MICHIGANDERS TO PAY FILMMAKERS OVER $100 MILLION TO MAKE MOVIES IN THE WINTER-WATER-WONDERLAND

Last month Gary Olson, an official advisor to the Michigan State Senate on fiscal matters, advised the appropriations committee that the state’s new tax incentive program for filmmaking companies will cost over $127 million in tax credits this year in exchange for only $10 million in income and sales taxes that 22 film projects presently committed to the state will generate.

Under this hand-out pushed by Governor Jennifer Granholm and star-struck state legislators earlier this year, filmmakers get a 40-cent credit from Michigan taxpayers for every dollar they spend in the state to make movies, television programs, and even computer games.  This credit is applied against the amount a filmmaking company owes under the Michigan Business Tax.  But that’s not all.  That 40 cents is not just a tax credit, but a refundable tax credit.  That means if the credit exceeds the amount of the state’s MBT bill to the company, the taxpayers then cut the film company a check for balance of the credit.

That’s right!  We are paying the film industry to shoot movies in Michigan.  For example, if a filmmaking company spends $10 million in the state for a movie project, it gets a $4 million refundable tax credit.  If the company’s MBT bill is $2 million, then the remaining $2 million of the credit is directly paid to the company straight out of the state’s tax coffers.  In exchange for all this, according to Olson, the project will put back into the coffers about $790,000 in state income and sales taxes.  To add insult to injury, the film company won’t even pay those taxes.  The local employees and vendors of the company will.

Meanwhile Guv Jen is telling Michiganders to suck it up, because there will be no limit on this taxpayer giveaway to the film industry.  The governor along with the legislators who backed this boondoggle insist that we have to subsidize the film industry if we want it to take root in the Great Lakes State.  Of course, they say we must also understand this will be a long process that will not produce a robust film industry here overnight.  In other words, the current crop of politicians who are now paying for their fantasies of hobnobbing with the stars with our tax dollars will be long out of office when this idiotic waste of money does nothing better than drawing into our state a gaggle of weak businesses that can’t survive without a taxpayer handout.

The stupidity of these politicians is costly to us.  (By calling them stupid, I am being charitable.  I assuming that they are benighted and not bedeviled in what they have done.)  They throw away our tax dollars on film companies that will not do business anywhere unless they get generous subsidies -- because they cannot make money otherwise -- and pay for this foolishness by ratcheting up the tax burden on other companies that can and do business in this state without any subsidies -- until that burden either ruins them, restricts their growth, or drives them out of state.  Thus, Michigan becomes an economic wasteland.

Let’s be clear.  Lower taxes (as opposed to subsidies) are good for all of us, if they are non-discriminatory.  However, they will wreck an economy (especially as subsidies) if politicians pick and choose which businesses get their favor.  Call this Gresham’s Law applied to business.  Taxpayer subsidies draw in weak businesses and drive out strong ones.  Renaissance zones, bio-tech and ethanol subsidies, the farm preservation program, and the other targeted business tax breaks and subsidies all contribute to the same rotten result -- as this new filmmaker tax credit will -- of impoverishing us.

It’s long past time to say no more.  Cut taxes for all of us, not just those who catch the fancy of our elected officials.

Comments

[B. Post]

I've been following this story in the news for several months and every time I hear about it again it evokes a sense of total outrage. In some ways, the way we've been forced to use property tax abatements to lure businesses here to Michigan are bad enough, but for the most part they will pay for themselves over time. In this case, these film credits (grants really) basically boil down to outright bribery. What is so magical about the film industry that it has grabbed the attention of our governor and legislators over even her earlier biotech boondoggle (which by the way, she wanted to grant $2 billion dollars to in that scam)? This is an industry that produces NO infrastructure. They're gypsies: they make their films and then they leave. Nada. Take the money and zip, they're gone. It really makes you wonder if our wonderful governor has friends or family in this industry because this just plain smells of how politics works in the third world countries I've visited.

[The Executive Director]

Hello, B.

I agree that industrial property tax abatements are a type of selective tax break. I don't harp on them too much because they are not nearly as egregious as the others like the filmmaker tax credit. At least they have broad application, were intended to mitigate the perverse effects of the old SBT on capital expenditures, and encourage manufacturing which CREATES rather than transfers wealth.

Even so, as a manufacturer my company does not pursue them.

I like your point about how the "magic" of filmmaking seems to have made the pols swoon. They aren't allowed that indulgence when it comes to spending our hard-earned tax dollars. They are obligated to make hard-headed decisions about the economics of fiscal policies, not star-struck ones.

Filmmaking will never be a big enough industry in Michigan to justify taxpayers propping it up. In fact, it would be a fiscal nightmare if that industry did get big here, because then it would have the political clout to stop the state government from weaning it off the taxpayer subsidy. It would become a monster.

