In an escalating PR war regarding tax subsidies for production, the MPAA issued a press release this morning titled MPAA Analysis Refutes “False and Misleading” Study on Film Production Incentives by USC Assistant Professor Michael Thom.

The MPAA is attacking Michael Thom, a professor at USC, who authored the study "Lights, Camera but No Action" which was critical of film subsides. The MPAA questions Thom's findings and even his reputation.

The Tax Foundation's Joseph Henchman responded:

Motion Picture Association Fails to Refute Damaging Film Tax Credit Study

We'd recommend reading both, but here is an excerpt from the MPAA release:

"MPAA Senior Vice President for State Government Affairs Vans Stevenson said of the Thom study: "It is troubling and without excuse that such a false and misleading study, without statistical and intellectual foundation, would be recklessly promoted by an otherwise respected educational institution such as USC. It severely tarnishes the reputation of the university as well as the academic credentials of the author, USC assistant professor Michael Thom. This is academic malpractice, designed to make a provocative statement rather than offer sound policy analysis."

Here are some excerpts from Henchman's response:

"The press release is full of adjectives and adverbs: “troubling,” “false,” “misleading,” “recklessly,” “otherwise respected,” “tarnishes the reputation,” “academic malpractice,” and “provocative.” Provocative might be the key one: the MPAA is pretty upset that a university in its backyard dared to research the effectiveness of tax subsidies to the movie production industry, let alone come up with a result that suggests they don’t work."

"The MPAA obviously needed to respond to this study, which is very damaging to their efforts lobbying states for more film tax credits, and coming as about a dozen states have curtailed, suspended, or ended their programs."

"I don’t envy the MPAA: every independent study of film tax incentives has found they don’t pay for themselves in economic growth, jobs, and boosted tax receipts, and the combination of the recent recession and better stewardship of taxpayer dollars has meant many of these programs have hit the chopping block. There are still true believers, in New York and Georgia and some other places, but generally the idea of using taxpayer dollars to subsidize one of America's most successful industries has passed its peak."

 


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  • MatteObject

    “If anyone around here is going to lie with numbers, it’s going to be US!” – MPAA Spokesman.

  • Tiny AnonBot

    After reading essays on the existential importance of ‘winter’ in the early films of David Cronenberg – I came across an article on film tax credits which offered a more plausible explanation 🙂

  • Herschel Horton

    I’m ignorant of the Thom study and MPAA response. However, if Thom is stating Tax Incentives aren’t a positive policy, he should look at the film business in Georgia. Before Georgia implemented tax incentives there were very few films and T.V. shows produces there. Today, Georgia is one of the most productive film industries in the country and more and more studios are being built every year. Not just in film do tax incentives create positive results. Tax incentives have, over the years, encourage many industries to invest and grow – it’s just business. When you lower the cost to conduct business, business will be conducted!

    • MatteObject

      Covering 30% of Hollywood’s costs raises the cost of doing business for literally every other company in the state, since they’re now spending $600m a year in tax revenue to collect only $200m.

      What other industry gets anything even close to a 30% subsidy from the states? This is nothing but a fantastically expensive jobs program, and a wildly inefficient one, at that. The cost per full time equivalent job is orders of magnitude higher than less glamorous, less well connected industries.

      • Herschel Horton

        I’m trying to understand your use of the term “Covering 30% of Hollywood’s costs…” I may be a little ignorant here, but I think a Tax Credit is a “voucher” from the state issued to the production company that states, in very general terms, “we forgive taxes due on X amount of money.” What the production company will do is either apply this credit to the profits they may make in that state – reducing their tax liability. But what I understand is that production companies will sell these tax credits, for less than their credit face value, to say Coke or any other company that has a tax liability in that state and they use it to reduce their tax bill. This will help the production company off-set their expenses.

        It is one thing to say that a tax credit is “covering 30% of Hollywood’s cost” and a state actually giving money to a production. Sure my last sentence could be argued that since the state discounted “someone’s” taxes they actually paid for that activity. But in my opinion net reducing someone’s tax burden isn’t the same as giving money to someone. Tax rates on individuals and corporations are manipulated all the time to induce desired economic activities.

        Allowing companies to reduce their costs by tax policy is a game played in every industry. Silicon Valley’s county and city governments provides tax incentives to big companies like Apple, who just built a very large, very expensive new corporate headquarters building. Local municipalities court companies, with favorable tax credits/incentives, to move their “corporate headquarters” to their cities all the time. Why?

        Where jobs live economic activity occurs. Where economic activity occurs, tax revenues net increase.

        The bottom line is that I don’t think at the end of the day Georgia or any other government municipality is going to reduce tax rates unless they see a net positive result over the long term.

