Ryan E. Walters, Cinematographer

Cinematic Excellence at 24 Frames a Second

Why Tax Incentives For Film Are Not The Answer

© Ryan E. Walters: Stock Footage
At a time when personal, local, state, and federal budgets are stretched thin and when people have been out of work for more than a year, it would seem like a great idea to attract new business to drive economic growth. After all, more work equals more income which means more revenue for everyone. Why not attract film productions to our states through tax incentives? Unfortunately, this is not proving to be the case. Instead it is developing into a race to the bottom where the only winners are the studios and producers.

Full Disclosure-
I am based out of Portland, Oregon, one of the 40+ states that offers tax incentives to film productions. I know and have worked with people who have been instrumental in supporting, and helping to shape our own film incentive. When these incentives were first being put in place, I was behind them and I even called my local representatives to voice my support. Additionally I have worked on productions that chose to film in Oregon specifically due to tax incentives. Many of my friends have worked or are working on productions here in town as a direct result of these incentives. So I have been directly impacted and have a firsthand experience of how these incentives affect the local film industry and my many friends who work in it.

A Bit Of History
To get a better idea of where we are headed, we first need to take a look back at where we came from. Film production has been happening for well over 100 years. At its beginning, and even until recently, to complete a feature film or a TV show was a massive undertaking. The equipment was expensive. It took years of practice and apprenticeship in order to use the equipment. Massive amounts of personnel and capital were needed to get anything done. Basically you had to be a studio in order to make a TV show or feature film. Today that is no longer the case. Cameras are getting smaller and their quality is improving by leaps and bounds with every passing day. This is leading to smaller crews, less equipment needs, and a lower financial commitment. The cost for post production equipment has nearly evaporated, as systems that used to cost over $200,000 are now well under $10,000, with some high end software packages being given away for free. Distribution has dwindled to the cost of an internet connection thanks to platforms like YouTube and Vimeo, where some have managed to find millions of viewers. Sound crazy? Well, it isn't for the makers of 'Like Crazy' who shot their film on a $1,000 camera (7D) and sold it for $4 million dollars.

At the same time the cost of entry into filmmaking has plummeted, the reverse has happened when it comes to film incentives. While film incentives did not exist before the 1990's, 40 states gave away $1.4 BILLION in incentives to film productions in 2010 alone. If the film industry has thrived for 100 years without incentives, it makes me wonder why all of a sudden we need them now when it is actually more affordable to produce a film today?

Do Film Incentives Create New Jobs?
I am all for job creation. The more people we have working, the better our economy will be. But I'm not convinced that incentives for the film industry actually create new jobs. I was working as a freelance cinematographer well before the incentives were in place, and many of my friends have been working in their roles for years here in Oregon. Incentives or not, we have had our jobs. Realistically, when a big production comes to town they are not hiring the key crew roles locally; instead they are brought with the production or hired from out of town. This means that the lower roles are filled by locals who were already employed doing what they did. The same applies to actors. The leads come up from Los Angeles, and if you want an actual roll on a show you have to be cast through an agency in Los Angeles. It is only the extras that get cast from the local talent pool. (And they too were already working as actors here in town). I haven't seen the large creation of new jobs promised by many who support film tax incentives.

What I have seen is more work for those of us here. I have had to travel less for work thanks to the added local work brought by the incentives. And it has brought the opportunity for many of us in the local film industry to get more experience at a higher level. Traveling less and gaining experience are welcomed benefits of the film incentives, but that is not the same as creating new jobs. In Pontiac, Michigan, A. Alfred Taubman, told the Detroit Free Press that the new studio he and his investors were building (with the help of film incentives) was going to create 3,600 new jobs. Sadly this was not even close to being true, as by 2011 they could only account for 200 new jobs, and to date they have defaulted on at least $630,000 in bonds.

© Ryan E. Walters: Stock Footage
Do Film Incentives Make The State Money?
The basic argument for film incentives is that the money given to these productions will be recouped in additional revenue that is generated by the production. This is not turning out to be true. According to a report by the non-profit, non-partisan Tax Foundation
"This claim is simply false...this claim is largely based on the assumption that all the credit recipients would have located elsewhere in the absence of the credit. This is not true, and much of the tax subsidy represents a real loss of revenue with no net new jobs to offset the cost...For example, proponents usually cite a number of jobs created or supported by the film industry, and the economic impact of film production spending. But these numbers suffer from some serious misunderstandings that greatly affect how film tax credits are evaluated...some of these jobs would have existed anyway in the absence of film tax credits. What is important is the number of additional, or induced, jobs, their impact on the economy, and the tax revenue they generate. In order to be a revenue gain for the state, any net new jobs, or net jobs saved, would have to generate enough tax revenue to outweigh the revenue wasted on productions that would have located in-state anyway."
As I mentioned above, I'm not seeing a drastic influx of new jobs. What I am seeing is people who live and pay taxes out of state come here to work, and I see those of us who already live here get more work in state. I'm not convinced that it is going to generate enough additional revenue to offset the money we local tax payers are giving away to the studios and the producers. In fact, in that same report the Tax Foundation points out that states are only recapturing $0.08 - $0.28 per dollar in NEW revenue for every dollar spent. I'm not much of a financial expert, but that doesn't seem like a wise investment of public money if we are losing $0.92 on every dollar we spend on film incentives. If we are going to throw away that kind of money, I'd rather "throw it away" on education or other social services like the police or fire department.

