Lights, camera, subsidy: Tax credits for film a political favorite, with questionable success

By Anthony Hennen | The Center Square

HARRISBURG, PA – Pennsylvania’s film production tax credit was created in 2007 and now offers $70 million annually that can lower a production company’s tax liability.

A public hearing in April on a Senate bill that would almost double the program emphasized its importance in attracting film crews to the state, The Center Square reported. On Tuesday SB321, which would rename the tax credit to the “film industry incentive” and increase funding from $70 million to $125 million, advanced out of the Senate Finance Committee for its first consideration.

“The film industry has the ability to put people to work quickly in family-sustaining jobs, while also increasing opportunities for the small businesses that provide goods and services to the industry,” Sen. Camera Bartolotta, R-Washington, said in a press release. “The tax credit can offer this incentive to the commonwealth, as well as lead the way in the next wave of creative content for consumers at a time when the joke about finishing all the shows on Netflix has become real.”

The press release touted the bipartisan support for the film incentives and the more than 500 applicants who have received tax credits since the program’s creation. Yet critics warn that the credits do little to spur long-term growth.

“Those are very, very problematic programs,” said Kasia Tarczynska, senior research analyst at Good Jobs First, which promotes corporate and government accountability in economic development. “Film subsidies have a negative return on investment. Meaning, for every dollar invested in those programs, states recoup pennies.”
While state agencies might offer an internal analysis showing jobs created or the economic impact of film production, critics say those effects are exaggerated.

“Academic independent research has shown that film subsidies don’t create long lasting jobs and don’t create economic growth. There is very little for those programs to show,” Tarczynska said. “On top of that, these programs have very little transparency. It is very difficult to know which companies are going to actually benefit from these programs.”

Though specific businesses or labor unions benefit from the film industry in Pennsylvania, those benefits don’t overcome the heavy costs to generate that economic activity in the first place.

It is similar to Georgia, as explained by Kennesaw State University economics professor J.C. Bradbury, “While film tax credits result in more in-state film production spending, and some of it does end up in the hands of locals, most of it leaves the state when the filming stops.”

“You have to think about what is the opportunity cost of this money,” Tarczynska said.

Tax credits lower the tax burden for companies who get them; it allows them to pay less, meaning the state government must rely more on tax revenues from other companies to fund infrastructure, education, and other state obligations.

Politicians sometimes promote tax credit and subsidies for specific industries to show that they create jobs, Tarczynska said, but the results are more marketing than factual.

Some states, such as Michigan, ended their film incentive program, while others have admitted that the program isn’t economically promising.

A 2019 report from Pennsylvania’s Independent Fiscal Office reached a somber conclusion: “Although the tax credit incentivizes productions, it is difficult to see the impact of the tax credit in employment and GDP data for the last five years. … The analysis finds that the net return on investment (ROI) is 13.1 cents of state tax revenue for each tax credit dollar.”