Film Tax Credit: "too good to be true" . . . but is
Chuck Sheketoff
Not long ago I blogged about what a great deal some wealthy individuals are getting by “contributing” to the Oregon Production Investment Fund, which subsidizes film productions. For every $90 that the contributor gives to the Fund, he or she gets back a tax credit worth $100 — an effortless, guaranteed, tax-free 11 percent profit at taxpayer expense.
But don’t take only my word for it. A story in today’s Register-Guard (PDF) by Dave Steves looks into the film tax subsidy. It quotes an investment advisor who contributed $20,000 to the Fund: “In the beginning we didn’t quite understand it because it sounded too good to be true.”
But it is true, to the detriment of Oregon taxpayers and the film subsidy program.
I’ve called this and other such tax credit subsidies “rob-Peter-to-pay-Paul” schemes because they finance the subsidy from the General Fund — money that might otherwise go to schools, public safety and human services.
But because this one is being administered in a wasteful and inefficient manner, OCPP has called upon the Oregon Secretary of State to audit and investigate the tax subsidy program. We’ve asked Secretary of State Kate Brown to look into why the Oregon Film and Video Office, the agency in charge of administering the tax credit, sells the credits at the price most generous for the purchaser allowed under the law, even though it has the authority to pare back the tax credit and a legal duty to maximize revenue for the state. The Film and Video Office’s “pay us $90, you’ll get $100” scheme means the subsidy fund is losing out on $500,000 a year – $1 million a biennium. That’s a 10 percent cut in the amount of money available to support film production.
It’s not only being run inefficiently, losing out on $1 million a biennium, but the tax credit program is unnecessarily enriching the very rich, not the typical Oregonian.
Oregon Department of Revenue data analyzed by OCPP shows that nearly three-quarters of the tax benefits from the program go to the highest-income 1 percent of households, who represent about 22 percent of the households that use the tax credit. The top 5 percent of households, representing about 62 percent of claimants, reaped about 94 percent of the credit’s value. A majority of Oregon households, low- and middle-income households that comprise the bottom 60 percent of households, represented just 8 percent of claimants and reaped only 0.5 percent (one-half of 1 percent) of the tax credit’s value.
How does this play out in the real world? Mark and Greg Goodman are good examples. Each of them contributed more than $427,000 to the film investment fund in 2008 and obtained tax credits in return for over $475,000 — that’s $47,000 tax-free profit for each of them. The profits each of the Goodmans realized from their one transaction with the state that one year were more than the annual income earned by about half of all Oregon households that same year.
There are some who bristle at our questioning of the film tax subsidy program, arguing that it’s good for Oregon’s economy to entice film productions. We know from an ECONorthwest report done for the state film and video office that state taxes and fees estimated to result from out-of-state productions in Oregon don’t fully offset the cost of the tax credit.
If funding filmmaking makes such great sense, why hide the program’s funding in the tax code? Instead, the subsidy program should be part of the regular budget process, where it would compete head-to-head with other public services for our tax dollars.
The proponents of the tax credit — however much they tout the ECONorthwest study’s estimates and their own anecdotes of the subsidy’s success masquerading as data — probably don’t have the guts to let it compete in the Ways and Means process with direct budget items like education, public safety and health care and other human services. But that’s what the Legislature ought to do with the program.
That’s not going to happen this year, but assuming that it makes economic sense for Oregon to subsidize filmmaking, why is the Oregon Film and Video Office letting wealthy Oregonians effectively take a 10 percent cut from the Oregon Production Investment Fund? Hopefully, the Secretary of State will set them straight on the need to fully capture the tax credit dollars.
The time has come to start maximizing funds that are earmarked to the subsidy account and to stop enriching the richest of Oregonians with a scheme that is too good to be true . . . but is.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org
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Jun 19, '09
The more you defend yourself, the more apparent it becomes that you have not actually studied this, nor do you seem to recognize that the RG used your erroneous information in it's article.
The film industry is not even remotely comparable to the Goodman's. We are a huge number of hard working Oregonians who are raising families and pay taxes and all we want is the opportunity to work that this bill would provide.
The more you protest, the less credibility you have. Your history shows a bent towards helping the little guy. We Oregon film workers ARE the "little guy". We are not Hollywood, Chuck.
4:44 p.m.
Jun 19, '09
Damn I want one of thsoe credits! That's even a better deal than cash for clunkers.
Boy anyone who bought a crappy old pickup in the last two years is going to make out like a bandit on that one.
5:46 p.m.
Jun 19, '09
Thanks, Chuck, for adding perspective on this issue.
(1) I have looked over the ECONorthwest report. It chronicles the growth and economic impact of the film industry in Oregon. It does not, that I saw, deal with the tax incentives issue. I think film industry jobs are great and we should have more of them. But do we need to subsidize them?
