More than a month after Louisiana Governor Bobby Jindal “parked” his widely-panned proposal to repeal the state’s income tax, state policymakers now are returning to what should be a more straightforward tax reform issue. A new report (PDF) from the Louisiana Legislative Auditor critically evaluates the workings of the state’s film tax credit, which gives Louisiana-based film productions a tax credit to offset part of their expenses when they hire Louisiana workers or spend money on production expenses locally.
From a cost perspective alone, it makes sense to take a hard look at this provision: the state has spent over $1 billion on these Hollywood handouts in the past decade.
But the Auditor’s report is also a good reminder of just how little the state is getting in return for this massive outlay. The report estimates that after doling out almost $200 million in film tax breaks in 2010, the state enjoyed just $27 million in increased tax revenue from the film-related economic activity supposedly encouraged by this tax break.
This means a net loss to the state of about $170 million in just one year.
It’s hardly news that film tax credits offer little bang for the buck: last year the Louisiana Budget Project reported (PDF) that each new job created by the film tax credit is costing the state $60,000, and a recent report (PDF) from the Massachusetts Department of Revenue found that a huge chunk of that state’s film tax credits were going to wealthy taxpayers living in other states. Even when these credits create in-state jobs (and they do generate some economic activity), the transitory nature of film productions means those jobs probably will be gone when the production leaves town. And it’s virtually impossible for lawmakers to know whether they’re really attracting film productions to the state—or just rewarding moviemakers for doing what they would have done anyway (as “incentives” often do). Either way, Louisiana taxpayers are still doling out more than they are getting back.
But it’s not all bad, according to the Auditor’s report: the Louisiana credit does appear to be going largely to film productions that are technically eligible for it. So, as far as the Auditor can tell us, the film tax credit is simply ineffective and not an outright scam. Or at least, it wasn’t until this guy pleaded guilty to fraudulently claiming the credit, which is similar to what happened repeatedly in Iowa after that state’s disastrous experiment with Hollywood tax breaks.
After surviving the three-month train wreck that was the rollout of Governor Jindal’s tax plan, Louisiana lawmakers should find the film tax credit an easy problem to solve since they know how much it costs and just how little they’re getting in return. Right now they’re just tinkering around the edges, but pulling the plug on handouts to Hollywood should be high on policymakers’ to-do list.