Regards,
Bill

[mpa]

Umm, have any of you actually read the law? This is already effective MI vendors in a positive way.
Enterprise Rentals, A grocery, trash services, water services, table and chair rentals, brokers for rental homes, hotel stays ALL are up. The production community is working again and when they get paid they mulitply the money by placing it back in to the economy. Now, the State isn't giving anybody any money. These film comapanies are renting and buying well in advance of any rebates. They need to file their taxes, get their MI expenses qualified and then - depending on when they began they will receive a check in '09.
Meanwhile, they are renting office and warehouse space, paying MI labor and services RIGHT NOW.

This was a dramatic move and an investment in a more diverse economy. Tell me of another industry that can provide such a return in 2 months? (the bills were passed April 7).
Sure the features not always come here in droves, but that's fine. While they do, we will be training up crews, training up those educated here who were leaving and those that did leave are coming back.
We need to let this grow.

[B. Post]

I fully agree that the film crews are coming here, spending money and so forth, and I also agree that there is a trickle-out effect of that cash. The hard-nosed bottom line presented by the MI treasury department is that we will spend $135 Million this year on the program, but only recoup $25 Million out of that, for a net cost of $110 Million. I haven't read the law, but I have to say that if what the treasury says is true, then the statement that the companies can only get the money through tax refunds doesn't ring true: you can't get more back than you put in through that mechanism, so there could be no net cost to the state if that were true. Everything published in the press indicates that this is a "grant" program, and not a rebate program.

Additionally I'm sure, as you say, some businesses will benefit from the spending, so from my perspective this means that of that $110 Million that I help pay, my taxes, i.e. MY money is sending an economic stimulus check to the restaurants and hotels that you cite as benefiting. That is like saying that pyramid schemes are actually beneficial even though they only have benefit for a few. Those dollars that you're seeing being spent come from somewhere, and that somewhere is from our pockets. You could achieve the same net spending result (and more equitably across the whole economy) by applying that same money as a tax break.

Also, if you study similar programs in other states, you'll find that those states were smart enough to set a dollar cap on how much a given project can receive under those programs. As I understand it, no such dollar cap exists on the Michigan program. Thanks Jennifer!

[The Executive Director]

MPA,

"This was a dramatic move and an investment in a more diverse economy. Tell me of another industry that can provide such a return in 2 months?"

The ones already here, already paying salaries, already buying goods and services, already turning profits, and already paying taxes.

As for this "return" you speak of, it is a grossly negative in terms of tax revenues, with the taxpayers making up the difference. Re-read the article. As for any spike in business some companies are getting from film production in Michigan, that comes at the expense of the taxpayers who are forced to "invest" in this subsidy to the film industry.

If you can justify that, then why shouldn't the state force taxpayers to "invest" in my company? Indeed, it proportionately pays far more in taxes than these film projects do. So, it's a much better "deal" for the taxpayers.

This is the nonsense and inequity that comes of letting politicians pervert the terms and concepts of the free market as cover for their forcible taking of wealth from us to subsidize favored special interests.

Even if you think that this force can be rationalized, do you seriously think that politicians can do a better job of "investing" in our economy than the actual businessmen and investors (including all those ordinary people with 401k's) can do? When has a planned economy ever out-performed a free market one?

Regards,
Bill Tingley
Executive Director, L.A.W.

[The Executive Director]

Hello, B.

MPA is correct on how the tax credit works. A film production company has to sign an agreement with the state to qualify its project for the tax credit. Then it has to submit a return showing how much it owes in MBT taxes for the project. If the credit is greater than the amount of MBT owed, then the state cuts a check to the company for the balance of the credit.

The thrust of MPA's point is that the film production company has to qualify its project to get this hand-out from the taxpayers. It seems that MPA thinks that this qualification is one of the virtues of the tax credit, because it means not just anyone can get the hand-out.

Of course, that alleged virtue is precisely what is wrong with it. The politicians should not cut taxes for, let alone subsidize, only select business interests. It perverts the economy with artificial incentives to invest in a government-favored sector rather than letting the market determine what is most sound. (Ethanol subsidies are an excellent example of this sort of political hackery that wrecks a market.)

If tax-cutting is good for the Michigan economy (and it is), then everyone should get the cut. Then let the genius and hardwork of individuals sort out what is the best way to make money in Michigan.

Regards,
Bill

[SethGecko13]

I was going to ask if your numbers factored into account the benefit to the state in terms of the ancillary money spent on Michigan businesses that would service the film industry (as well as the jobs that would be created) but appears those items are not factored into the $127 million figure as MPA noted.

[The Executive Director]

Hello, Seth.

The "multiplier effect" of the film industry study was estimated. That's how Olson was able to report that only $10 million in new income and sales tax revenues would be generated in exchange for the $127 million subsidy over the next year.

Certainly, Olson's figures can be debated, but the benefit you speak of was account for.

Regards,
Bill Tingley
Executive Director, L.A.W.