Michael Moore is Right–On Film Tax Subsidies: Time to dump generous and inefficient

Commentary, Taxation, Frontier Centre

If Canadians think at all about Iowa, it’s probably as a forgettable prairie state. But it should be noteworthy for at least this reason: as a useful example of how the film industry plays politicians and taxpayers for suckers.

 In September, Iowa’s film subsidies became an issue after an audit found the state’s 50 per cent tax credit helped one director buy a $61,000 Range Rover. Another treated himself to a $67,000 Mercedes-Benz. Iowa rules allowed for the purchase of one automobile for film-related work under the subsidy policy, which it has since suspended.
In a more recent example of generous film subsidies, the Wall Street Journal reported last week that one film producer, Ingo Vollkammer, switched his planned location shoots from Texas to Madrid, then Berlin, and finally ended up in Montreal, this after generous Quebec and federal incentives shaved $10 million in costs from his $25-million movie, Velocity. 
Directors should feel free to buy all the luxury cars they want, or shop around for the lowest location costs. But they should do so without help from other taxpayers who must still pay their own, full tax bill.
This subsidy game originated in 1997 when provinces such as Ontario began to offer lucrative tax credit bribes to the film industry. Over the years, other provinces and U.S. states became increasingly willing to throw money at the highly mobile sector.
The justification is always the same. Last year, when Michigan’s governor signed a new, more generous 42 per cent tax credit into law, Jennifer Granholm asserted "We’re going to grow this industry and in the process, grow our economy and create jobs."
Hardly. Such tax credits merely redistribute employment across borders. But plenty of politicians still buy the exaggerated illusions created by the entertainment industry.
For example, back in July, Alberta’s Culture Minister Lindsay Blackett channelled the film industry’s standard line when he peddled the notion taxpayer-subsidized film studios would be a net economic benefit. Blackett told the Calgary Herald’s editorial board that for every provincial dollar invested in the industry, five more are generated in economic returns. The Herald in turn quoted the film industry on the “new” tax revenues to be expected: $1.20 in new taxes for every one tax dollar delivered up to the film industry.
These are junk statistics, pushed by industries in pursuit of a special deal on their tax bill. But the payback isn’t there. As the Michigan Senate’s Fiscal Agency reported this year, that state’s film tax credit will cost “more in business tax credits than it is expected to gain in income and sales tax revenue.” The same report noted how a film company which spends $10-million in Michigan would create just $700,000 in income and sales tax revenue but receive $4 million in payouts from the state government.
Tax relief is a useful end but not when done through sector-specific credits that distort incentives to favour one industry over another. That offends the worthwhile principle of neutrality.  It’s akin to a government that would grant the Red Cross a 50 per cent charitable tax credit but limit all other charities to a 20 per cent credit for their donors.
That the film industry creates economic activity and jobs is true–all businesses create some. But shifting investment, jobs and tax revenue (at a greater cost) is not the same as the new creation of the same. It doesn’t matter if films are shot in Canmore or Kelowna, or for those with a broader perspective, in Vancouver or Berlin. No new jobs or tax revenues are created by mere relocation.
One filmmaker, not normally known for his deep understanding of how markets work, at least understands the folly of film subsidies. Earlier this year,  Michael Moore slammed the political habit of giving into the film industry: “These are large, multinational corporations: Viacom, GE, Rupert Murdoch, that own these studios,” said Moore. “Why do they need our money from Michigan, from our taxpayers? We’re already broke here. I mean, they play one state against another.”
Yes, they do.