Bad Bill of the Week: HB 1142 – Handout to Hollywood Cronies

Do you think your taxes are too high? Would like a tax break? Well, some NC legislators are happy to give you a big tax break – if you are a big Hollywood film studio.

For years, North Carolina politicians have been tugging on the Armani suits of Hollywood execs to offer them targeted tax credits to film in our state. The credits were scheduled to expire at the end of this year, but House Bill 1142 Modify Film/Historic Rehab Tax Credits would extend these credits – indefinitely.

It seems this bit of Hollywood cronyism is a bipartisan issue. HB 1142 has four primary sponsors: Reps. Susi Hamilton (D-New Hanover), Frank Iler (R-Brunswick), Ted Davis, Jr. (R-New Hanover) and Rodney Moore (D-Mecklenburg). Another 11 cosponsors have also signed on. Of the 15 total sponsors, five are Republicans and 10 Democrats.

Civitas has written extensively in the past against crony capitalism because it is not only bad economics, but also an unfair practice that puts a greater concentration of power into the hands of the political class.

A few points to remember:

• Tax credits distort economic decisions, causing scarce resources to flow not to their most efficient uses but toward those granted political privilege.
• Cost-benefit analyses of film credits cannot take into account the opportunity costs involved in film production, that is, the production and investment that are foregone because they have been utilized instead by the film industry in response to the tax credits.
• Giving tax credits to politically-favored industries means that everybody else pays higher taxes to support a given level of government spending. This creates an unfair advantage for the favored industry and depresses economic activity in all other industries.
• When politicians signal that they are willing to play favorites, this creates a greater incentive for corrupt activity, including outright bribes.

Moreover, there is plenty of research available showing that taxpayers are net losers when it comes to film incentives, for example here, here and here.

More and more states have been realizing that targeting tax credits for film production is bad policy and are scrapping their tax credit schemes, as discussed in this 2011 Tax Foundation report.

Finally, NC legislators should learn a lesson from the Michigan city of Allen Park. The city was promised a filming boom by a Hollywood studio seeking to exploit the state’s generous tax credits. The city went millions into debt to finance a studio, and then the company bailed after making one straight-to-DVD movie. The Hollywood fat cats are back in California, while the city struggles to pay off millions in debt for a big, empty studio.

Because it represents cronyism and political privilege, opens the door for more political corruption, is bad economics, and concentrates more power into the hands of the political elite, HB 1142 is this week’s Bad Bill of the Week.