GOV. CHARLIE BAKER made the first move, calling early in March for an expansion of the politically popular earned income tax credit and proposing to pay for it with money saved by eliminating the state’s film tax credit. A top House leader responded on Tuesday, dismissing Department of Revenue studies suggesting the film tax credit offers a poor return on the state’s investment and urging lawmakers to expand the earned investment tax credit while keeping the film tax credit in place.
“It doesn’t have to be an either-or situation,” said House Majority Leader Ron Mariano. “To present it as either-or is wrong-headed.”
Mariano said the two tax credits are very different. One helps low-income working people and the other is designed to build a new industry, he said. Mariano said the Revenue Department studies, which indicate most of the spending generated by the film tax credit flows out of state in the pockets of big-name actors and directors, are flawed and fail to account for many jobs created in Massachusetts.
Asked where lawmakers would come up with the money to expand the earned investment tax credit if they don’t do away with the film tax credit, Mariano said: “We’ll look at other programs and other things. We’ll look at other tax credits.”
The state’s earned income tax credit allows families with low incomes to claim a tax credit equal to 15 percent of the federal tax credit. That works out to a maximum of $937 for a family with three or more children. The family can claim the tax credit even if it doesn’t have any tax liability, meaning any part of the credit that doesn’t offset taxes would be paid to the taxpayer in cash. Baker is proposing to phase in an increase in the state tax credit from 15 percent to 30 percent of the federal credit by 2018, at a cost of $145 million annually by fiscal 2019.
The film tax credit, on the books since 2006, offers producers who shoot films, TV shows, or commercials in Massachusetts a tax credit equal to 25 percent of whatever they spend inside the state. The tax credit, which can be sold and converted into cash, has drawn lots of movies to Massachusetts, generating $195 million in wages and $109 million in non-wage spending in 2012, according to the Revenue Department. But the agency says 74 percent of the wages in 2012 went to nonresidents and 54 percent of the non-wage spending went to out-of-state businesses.
“Choices have to be made,” said Jay Ash, the governor’s secretary of housing and economic development at a hearing of the Legislature’s Joint Committee on Revenue in the State House’s Gardner Auditorium. “The choice that we made is to take something that isn’t working and use the money for something that is working.”
Ash indicated the local jobs created by the film tax credit are ridiculously expensive given the roughly $80 million annual cost of the program. He said tax credits given to Amazon as an incentive to open a warehouse in Fall River work out to a cost to the state of $6,500 per job. Tax credits for life sciences jobs cost $17,000 per job, he said. But the cost to the state for every film job is $118,000, and Ash noted that amount is the cost of one job for just one year. Each year, he said, the film job needs to be subsidized again.
Rep. Timothy Toomey, a Democrat from Cambridge, told Ash he didn’t like the administration’s approach, pitting one group against the other. “We should be able to do both,” he said of the two tax credits.
But Ash said the administration is not trying to pit one group against another. “We’re trying to get the best return on investment we can,” he said.
House leaders oppose the dismantling of the film tax credit, but whether they can derail efforts to scuttle the initiative as they have in the past is unclear. Rep. Jay Kaufman of Lexington, the House chairman of the Revenue Committee, seems politically inclined to scuttle the film tax credit but adopted a neutral stance at Tuesday’s hearing. He noted the proposals to expand the earned income tax credit and eliminate the film tax credit would be voted on separately, although he noted it is helpful for lawmakers to compare one to the other.
Several House lawmakers testified at the hearing in support of the film tax credit, while the senators who testified were split on the measure. Sen. James Eldridge, a Democrat from Acton, favored scrapping or capping the film tax credit, while Sen. Bruce Tarr of Gloucester, like Baker, a Republican, said he supported an increase in the earned income tax credit but wanted to retain the film tax credit.
Rep. Ann-Margaret Ferrante, a Democrat from Gloucester, suggested Americans for Prosperity, a conservative group funded by the Koch brothers, is lobbying to eliminate film tax credits in states across the country. She also said the Revenue Department studies don’t include the spinoff jobs caused by films shooting in Massachusetts and don’t account for all the free advertising provided by movies.
Ferrante noted actress Sandra Bullock appeared on Live with Regis and Kelly and praised the beauty of Rockport after filming The Proposal there with Ryan Reynolds in 2008. “We don’t have the type of money to pay for that advertising,” Ferrante said.
Chris Byers, director of operations and marketing for New England Studios, said his privately financed film studio in Devens has been struggling to convince Hollywood filmmakers to do projects here in Massachusetts. Since opening in March 2014, Byers said, New England Studios has hosted one Jason Sudeikis movie for four months and done some commercials and rock videos. He said he hopes to land bigger projects this spring, but any change in the film tax credit could undermine that effort.
Asked outside the hearing if the studio would shut down if the film tax credit is eliminated, Byers said: “I don’t know what we would do.”