Film Tax Credits: The Good, The Bad & The Ugly of the Controversial Subsidies

Just over a week ago, Dreamworks Animation in Redwood City, CA laid off close to 500 Visual Effects workers, choosing to re-locate to Canada for favorable tax subsidies in VFX. Runaway production became a major campaign position during the Los Angeles mayoral election last year. Bankrupt states are being accused of mismatched priorities; chasing Hollywood while cutting education and healthcare costs as is the case in Louisiana. As France expands it’s big-budget lure through the CNC, it also helps to fund films that struggle to find private financing. New York has committed to $4B in film tax incentives over the next four years, and maintains a AA+ credit rating – the highest since 1962.

So what’s the deal with film tax credits? Are they all good, all bad? Should they have a place at all in film finance, and if so how should they be implemented?

When setting out to write this article, I got a lot of feedback in particular form the Visual Effects industry. They are among the hardest hit in terms of production outsourcing due to companies chasing favorable subsidies. And on the damage to that industry, and to the net-negative aspect of film tax credits, I strongly recommend reading VFX Solider’s blog on the matter. He’s written on the subject for years and is highly informed on the topic.

While I will certainly get into that debate, I wanted to not only address issues with the negative aspect of these subsidies, but also try to find if there’s any positive for them.

The Good

The ultimate point of a subsidy is to provide an advantage for an industry/project/concern that struggles to finance through traditional methods. For example, in France, the CNC provides subsidies to films dealing with cultural concerns or promoting French cultural topics (historical, political) etc. They make a part of their subsidy program available to mid-budget and smaller films that struggle to find corporate backing. Many private grants provide subsidies for women filmmakers, minority filmmakers and films that similarly struggle to obtain traditional financing – yet very few states/nations have similar underrepresented filmmaker subsidies. Ultimately Batman does not need a subsidy. Corporate franchise films can easily find financial backers and do not deserve a red cent of state/national subsidies. When a smaller and smaller amount of traditional financing is available, it is more important than ever to focus on good subsidies; subsidies that protect and invest in protecting culture and minority projects to maintain a balance between art and commerce and to promote diversity in the filmmaking community. Saying that your city was used for Batman is not a viable excuse to spend millions of tax payer dollars on corporate welfare. Most research suggests that tax-credits of this nature are a net negative for state and local economies.

which brings me to the next point:

The Bad

As previously alluded to, Batman and franchise films do not need subsidies. Yet currently states do not stipulate that a film must be of a certain genre or type to qualify for their tax incentive program. At most, a film must merely commit to spending a certain amount of dollars in state, and hire a certain number of crew in-state. For the most part this benefits the big productions and blockbusters who have the resources, muscle and legal know-how to take advantage of these credits. This leaves smaller productions and cultural dramas most in need of subsidies scrambling for left over scraps. The bureaucracy and permitting process alone are very cumbersome for independent productions or smaller film projects.

This is also very much by design. Politicians love to be able to say “we filmed Lord of the Rings here!” while plastering LoTR logos all over Air New Zealand jets, their airport and just about every available tourism space while many in the industry struggle to survive on low wages as their nation rewrote labor laws to keep the franchise. Politicians down in New Orleans love to brag about the uptick in tourism following their billion dollars spent on film subsidies. All of the politicians love to go to those pretty graphics that show how many jobs were created by subsidizing the industry. The thing all these politicians have in common? They all avoid mention of the net cost. In simple terms: the programs cost far outweighs the economic benefit. States, countries and local governments spend far more on subsidizing blockbusters than the blockbusters create in economic benefit through jobs, tourism and local spending. In just about every example of generous tax incentive programs, the subsidies have shown to be a net negative.

This is where it gets ugly.

The Ugly

Louisiana is probably the best example of this easy money policy. They have among the most generous policies in the country, subsidizing 30% of every $1million spent in state. To date they have spent over $1Billion on film subsidies. At the same time, the state ranks bottom five in education, and is facing massive budget shortfalls and deficits forcing the state to cut education and also healthcare. When film tax subsidies were brought up in a recent Louisiana State Senate session, politicians were quick to defend the program out of concern Hollywood will leave. And that is what folks seem to miss when criticizing those politicians.

Those making the subsidies are stuck operating with a corporate gun to their head, so to speak. Hollywood is saying to struggling states like Louisiana, “give us the money, or we’ll leave.” While Chris Dodd, former senator and chairman of the MPAA, blames piracy for the loss of 2 million middle clas crew jobs, he heads an organization that aids in this “gun-to-the head” policy arm wringing. The ultimate reason people are loosing jobs is because corporate handout chasers are moving middle class jobs to places that will give them free money like at Dreamworks Animation. In New Orleans, where many of my friends traveled, forced to seek work in subsidy friendly environments, they told me of people working on set in VFX departments with no experience who hadn’t a clue as to how to do their job. Meanwhile just last week 500 VFX employees, well qualified and working at a top animation company, lost their jobs due to subsidy chasing. There is a real human cost to this corporate welfare, and that is the ugly of it.