(2) The Oregonian reported: “Oregon incentive programs offer a 20 percent cash rebate on production-related goods and services bought from state vendors, and a 10 percent cash rebate of wages paid for work in Oregon. In addition, the Greenlight Oregon labor rebate offers productions that spend more than $1 million in the state a cash rebate of up to 6.2 percent of Oregon-based payroll. That can be combined with the investment fund incentive for a 16.2 percent rebate on qualifying production payroll.”
(3) The ECONorthwest report states: “the analysis found that out-of-state production spending resulted in nearly $5.1 million in state and local government revenues in Oregon during 2007. This equaled $123,260 for every million dollars such productions spent. The federal government derived about $7.4 million from out-of-state productions in Oregon or $179,136 for every million spent in 2007. These figures do not include the effect of incentives.” I’m not sure what the last phrase, “these figures do not include the effect of incentives,” means.
(4) 20% of $1 million is $200,000; 10% is $100,000; and 16.2% is $162,000. Depending on which percentage is operating, the $123,260 in Oregon taxes collected does or does not cover the $100,000 to $200,000 subsidy costs.
(5) As you point out, Chuck, it is hard to sort out which film productions would have come to Oregon anyway, without the subsidies offered.
5:57 p.m.
Jun 19, '09
For a list of who got tax credits from 2005-2008, visit http://www.ocpp.org/2009/2005_thru_2008_OPIF_Contributions.pdf. Take the contribution amount listed and divide by 0.9 (the contribution had to be only 90% of the tax credit) and you will get the tax credit amount. That's how we calculated the profits of the Goodmans.
I have no doubt that many in Oregon's film industry are "the little guy." I find it curious, though, that they are defending a scheme where the fund they so love is losing out on $500,000 a year that could be subsidizing them. It's also remarkable that the list of contributors to the fund, who get the 111% tax credit ($100 credit for each $90 contributed), is not primarily comprised of film industry folks. It is primarily comprised of people with smart accountants and financial advisors who knew a deal too good to be true, but true never the less.
6:57 p.m.
Jun 19, '09
Please check my math:
Greg Goodman gives the fund $90. The state pays him $100.
Greg Goodman is up $10. The state is down $10. The movie fund is up $90. $90 is given to the movie company.
Now, here's where I'm not clear whether the suggestions of a state "profit" mean economic activity or revenue actually into the state through taxes and fees. I'd suggest that even if it's economic activity it's worth the state's $10, because as has been made clear here today there are a host of people earning money and then spending that money in Oregon as a result. That's crucial in a downturn, that those engines still fire for as many people as possible.
But if it's actually returning revenue against that $10, that's so much the better. If it's worth it at $10, it's a bargain at $5 IMO.
Why is it not clever to encourage the financially able to subsidize the fund instead of using direct funding, and offer incentive through a fractional credit? What am I missing?
Jun 19, '09
What you're missing is that without the tax credit, Mr. Goodman would have paid the state $100, not $90. With a direct appropriation, the state could subsidize the film industry with $100 instead of $90. Assuming, of course, that the budgeting process determined that subsidy was more valuable than other spending. And BTW, where is the money coming from to provide those rebates to the industry? By capturing the income tax liabilities of the film industry workers and skimming that into the fund. Why aren't those rebates competing with other spending instead of also being buried in the tax code?
Jun 19, '09
What am I missing?
I think that what you're missing is that the state is suffering a loss regardless of whether or not the economic subsidy for the film industry is worth it in terms of generating economic activity.
Right now, from the $5 million state fund, the film industry gets $4.5 million and the purchasers of the tax credits get $.5 million. The state is pissing away that $.5 million.
The state could simply deposit $4.5 million into the film fund to give to filmmakers. Filmmakers shouldn't care whether the film fund gets the $4.5 million from "contributions" or from a transfer of money from the General Fund.
The economic impact of the subsidy -- whether positive or negative, I can't say -- would be the same. After all, it's the same amount of money.
I believe that what's being shown by Chuck's analysis is that this tax credit syste is inefficient.
The "contributors" are simply putting money into the film fund that they would otherwise pay in taxes into the General Fund. Why do they do so? Because they can get away with paying $9 in taxes instead of $10.
It's mystifying to me why this is being done. Maybe pols and people in general are just afraid of being honest about having an industrial policy, as some countries do --saying we want to nurture the movie industry or the solar industry or whatever and invest directly in them. Instead, we stupidly set up these wasteful tax credit systems.
Jun 19, '09
Rich --
You beat me to the punch in posting. You made the same point I made, just more succinctly.
9:40 p.m.
Jun 19, '09
The funding scheme undermines the notion that taxes are meant to support the common good. Here, the taxpayer gets to direct a portion of his/her taxes to one special earmark fund, say $90, and then take from the common good fund (the General Fund) $100. That's no way to run government. If taken to its logical conclusion, it would not only bankrupt government but it would leave some programs well funded and others not well funded. Even when done without a profit (such as the Cultural Trust or Individual Development Account schemes), it takes programs out of the budget prioritization process. They get their money no matter what else is happening to the economy and state finances or the special funds' relative merits.
