Hi,
A friend of mine posted the following article about the overwhelming benefits of film subsidies in Michigan, which has become somewhat of a hot topic because the film subsidies are about to be cut from the budget: http://www.modeldmedia.com/features/filmincentives311.aspx
Like so many articles on the topic, it references an Ernst and Young study (http://www.visitdetroit.com/images/stories/_blog/michigan_film_incentive_studyf.pdf) that boasts of a $6 return for every dollar spent on the film subsidy. Now, I've seen this report cited in a lot of places, and like so many of these things, I'm sure it's based on some extremely fallacious methodology, but I guess I don't know exactly where the methodology goes wrong. Is it something as simple as the broken window fallacy, where they just essentially say, "the new money goes to the film crew, who spend it on crew shirts, and shirt companies spend in on mom and pop stores, and pretty soon a single dollar of subsidy has worked it's way through the economy and provided 6 people with an additional dollar of profit"? I smell B.S., but I guess I don't even know where to start with these kinds of things.
I can definitely argue against subsidies on common economic grounds, but people don't listen when they have studies like these on hand. So where would you begin with a study like this? Alex
It is back to the concept of what is seen and what is unseen first commented on by Fre'de'ric Bastiat. That is you can see the "good" done by the subsidy but can not easily see who is injured. And it is really bad for states like Michigan where the subsidy does not directly injure tax payers but gets lumped into bond issues that have nothing to do with it. So those paying for the subsidy are being charged in the future. Consequently for the industry to be profitable it must not only cover the subsidy but also the interest in the bonds. I think that if you did some careful accounting you would find that there is nowhere near enough profits to keep that going. As for the loans, hopefully Michigan like California, New York, Illinois, etc can get the Fed to buy their debts but that is unlikely given the rising volumes.
Of course the above is a rational argument. I have a more anectotal argument based upon my personal experience. A family member by marriage comes from a resort town in Northern Michigan. Her parents still live there. The have a very modest retirement. How much are you willing to take from their retirement savings to fund your film industry. These folks get not help from the industry but get stuck with the bills.
The argument is something along the lines of, if the film guy who gets the government subsidy goes and buys bread, the subsidy "created" that much wealth, and then the baker can buy a car, which is again creates wealth. So we're all richer because that subsidy created aggregate demand; the classic demand-side argument. Obviously this is nonsense. It is useful to think about resources instead of money. How does a subsidy that causes people to use up resources inefficiently create wealth? It doesn't. First films that nobody would have wanted to pay for are produced, which is an inefficient allocation of resources. Then the film people buy bread, which takes away resources that someone else could have used. And that car that the baker buys isn't created because there is demand for it either, it is already there and somebody else could have purchased it. Subsidies don't create wealth, they use up resources for inefficient purposes and makes society poorer.
From the report, it sounds like the film makers are not actually getting money from the govt, but are getting a tax credit. meaning the govt agrees to steal less from them than usual.
Am I reading it correctly? Or are the film makers getting other people's money?
If indeed it's all tax credit, and tax credit means they pay less taxes, then that is all to the good. The govt is wising up. Steal less and people wil find it tolerable to do business in your state. And if those film makers are swallowing the bait, of course it's good for everyone. Everyone should support this.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Yeah, if it is indeed a tax credit it is a good idea and I support it. Although targeted tax credits distort the economy too. If the government takes your money and then goves you some back because you are this or that group, that's not the same as keeping your money in the first place. That's income redistribution.
Alex M:I can definitely argue against subsidies on common economic grounds, but people don't listen when they have studies like these on hand. So where would you begin with a study like this?
http://fee.org/library/books/economics-in-one-lesson/
Chapter 6 covers the subsidization arguments, and as Bogart mentioned, they are failing to look at the unseen.
This should answer your question: http://www.mackinac.org/14631
New Film Subsidy Study Doesn't Show Full Picture 2/22/2011 8:44 AM A new study that claims Michigan receives an economic benefit from its film subsidy program has come under fire, according to statewide media reports. Michael LaFaive, director of the Center’s Morey Fiscal Policy Initiative, told WEYI-TV25 in Saginaw that no study so far on the subsidy program shows a positive economic benefit. “The (2009 MSU) model treated the program as if the money that was being spent on the state was manna from heaven, that there were no costs associated,” LaFaive said. “That’s not an economic reality.” A 2009 policy brief by LaFaive titled “Special Effects: Flawed Report on Film Incentive Provides Distorted Lens” explains why studies that do not take the costs of the program into account provide an inaccurate picture. “Every dollar used to incentify film production is $1 deprived to entrepreneurs and other people across the state for their own use,” LaFaive told The Detroit News. LaFaive told FOX-TV6 in Marquette that a Senate Fiscal Agency study, “actually reported that no film incentive has generated as much revenues as it has taken from the treasury.” Political Atheists Blog Filed under: movie tax credit, Michigan, Mackinac Center, film subsidy | Post Points: 20
A new study that claims Michigan receives an economic benefit from its film subsidy program has come under fire, according to statewide media reports.
Michael LaFaive, director of the Center’s Morey Fiscal Policy Initiative, told WEYI-TV25 in Saginaw that no study so far on the subsidy program shows a positive economic benefit.
“The (2009 MSU) model treated the program as if the money that was being spent on the state was manna from heaven, that there were no costs associated,” LaFaive said. “That’s not an economic reality.”
A 2009 policy brief by LaFaive titled “Special Effects: Flawed Report on Film Incentive Provides Distorted Lens” explains why studies that do not take the costs of the program into account provide an inaccurate picture.
“Every dollar used to incentify film production is $1 deprived to entrepreneurs and other people across the state for their own use,” LaFaive told The Detroit News.
LaFaive told FOX-TV6 in Marquette that a Senate Fiscal Agency study, “actually reported that no film incentive has generated as much revenues as it has taken from the treasury.”
Political Atheists Blog
kaju,
It all hinges on whether it's someone elses money being given to the film makers, or they just don't have to pay as much taxes.
What you quoted does not address that question; nor does the whole article spell it out very clearly. It seems to admit we are talking about tax credits, then goes on to say the credits will somehow be turned into checks. He doesn't explain how or why.
Smiling Dave, the tax incentives for the film industry in Michigan (and other states) are tax CREDITS, not tax deductions. A tax credit is nothing more than a glorified subsidy. The tax credits you get don't depend on how much you pay in income taxes. Thanks to tax credits, my refund for this year will be double the amount of income taxes I paid (no joke). The federal government is basically subsidizing me through the income tax system.
So this is really an issue of the seen vs. the unseen. The subsidies going to the film industry are taken from the taxpayer's wallet. We don't know what economic growth would occur without the subsidies, but we can be sure that without them (and with less money being taken involuntarily), the individual in Michigan would be better off (this is basic subjectivist economics), since the individual would be able to spend his money as he wishes.
I won't lie, I personally kinda like these film credits. It's cool to see a movie on TV or on the big screen and to see landmarks that you're very familiar with. But these tax credits are unjust, immoral, and inefficient. If Michigan were offering tax deductions on film work, I'd be championing them, but they're tax credits (subsidies). If Michigan really wants to become a film-friendly state without robbing the taxpayer, it should give large tax deductions and reduce union work regulations. ReasonTV did an interesting interview with a film-maker on this subject: http://www.youtube.com/watch?v=VoEm1K4kPV4
Or better yet, instead of offering tax deductions to one industry, why not eliminate all state income taxes and business taxes? That would be a boon across the board. But of course we all agree on that.
Yep, once it turns out that "tax credit" means "gift", the rest follows.