Conclusion

I don’t think any subsidies should be made available for large corporations or large corporate films. If you’re a true market-oriented capitalist, then the government shouldn’t be picking winners and losers. When we subsidize multi-billion dollar conglomerates and their independent offshoots, we are doing just that. And sadly the ultimate losers are the middle class and crew. If we are to have subsidies at all it should be to help aid in the funding of culturally worthy projects and projects made by undeserved segments of the filmmaking community. Hollywood may love to champion itself as the savior of the working class, but until it shows some loyalty to the union members and tradesmen and women that make up its bellow the line rank and file by ending corporate handout chasing, they cannot make that claim.

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5 thoughts on “Film Tax Credits: The Good, The Bad & The Ugly of the Controversial Subsidies

  1. Ex-dreamwanker

    Dreamworks layoffs do NOT currently have anything to do with capt underpants going to canada. The layoffs are because the studio has switched from releasing 3 movies a year to 2.

    Underpants is an expiriment in making a far less expensive product (budget will be half or a third of a normal DWA film) with existing characters from the classic media brand. Honestly the goal is to make a cheap movie in the hopes of beginning a TV series and merchandising. DWA is still in the franchise business and currently still believes it’s worth the risk of high budget work done by its skilled and experienced crew in Glendale with ex-PDI people hopefully joining.

    I was one of the laid of DWA employees. I also was in VFX for a few years before coming to DW. I was in LA to see friends and even my wife become casualties of R&H, DD, and sony closing. I wore green when Obama came. I would love to see an even playing field where studios compete for the highest quality work not where a studio is located.

    But I do not feel at all like a causality of subsidies.

    Now, granted, I can see if DW keeps losing money on their films, more and more production work going to canada/India/china. Underpants done in Canada ain’t good news. And if it’s a success, yes I would expect layoffs in Glendale as a result. But that is not what caused this current round.

  2. C

    But the reason they’re making Captain Underpants in Canada at Mikros is because of the subsidies.
    People miss that these aren’t actually tax breaks, they’re the government literally handing out money. It’s especially weird with Canada because they can’t even claim it’s for cultural support. At least Hollywood is part of America. But in Canada, the government is handing out huge subsidies that go back to American companies. It’s pretty absurd.

  3. The real end to this is going to be the complete evaporation of any sense of stability for workers in the film industry. The VFX industry is already there, and if you attended or listed to the absolutely tragic Ad Hoc Film Committee meeting last year you know that the rest of the film industry is pretty much there too. (Link to Ad Hoc Film Committee Meeting: http://bit.ly/lafilmadhoc)

    This is, in my opinion, is the byproduct of a deeply undemocratic system that rewards the maximization of profit with no regard for extraordinary costs incurred in the process. Presidents, CEO’s and the shareholders that place them there are driven by this singular purpose, it has become the definition of “good business”. A CEO who maximizes profit – even if that means the complete decimation of their workforce – is idolized and rewarded by this system.

    You’re going to reach a point with movies where you’re not going to be able to get ANY MORE people to spend money on them (I think we’ve already hit that point). You’ve reached close to the market’s maximum potential. At that point you have no choice but to cut costs by either raising prices, stagnating the pay & benefits of your labor, taking advantage of subsidized or cheap labor, or some combination of the three. That’s “Good business”. And I say it’s bulls**t.

    While I think it’s important to continue raising awareness of the negative impacts of subsidies, the unfortunate thing is that with the death of AdaptVFX we have very little ability to affect it beyond miraculously insiting some kind of global movement to vote against politicians who use them.

    The only thing that I believe is truly within our power to do is begin starting new companies that are run democratically and where the surplus producing workers are the mutual owners and beneficiaries of the product and wealth they collectively create. In our industry those surplus producing workers are the writers, directors, managers, producers, animators, and vfx artists. Currently, our labors are for the express purpose of creating products and wealth for shareholders and CEO. Our industry makes a ton of money. It just doesn’t make enough money to pay executives $13m/yr AND generate greater ROI for anonymous shareholders.

    I write about this stuff (http://bit.ly/animcoop_about) and will continue to advocate for it online. But for me, the only solution I see to prevent the complete collapse of our industry is for the actual creators of this content to leverage advances in technology and take control of this industry from executives who will ALWAYS pursue cheaper labor and greater profit, whatever the cost.

    1. The idea behind a creative owned business that operates democratically is precisely what we need more of. The quarterly profits mentality is absolutely asphyxiating this industry. Look forward to reading your takes on this subject, excellent comment/points.

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