincidence that much of the Democrats' base doesn't have to worry about taxes much, either because they work for nonprofits and public entities that don't pay taxes, or because they live off government benefits, or because they work in industries -- like the motion picture and recording industries -- with a long history of shady accounting and favorable tax treatment. Republicans, if they're smart, can nonetheless teach them that tax increases do, in fact, hurt.

They should head into the next budget battle with a list of proposals for tax increases that will sting Democratic constituency groups, but which will seem eminently fair to voters. ...

The first such proposal would be to restore the 20% excise tax on motion picture theater gross revenues that existed between the end of World War II and its repeal in the mid-1950s. The campaign to end the excise tax had studio executives and movie stars talking like Art Laffer, as they noted that high taxes reduced business income, hurt investment and cost jobs.

The movie excise tax was imposed in response to the high deficits after World War Two. Deficits are high again, and there's already historical precedent. Of course, to keep up with technology, the tax should now apply to DVDs, downloadable movies, pay-per-view and the like. But in these financially perilous times, why should movie stars and studio moguls, with their yachts, swimming pools and private jets, not at least shoulder the burden they carried back in Harry Truman's day -- when, to be honest, movies were better anyway.

For extra fun, they could show pictures of David Geffen's yacht and John Travolta's personal Boeing 707 on the Senate floor. You want to tax fat cats? I gotcher "fat cats" right here! Repeal the Hollywood Tax Cuts!

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Their complaint, of course, about the excise tax is that they would have to pass on those costs to consumers via higher prices on all those things. In other words, welcome to the nightmare of every other business demonized by Democratic politicians.

Posted by: the wolf | Oct 6, 2012 12:17:14 PM

Notice that the tax breaks chosen are those in a Democratic state. There seems to be no outrage at all when Republican leaning states provide massive tax breaks to attract and promote industry. Yes I am talking about you South Carolina, Alabama, Texas and Mississippi.

Posted by: David R. | Oct 7, 2012 9:16:46 AM