Industrial Policy

The Scene and the Unseen

Cross-posted from the Mackinac Center for Public Policy at www.mackinac.org.

Tom Long of The Detroit News is a terrific movie reviewer - my favorite - but his Oct. 9 column lends too much credence to those who contend that the state's film incentive boondoggle is a worthwhile expenditure of taxpayer dollars.

Long's piece is titled "Michigan's movie role pays off." If the words "for some" were added to the end it might be true, in the same sense that bank robbery pays off - for the robber. The analogy doesn't quite hold, though, because in this instance those absconding with the loot were invited into the vault by the bank's employees.

State officials, desperate to look like they're "doing something" about Michigan's economic slide, are throwing every kind of discriminatory tax credit, abatement and subsidy they can at selected businesses and industries. The latest is what amounts to outright cash subsidies to filmmakers in the form of refundable tax credits; if the credit exceeds the producer's tax liability, the state sends him a check for the difference. Some $148 million in credits have already been approved, and currently there's no limit on how high that could go.

Here's part of what Long wrote about the program: "Dan Gearig, owner of Ciao Catering, which has worked on a number of films, is also a big supporter. ‘And I'm not the only one making money,' said Gearig. ‘My produce guy, my meat guy, the linen people are having a field day. There's definitely a trickle effect going on.'"

To be fair, Long also quoted economist Gary Wolfram - an adjunct scholar with the Mackinac Center - giving an opposing view, but overall the column still fell short of recognizing a classic economic development blunder: Acting on the basis of what's "seen" in a program while ignoring the unseen, and so getting a skewed picture of its real effect. In this instance what's seen is the loot spread around by those film producers. Naturally, the beneficiaries think the Hollywood handouts are a fine thing. What's unseen is the effect on the people from whom the loot was taken. In the bank robbery analogy it's the depositors. In this case it's Michigan taxpayers.

Government has nothing to give to one person that it doesn't first take from someone else. Any benefits enjoyed by the caterer Long cites are at least offset by revenue lifted from other Michigan taxpayers - including businesses - to pay for the film subsidies. Worse, the Michigan Film Office bureaucrats don't work for free, and neither do the legislators who debated the film legislation and voted for or against its passage. Calculate in the share they "take off the top" and an honest accounting of the program is likely to show just one result: A net loss for the state.

Also of note is a sidebar in The News describing how the program works: "Filmmakers submit an initial script, the Michigan Film Office judges whether it is appropriate for the state." Is this what art subsidy supporters really want? Requiring artists to prostrate themselves before government apparatchiks who will judge the "appropriateness" of their work? History suggests that politics, bureaucracy and art make poor bedfellows - great works of art aren't born of backroom deals.

Incentives for the Beautiful People

 

Michigan policymakers and pundits continue to be atwitter over Hollywood movie productions — and perhaps even a Warner Brothers’ Pictures studio — locating in Michigan. The new interest in the Great Lake State as a movie-making hub comes courtesy of the latest incentive program signed into law by the governor.

 

The refundable tax credit is good for up to 42 percent of production expenditures in a “qualified production in a core community…” In other words, if the value of the credit exceeds a studio’s tax liability, the Michigan treasury will write the film company a check. This is a robbing of Peter to pay filmmaking Paul. At best, the state is only shifting wealth from one group of people to another—and the latter may, to reference director Woody Allen, “take the money and run.”

 

One report suggests that the incentives may cost the state treasury more than $100 million before the end of the year.

 

There are four major shortcomings of this and other government development programs. First, it doesn’t create new wealth; at best it just moves it around. Second, it costs money to operate government bureaucracies to oversee these types of programs — a cost that probably kills jobs too. Third, who is to say that state officials know if their mix of incentives and industry is better for Michigan than just cutting taxes for everyone and staying out of the way? Lastly, it’s unfair. Michigan businesses of every stripe have been paying their taxes for decades. Now Lansing politicians want to give their tax dollars to Hollywood’s biggest stars, among others.

 

For a clever take on the new incentive package, watch the 4:00 minute video produced by the Michigan Chamber of Commerce in Lansing, below.