Want a Tax Credit With That Popcorn?

Massachusetts' film incentives cost taxpayers a lot and don't deliver much in jobs or local spending. The new governor wants to do away with them.
March 13, 2015
By Charles Chieppo  |  Contributor
Principal of Chieppo Strategies and former policy director for Massachusetts’s Executive Office for Administration and Finance

There is no shortage of data indicating that governments go overboard when it comes to providing businesses with economic-development tax incentives. If Massachusetts' new governor has his way, that state will start to do something about it.

The tax incentives come in a variety of forms, ranging from credits, exemptions or deductions -- either for specific industries or for companies that agree to hire a certain number of people -- to enticements for companies to move to a particular neighborhood.

In Massachusetts, a generous film tax credit has lured the makers of such movies as "The Departed," "The Town" and a number of less memorable works. But it also cost state taxpayers about $79 million in 2012.

A deeper dive into the data reveals that most of the tax credits' benefits are, shall we say, highly mobile. Only about one-third of the estimated $304 million in spending the film tax credits generated between 2006 and 2012 occurred in Massachusetts, and about the same percentage of the 2,000 jobs the credit is thought to be responsible for during that time have been created in the Bay State.

As is so often the case, those benefits are far outweighed by the incentives' cost. Reports from the Massachusetts Department of Revenue show that state taxpayers are ponying up about $118,000 for each job created. As economist Robert Tannenwald, an adjunct lecturer at Brandeis University, wrote in the Boston Globe, the credits "generate too few jobs and too little income for too much money."

Rather than padding the bank accounts of out-of-state film moguls and movie stars -- and the Teamsters Union members who work on movie sets -- Gov. Charlie Baker wants to phase out the film tax credits altogether and use the money to increase the earned-income tax credit for 400,000 low-income Massachusetts families.

Controversies over economic development tax incentives are nothing new in Massachusetts. Back in 2011, following a fiasco in which a company called Evergreen Solar filed for bankruptcy and closed its Massachusetts factory after collecting more than $30 million in public grants and tax and lease breaks, state leaders created a commission to look at the incentives. The panel called for fewer and less-generous tax breaks, which it estimated would be responsible in 2013 for a stunning $26 billion in foregone revenue -- nearly two-thirds of the current state budget.

The commission recommended that Massachusetts follow Oregon's lead by having tax credits expire after a set period unless lawmakers extend them and setting an overall cap on the incentives. It also proposed guidelines for handing out future breaks: Each should have a clearly stated purpose and a desired outcome, include a finding of why the tax expenditure is expected to effectively achieve that outcome. And each should be accompanied by an estimate of foregone revenue.

Baker's proposal to end Massachusetts' expensive film tax credit altogether is an important step toward rationalizing the state's priorities and its tax code. Now we'll see if it can weather the onslaught from the film lobby and the state's Teamsters Union that are the main beneficiaries of the credit.