10:34 p.m.
Jun 19, '09
I am becoming convinced by this argument. Blaine Palmer, if the film/video program is so good, why are we only funding it with 90% of the available money?
Looks like another case where somebody got too clever (for some unknown political reason). If it's worth spending money on something, just spend money on it! Don't invent complex fiscal shell games and shenanigans...
8:54 a.m.
Jun 20, '09
Here's some more public finance math.
Wealth E. Person sends $427,000 to the film subsidy fund, earning an entitlement to a $475,000 tax credit.
Wealth E. Person has has income of about $5 million ($475,000 divided by 9%).
So, at a time when our legislature is raising taxes on people who earn $5 million to fund the state's priorities in education, public safety and health care and other human services, the taxes from Wealth E. Person go to the film subsidy, not those public services our legislature has prioritized (and actually takes $48,000 from those priortized services).
Better we should collect the tax and let the film subsidy program that its proponents say is better than sliced bread compete with education, public safety and health care and other human services for Wealth E. Person's tax dollars. Why are we letting Wealth E. Person pick what s/he funds with his/her tax dollar? Isn't that the job of the legislature? Where in our constitution does it grant authority to individuals to self-direct their tax dollars to only their pet projects?
9:39 a.m.
Jun 20, '09
As I recall from Chuck's previous column on this issue, the argument is in effect that the wealthy beneficiaries would find some other method of tax avoidance that would not be as economically beneficial to the state (not sure if that meant in revenues to the state govt, film industry benefit to the state economy or both).
There are all sorts of funky things about that argument and about using pots of money privileged from the general appropriation competition as a tax compliance measure that I don't like and I'm not defending it. I'm not even sue it's true, this could just be another increment on top of using other tax avoidance methods.
But I'm not sure it's entirely untrue either, so the assumption that 100% of the taxes would be collected remains unproven to me.
But if it is an effective means of tax compliance, that would still leave open a question as to why such dedicated funds should go particularly to subsidizing the film industry. Does anyone know if other possible forms of economic activity to subsidize were compared when film was chosen as the benefited industry?
Jun 21, '09
Of course, it will not be mentioned in film addled America, that the films are crap and degrade our quality of life. Most unreasonable expectations that sink relationships stem from images pumped into peoples' minds by Hollywood. Are we just nasty people that like torturing Arabs? No, Abu Graib was an example of what happens when Hollywood preaches crap like Rambo for 25 years. The WOD, the workplace, relationships...all get spun by Hollywood to say that this society's backward, puritanical ignorance is world beating logic!
THAT'S why it is subsidized. You and Carla keep on about how all this is stupid. It's not. It's evidence of how the system is rotten to the core, doing what ever it wills, regardless of your wishes. Intelligent people worked long and hard to rob you of your government and they have succeeded. Continuing to label it all "dumb", is just what they want. Most "liberals" even tow the conservative line that the mess is just inscrutable, and any attempt to connect the dots is a conspiracy theory.
Films are subsidized because our government uses them heavily to push propaganda. The tax break is too good to be true in the same way that state vehicles and law enforcement don't pay vehicle registration. When does the state ever pay what the citizen does? The films tax-break exists because film making is a government function that has been privatized. Clue: only totalitarian states have entities like the FCC. Most free democracies let the marketplace regulate it. The US treats it like a potentially life threatening product, to be heavily regulated and fined for conformance. More evidence that the gov regards media as a serious, serious tool in their shaping of society. Most do. Only totalitarian ones control it directly.
Jun 23, '09
It's not just the film industry. Hello, this is the 21st century, and it gets worse! We give similar, though not so flagrant, breaks to the video game industry as "high tech electronics". They have taken on the dying film industry's mantle and are giving a new generation of Americans all kinds of anti-social images that, coincidentally, help the administration in power.
A case in point. Transitioning from Bush to Obama, with Cuba transitioning from Castro to whatever, left that situation "in play". Could have happened anytime in the last 20 years, but what does the video game industry have to fill dittohead minds with now?
Mafia Wars Liberates Cuba Mafia Wars has opened up Cuba--for crime! Become a Caribbean kingpin in the world’s most popular Mafia game. Head to Havana now!
But that's just responding to public demand. Really? Where are the shoot-up-the-fat-corp-types games? Must be huge demand. Funny how the Carl's Jr. crowd is so concerned about our Latin American relations...
One can only conclude that the electorate is so stupid as to be permanently distracted by whether or not the foot on your neck wears a jackboot. This country is a wart inside the asshole of the great satan.
Jun 29, '09
http://www.kgw.com/news-local/stories/kgw_062909_news_baldwin_portland_film_production.1af8282a.html
Jun 30, '09