What About Economic Development?
If we can develop a thriving movie business here in town, then that will create a new industry as well as jobs that support that industry. I'm all for developing a new industry. But when it is applied to the film industry, I don't see that argument holding water. We in the film business are a migratory bunch of people. We go to where the work is and we travel to wherever the production needs to film. To develop a truly thriving film industry locally will take decades if not longer. Los Angeles and New York did not spring up overnight.

Even if a healthy film industry level could be developed here, who is to say that it wouldn't be stolen away just like we see happening to Los Angeles due to the incentives provided by other states? What kind of economic impact would that have on our state then? Unfortunately Pontiac, Michigan is reaping the "benefits" of trying to do just that, as the studio Motown Motion Pictures, LLC is defaulting on their bond. Leaving the already struggling town without any additional revenue, jobs, and with a substantial loss of actual cash.

© Ryan E. Walters: Stock Footage
So Who Really Benefits?
If the state isn't benefiting, the tax payers are not benefiting, and I'm not benefitting,* who is reaping the rewards of these tax incentives? The responses of the producer of 'Margin Call' sums it up best
"Who are the ultimate beneficiaries? You know, who really benefits? I had an interesting conversation with a producer of a movie, the producer of 'Margin Call.' And I asked him, I said: When you get these incentives, do you pay the workers more because you got these incentives? Because your profits will be higher by having the incentive than if you hadn't had it.
And he said, no, no. I pay them the same. I said, so who gets the financial upside from the incentive? And he said he does. And, you know, he does, and he shares a little bit of the profits with the director and the star actors, but not the camera crew, the make-up people."
The real winner of film incentives are the studios, the producers, and the stars of the production. Meanwhile, the state gets less money, and crews continue to work 12-16 hour days breaking our backs to make movie magic. (It is the most glamorous blue collar work out there). Something about this scenario doesn't seem equitable to me...

When you get down to it, the film industry is a thriving business that is not in need of corporate welfare, or, as the Tax Foundation also calls tax incentives, "grants." They go on to say ...
We have refundable tax credits in state and federal income taxes: they are targeted at low-income, needy families. The most well-known is the Earned Income Tax Credit, or EITC. The EITC is appropriately acknowledged by public policy experts as a form of welfare or social assistance implemented through the tax code. Similarly, film tax credits are a form of corporate welfare and have been criticized by policy experts on the right and the left.
Does an industry that sees box office sales of $1 BILLION for one movie, and that doesn't seem to have trouble getting the financing it needs from banks to make its films, really need the additional support from the state and hard working tax payers in the form of grants? I also find it curious that there are caps to these film incentives. If they are benefiting the state by generating so much additional revenue and creating lots of new jobs, then why cap the incentives? Doesn't the state want a bigger piece of the 1 billion dollar pie?

*I only benefit in terms of being able to do more work locally. I do not see an increase in pay due to the these incentives.
© Ryan E. Walters: Stock Footage

The Race To The Bottom
Unfortunately, as long as we continue to support these incentives in each of our states, we will continue to be in a bidding war to undercut each other in order to draw film productions to our area. Even if we carefully craft these incentives to protect the tax payer, and to protect ourselves from the situation Pontiac, Michigan has found itself in, we can still be left holding the bag. The people of Toledo, Ohio found this out when DiamlerChrysler restructured, left town and did not repay any of the tax incentive money it had agreed to return. We might want to think more carefully about where we are investing our public money. The film industry is only one of many industries. There are other industries that can provide a similar if not better return on our tax dollar. (That is, if tax incentives are the way we should be spending them in the first place. But that is another discussion).

The film industry is not hurting for money, nor will it cease to exist if the incentives stop. If we want a long-term sustainable film industry, then we should explore other alternatives to lure the industry here. (Maybe through innovation, skill, expertise?) A continual battle over bigger and bigger tax incentives with other states is not a long-term solution. At some point they will go away. Maybe we need to realize that every state isn't cut out to have a booming film industry. After all, isn't that kind of the point of a capitalistic society? The market determines where jobs will be, not the government? I may be too much of a capitalist at heart, but I firmly believe that if I want to do what I love as a career, I need to go to where the work is, or else I need to live within the confines of the market I find myself in. I'm not owed anything. This is a creative industry and there are many ways to make a career happen. And thanks to technology and innovation, the options are only increasing. (Here I provide some tips on How To Succeed As A Freelancer ).

SIDE NOTE: I recommend reading or listening to the whole NPR story on incentives. While the majority of it doesn't speak to film incentives directly, it is both fascinating and disturbing how incestuous the incentive process has become. Often the same people advising our politicians to increase tax incentives are reaping large amounts of money from companies who benefit from these same incentives they are advising on.

Do you see the film incentives as beneficial or not? Why do you see it that way? What do you think can be done about it?

Until Next Time - Get Out There And Shoot!
See Older Posts...