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Tax Credits for Hollywood?

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Grand Avenue in downtown Los Angeles used as a backdrop for a New York City scene
Grand Avenue in downtown Los Angeles used as a backdrop for a New York City scene

The industry that helped put Los Angeles on the map, the film-making industry, is now asking our state legislators to extend tax credits for producing low- and moderate-budget television shows and films in California. Tycoons and union members have united.

What is the legislature to do?

Proponents of the tax extension claim that we will lose film jobs to states providing more generous tax breaks. We can scarcely afford to lose even a single job.

Opponents, however, contend that with a looming budget deficit and cuts to basic health and human services, we can hardly afford a $500 million tax ($100 million per year) credit for Hollywood.

Proponents point to a study by the Los Angeles County Economic Development Corporation, which found that the program has created 20,000 jobs and brought $3.8 billion to the Golden State. Opponents point out that the study was sponsored by the MPAA, hardly a neutral third party.

Hollywood is no doubt losing business to other states providing more favorable tax rebates to filmmakers. "Battle: Los Angeles," broke ground in Louisiana.

While the Assembly approved the five year extension, the Senate limited the extension to just one year. The Senate also made the credit contingent upon the state obtaining a certain threshold amount of revenues.

How did we end up with a tax credit for the film industry?

We can thank (or blame) the Governator for that. In 2009, then-Governor Arnold Schwarzenegger signed a budget including the initial tax credit. Filmmakers cannot use the tax credit to pay actors' salaries (breathe a sigh of relief that our nearly-bankrupt state is not subsidizing the seven-figure salaries of our favorite starlets and matinee idols) but can use the credit to offset sales and business-use taxes.

The initial $500 million program was set to expire in 2014. However, in only two years the popular program has distributed over $400 million, and the money is expected to run out this summer. Funds are distributed on a first-come, first-serve basis.

The answer is a simple one, but determining how we get there is more complicated. If we can prove the tax credit brings in more money than it costs, it is worthwhile. This is a difficult determination because it is hard to divine whether the tax credit leads to the creation of more jobs, or if the same filmmakers would choose to shoot here regardless of the tax credit. This is particularly challenging because funds are doled out first-come, first-serve basis, not based on whether a filmmaker has an offer for a subsidy in another state.

If the tax credit isn't paying off, time to nix it, quickly. When people can't get basic services, it is hardly the time to experiment with unsuccessful tax credits.

The photo used on this post is by Flickr user IK's World Trip. It was used under a Creative Commons License.

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