Officials from four Massachusetts think tanks offered differing perspectives on the state’s strategy in doling out corporate tax breaks, but they all agreed on one thing: the film tax credit is bad economic and public policy.
“The film tax credit is the classic bad bet,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation. At a time when spending across state government is being cut, Widmer said hefty spending on films means more spending reductions elsewhere. “Every time a film is made in Massachusetts some teachers are laid off,” he said.
The other three officials – Noah Berger, president of the Massachusetts Budget & Policy Center, Ben Forman, research director at MassINC (the publisher of CommonWealth), and Steve Poftak, research director at the Pioneer Institute – said number crunching by the state Department of Revenue has clearly shown the film tax credit is bad economic policy.
The film tax credit essentially requires the state to pay 25 percent of the cost of any film, documentary, or commercial filmed in Massachusetts. The most recent Revenue Department report released in January showed the film tax credit generated $319 million in new spending on movies, TV shows, and commercials in 2009, but only a third of the money went to Massachusetts residents or businesses. The report said the state’s cost per Massachusetts film job was $325,000.
Berger said the state could probably attract any industry to Massachusetts by paying a quarter of its costs. Forman said state officials might be violating their fiduciary responsibility to manage state tax dollars wisely by investing in film productions.
Despite those negative reviews, top Beacon Hill officials strongly support the film tax credit. Indeed, a state delegation visited Hollywood in February to reassure film makers that the tax credit wouldn’t be going away.
The tax break panel at the State House was heavily stacked with skeptics, in part because it was being used as a vehicle by Sen. Jamie Eldridge and Rep. Carl Sciortino to build support for a bill they filed that would require the disclosure of more information about tax breaks and their effectiveness. The bill is scheduled for a hearing later this week.
Over the last decade, Berger said, spending on higher education and K-12 education had been cut, but state tax expenditures – the budgetary name for tax breaks – had risen by 25 percent. “Is that the right set of priorities for economic development?” he asked.
Widmer distinguished between changes in tax policy – like the shift to a single sales factor approach in the mid-1990s that benefitted manufacturers and financial services companies – and tax breaks given to specific companies or industries. Widmer favored the former (Fidelity Investments, a major beneficiary of the 1990s tax shift, is a Tax Foundation sponsor) but had concerns about the latter.
Poftak also questioned the wisdom of state officials giving financial support to individual companies, saying the officials are not equipped to perform due diligence on a company’s prospects.
Forman, however, said broad-based tax breaks such as the Investment Tax Credit often waste a lot of money because companies that take advantage of them would have added jobs or expanded anyway. He favored tax breaks designed to steer companies to areas of the state where housing is less costly and jobs are scarce.
All four analysts said elected officials should target tax breaks at industries that play to the state’s strengths. They also said more research and disclosure is needed to determine the effectiveness of tax breaks and state officials shouldn’t be afraid to scrap them when they’re not working.
