News Story

Film incentives still don’t make sense for Michigan

Michigan corporate welfare meets Hollywood accounting: What could go wrong?

A group of Michigan lawmakers in the state House and Senate have introduced bills that would spend taxpayer funds to shoot movies in Michigan. This is bad policy, almost unanimously panned by economic analysis from across the spectrum. The last time Michigan lawmakers gave money to Hollywood producers, the program ended with studio bankruptcies, few jobs, and a $500 million price tag for taxpayers.

From 2008 to 2015, Michigan subsidized film production up to 42% of costs. Producers received a refundable tax credit, meaning that any amount greater than the taxes a film company paid resulted in its being issued a check from the state of Michigan.

The new package introduced is a little different. It is a tax credit program of up to 30% of production and personnel expenditures. That credit will apply against any Michigan taxes production companies owe, but that is not where the value comes from. Hollywood producers tend not to owe much in Michigan state taxes. If that were the only benefit, few films would get shot in Michigan.

The reason that these credits can get producers to shoot in Michigan is that lawmakers can sell their film credits to other taxpayers. This gives producers cash while the taxpayers who buy the credits get to absolve themselves of their tax liability. The program clearly subsidizes films. Companies get a check worth up to 30% of what they spend.

But proponents of the new program defend the change in how the credits are distributed as a big deal.

“One of the things we wanted to do (with this new legislation) is prioritize Michigan,” said Alexander Page, chairman of the Michigan Film Industry Association (MiFIA)’s Legislative Action Committee and member of its board of directors. “We don’t feel like the state should be in the business of issuing checks. We wanted to make sure that this was changed, and so this is structured as a tax credit.”

“The old credits weren’t liked as well. They actually took money out [of the state],” Rep. John Roth told The Center Square. “This one actually keeps money in Michigan.”

This is a distinction without a difference. Previously, the state would write a check to film companies for up to 42% of their production costs. The new program means other businesses write checks to film companies of up to 30% of their costs. Instead of the state taking in taxes and sending money to some companies, it is simply taking in less revenue in order to give money to some companies.

The only difference is that the checks are laundered through other people’s tax returns. This is not a flippant use of the term “laundering.” The use of transferrable tax credits is an attempt to conceal the source of funding, the definition of the term. Film subsidy supporters try hard to make it seem like they are getting something other than a check paid for by taxpayers.

Taxpayers and lawmakers should not be confused by their money laundering scheme. The reality is that Michigan taxpayers would be competing to subsidize an extremely transient, relatively small industry. That didn’t work last time.

A reminder of what transpired from 2008-2015 when Michigan had film incentives:

  • Taxpayers spent $500 million, resulting in only a small, temporary job blip.
  • There were multiple studio collapses, including one in Pontiac (which required a bailout from the teacher pension system) and one in Allen Park (which nearly bankrupted the city).
  • The state film office approved a $1 million subsidy for a Michael Moore documentary...a movie that was about how those with connections took advantage of taxpayers.

A key argument from proponents of film incentives in Michigan is that “everyone is doing it.” About 40 states have incentives, with Michigan being one of the ones that doesn’t. But the fact that 40 states are competing to out-subsidize each other for a small, transient industry means it is even less likely Michigan would be able to build this industry for long-term jobs.

It’s just another reason, among many, we should avoid this race to the bottom. Film subsidies cost taxpayers and are not worth it. Legislators should not think that laundering checks through other people’s tax returns will make this attempt any different.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.