The war among the states to see who can lavish the film industry with more generous tax credits in their attempt to become “the next Hollywood” continues, and it is quickly descending into a classic race to the bottom. A front-page article in today’s Wall Street Journal notes that the tax incentive bidding war has gotten so intense that it is hollowing out the old Hollywood labor pool and sending it on a road trip across the America in search of tax-induced job activity:
As film and TV production scatters around the country, more workers… are packing up from California and moving to where the jobs are. Driving this exodus of lower-wage workers — stunt doubles, makeup artists, production assistants and others who keep movie sets humming — are successful efforts by a host of states to use tax incentives to poach production business from California. [...]
Only two movies with production budgets higher than $100 million filmed in Los Angeles in 2013, according to Film L.A. Inc., the city’s movie office. In 1997, the year “Titanic” was released, every big-budget film but one filmed at least partially in the city. The number of feature-film production days in Los Angeles peaked in 1996 and fell by 50% through last year, according to Film L.A. Projects such as reality television and student films have picked up some of the slack. But overall entertainment-industry employment has slid. About 120,000 Californians worked in the industry in 2012, down from 136,000 in 2004, according to the U.S. Bureau of Labor Statistics.
The labor migration has arisen in part because California hasn’t competed aggressively on the tax-break front, officials and executives say, while states like Georgia have made efforts to grab a sizable chunk of the industry. More than 40 states and 30 foreign countries are offering increasingly generous and creative tax incentives to lure entertainment producers.
On one hand, hooray for labor mobility! But seriously, this stinks because this labor shift is taking place in a wholly unnatural way, with a complex and growing web of tax inducements leading to massive distortions in this marketplace. Continue reading →
A new article by Peter Caranicas and Rachel Abrams in Variety entitled, “Runaway Production: The United States of Tax Incentives,” notes how “[Motion picture] Producers looking for a location weigh many factors — screenplay, crew base, availability of stages, travel and lodging — but these days, first and foremost, they consider the local incentives and tax breaks that can reduce a production’s budget.” In other words, when every state and local government dreams of being “the next Hollywood,” they are willing to shower the entertainment industry with some pretty nice inducements at taxpayers expense.
But these programs are growing more controversial and some state and local governments are reconsidering the wisdom of these efforts. The article cites my Mercatus Center colleague Eileen Norcross, who points out the most serious problem with these programs:
Other arguments against incentives hold that they don’t help the states that offer them. In March, the Massachusetts revenue commission issued a scathing report on the state’s tax credit program, which stated that two-thirds of the total $175 million awarded in 2011 went to out-of-state spending. “The critique is that while they appear to bring in short-term temporary activity to a state or community, a lot of those benefits flow to the production companies,” says Eileen Norcross, a senior research fellow at George Mason U. “The people who are hired locally tend to be (in) more low-wage service industry jobs. It provides a temporary economic blip on the radar, and then it’s sort of fleeting.”
Eileen is exactly right. I have previously covered this issue here in an essay entitled, “State Film Industry Incentives: A Growing Cronyism Fiasco,” which was later expanded and included as a section in my 73-page forthcoming law review article with Brent Skorup, “A History of Cronyism and Capture in the Information Technology Sector.” Continue reading →
Ajit Pai, a Republican commissioner at the Federal Communications Commission (FCC), had an outstanding op-ed in the L.A. Times yesterday about state and local efforts to regulate private taxi or ride-sharing services such as Uber, Lyft, and Sidecar. “Ever since Uber came to California,” Pai notes, “regulators have seemed determined to send Uber and companies like it on a one-way ride out of the Golden State.” Regulators have thrown numerous impediments in their way in California as well as in other states and localities (including here in Washington, D.C.). Pai continues on to discuss how, sadly, “tech start-ups in other industries face similar burdens”:
For example, Square has created a credit card reader for mobile devices. Small businesses love Square because it reduces costs and is convenient for customers. But some states want a piece of the action. Illinois, for example, has ordered Square to stop doing business in the Land of Lincoln until it gets a money transmitter license, even though the money flows through existing payment networks when Square processes credit cards. If Square had to get licenses in the 47 states with such laws, it could cost nearly half a million dollars, an extraordinary expense for a fledgling company.
He also notes that “Obstacles to entrepreneurship aren’t limited to the tech world”:
Across the country, restaurant associations have tried to kick food trucks off the streets. Auto dealers have used franchise laws to prevent car company Tesla from cutting out the middleman and selling directly to customers. Professional boards, too, often fiercely defend the status quo, impeding telemedicine by requiring state-by-state licensing or in-person consultations and even restricting who can sell tooth-whitening services.
What’s going on here? It’s an old and lamentable tale of incumbent protectionism and outright cronyism, Pai notes: Continue reading →
Adam Thierer, Senior Research Fellow at the Mercatus Center discusses his recent working paper with coauthor Brent Skorup, A History of Cronyism and Capture in the Information Technology Sector. Thierer takes a look at how cronyism has manifested itself in technology and media markets — whether it be in the form of regulatory favoritism or tax privileges. Which tech companies are the worst offenders? What are the consequences for consumers? And, how does cronyism affect entrepreneurship over the long term?
Here’s a presentation I’ve been using lately for various audiences about “Cronyism: History, Costs, Case Studies and Solutions.” In the talk, I offer a definition of cronyism, explain its origins, discuss how various academics have traditionally thought about it, outline a variety of case studies, and then propose a range of solutions. Readers of this blog might be interested because I briefly mention the rise of cronyism in the high-tech sector. Brent Skorup and I have a huge paper in the works on that topic, which should be out early next year.
Also, here’s a brief video of me discussing why corporate welfare doesn’t work, which was shot after I recently made this presentation at an event down in Florida. Continue reading →
Those of you who spend a lot of time thinking about public choice economics and the problem of cronyism more generally might appreciate this little blurb I found today about the Universal Service Fund (USF).
It goes without saying that America’s “universal service” (telephone subsidy) system is a cesspool of cronyism, favoring some companies over others and grotesquely distorting economic incentives in the process. And the costs just keep growing without any end in sight. Just go to any FCC meeting or congressional hearing about universal service policy and listen to all the companies insisting that they need the subsidy gravy trail to keep on rolling and you’ll understand why that is the case. But plenty of policymakers (especially rural lawmakers) love the system, too, since it allows them to dispense targeted favors.
Anyway, I was flipping through the latest copy of “The RCA Voice” which is the quarterly newsletter of what used to be called the Rural Cellular Association, but now just goes by RCA. RCA represents rural wireless carriers who, among other things, would like increased government subsidies for–you guessed it–rural wireless services. Their latest newsletter includes an interview with Rep. Don Young (R-AK) who was applauded by RCA for launching the Congressional Universal Service Fund Caucus, whose members basically want to steer even more money into the USF system (and their congressional districts). Here’s the relevant part of the Q&A with Rep. Young:
RCA VOICE: “How important is it for carriers serving rural areas to be engaged with their members of Congress on USF issues?”
REP. DON YOUNG (R-AK): “The more carriers engage with both their Representatives and Senators, the better. While the early bird may get the worm, the bird that doesn’t even try definitely won’t get any worms. The same applies to Congress.”
Well, you gotta admire chutzpah like that! It pretty much perfectly sums up why universal service has always been a textbook case study of public choice dynamics in action. Sadly, it also explains why there isn’t a snowball’s chance in hell that this racket will be cleaned up any time soon.