        • MatteObject

          The way it works in Georgia is that the state forgives taxes worth 30% of the total production spend (note, 30% of the spend, not 30% of the taxes), so if a studio spends $100m in Georgia, Georgia issues a $30m tax credit – it’s worth noting that that $100m doesn’t have to go to Georgians and indeed, the bulk of it typically goes to high priced above the line guys from California. The only stipulation is that something like 80% of the crew has to be from Ga, which is easy enough to fulfill if you hire enough extras and carpenters.

          The movie studio has almost no tax liability in Georgia (since taxes are only paid on profits, and there’s no profit in movie production, only movie distribution) so, as you say, they sell it to a large company that DOES have a tax liabilty in Georgia, for, say 90c on the dollar. So in our example, Walmart or Coke pays the movie studio $27m to reduce their taxes by $30m.

          Whether Ga gives the money directly to the studio (ie. a refundable tax credit) or through an intermediary like Walmart (ie. transferable tax credits) is ultimately irrelevant, any way you look at it, the movie studio has taken $27m in tax money from the state of Georgia, in exchange, they spent $100m there, but that only got taxed at, at most, 5%, so Georgia has recouped only $5m of their $30m outlay.

          The only way Ga. could possibly break even, never mind come out ahead is if the direct spend from the movie studio sticks around in Georgia in order to be spent multiple times, but given that probably half the money leaves as soon as the show stops filming (because it was paid to Californians) the numbers simply do not add up.

          Do not conflate film subsidies with tax breaks for corporations like Apple and Tesla, since the bulk of their money actually gets spent in the state that issues the tax credit (and, more often than not, the credits aren’t nearly as excessive) – for example, the state of Nevada gave out “huge” tax credits to Tesla in order to win their Gigafactory, credits that work out to $10k per job per year – in comparison, Massachusetts estimate that every film job cost the state over $100k, 10x as much as even the “wildly” excessive Nevada incentives – no film job pays $100k a year in taxes except heads of studios, who all live in California.

          If film subsidies weren’t transferable to companies who had nothing to do with the production, then they wouldn’t lose such vast sums of money, because they would require investment (and so, profits) in the states that issued them.

          Film tax credits are subsidies, and spectacularly inefficient ones at that.

          • Herschel Horton

            100 million spent in Georgia is taxed in salaries, business profit, and other economic activities. Above the line who work in Georgia pay income taxes for the time they work in Georgia. There’s always the multiplier effect when money exchanges hands. I spend 10 dollars buying 5$ of services/products from 2 people, they get taxed at some point as either profit or income and then they spend and so on. There’s a reason that cities lobby hard to keep/get Pro Sports Franchises. The derivative economic activities create more taxing events.
            By no means am I a macro/micro economist. I think the point to the story is that tax credit/incentives/breaks are a very complex economic activity and calculating exact return on investment is a difficult one.

            What I find interesting is someone, somewhere in the government is doing these calculations and the State Government has sold the practice as being beneficial to the tax payers of Georgia.
            But I will disagree on one of your points, and we can agree to disagree politely.
            Giving a tax break is not the same as giving someone actual money from the taxes you did collect.
            If the government did not have a tax credit program the filmmaking economic activity may not occur and therefore, the government wouldn’t collect taxes in the first place.
            It’s like the 2.5 to 3 trillion dollars that US Corporations own overseas. They are not bringing that cash back to America due to the tax rate they would pay. So they just leave it in foreign banks.
            If the Federal Government said “bring it back at 5% versus 25-35%” a lot of money would come back and investors would pay capital gains, companies would invest in more activities that create products, services and most of all more jobs.
            Great discussion… let’s hope that lower taxes do benefit the people that need the jobs the most by incentivizing companies to do what they do – create commerce! We can agree that good commerce does everyone good.

          • MatteObject

            “100 million spent in Georgia is taxed in salaries, business profit, and other economic activities.”

            Tell me, what’s the state income tax in Georgia?

            Is it 30%? It’s not, is it? It’s 6% So if you tax every dollar spent at 6% but refund 30%, you are spending $5 for every $1 you collect. Even with a multiplier effect (which, shockingly, isn’t anything like as effective as the film industry would like us to believe), we’re still only talking a $1.80-$2.00 return for every $5 spent.

            This is not a case of ‘well at least we got SOME of that tax money’, which it would be if the tax credits were lower than the tax revenue, but they’re not, that’s why they’re transferable/refundable.

            You cannot raise taxes on everyone else to give Hollywood a negative tax rate and expect the state to come out ahead.

  • Athanasios

    Regardless of the “validity” of the Study, I’m afraid that the MPAA’s response, judging it from the above excerpt, is a disgrace. If the MPAA has a different opinion, they should publish it in response without using, typical tabloid style slander.
    Just removing some words:
    “troubling, without excuse false and misleading study, without statistical and intellectual foundation recklessly, from otherwise respected, severely tarnishes reputation, academic credentials, academic malpractice, designed to make provocative”
    And that’s only one paragraph.

    I’ll make an effort to read, both the study, and the full reply over the next few days.