New Jersey lawmakers are fast-tracking a major expansion of the state’s film and television tax credit program — a move that would cost the state $200 million annually and erode critical safeguards against abuse.
The proposal, S3748/A5091, has four major drawbacks that will increase costs to the state, erode safeguards against abuse, and make it impossible to project the total costs of approved projects. The bill doubles down on the faulty premise that film and TV tax credits benefit the broader economy when mounting evidence and the experiences of other states suggest otherwise.
Extensive research of similar programs across the country finds that film and TV tax credits do not generate the economic activity and job creation they promise. Because most jobs in the industry are temporary and often filled by specialists from out-of-state, film and TV tax credits only deliver pennies on the dollar for state and local governments. Further, these tax credits often do not reimburse actual production costs, and instead are traded and transferred to other corporations, acting as free money for the film production companies. This is a bad investment for New Jersey, especially when the $200 million in funding could go towards public programs and infrastructure projects that directly support families and small businesses.
Given the substantial evidence that film tax credits do not generate the promised economic benefits, coupled with New Jersey’s own long history of corporate tax credit abuse, lawmakers should pull the plug on this costly proposal.
The Four Major Flaws in the Film and TV Tax Credit Expansion Bill
Increases Annual Spending by $200 million
Despite a negative return on investment, the proposal increases annual spending by $200 million annually. This would pit New Jersey against larger states that have recently expanded their own tax credit programs in a costly race to the bottom that only benefits Hollywood studios. To put the increase in perspective, it is roughly 50 percent larger than the governor’s proposed doubling of the child tax credit, a direct investment to support families in New Jersey. Subsidizing profitable Hollywood studios is the wrong policy choice when the state could be strengthening its infrastructure and human capital instead.
Allows New Jersey to Directly Invest in Movie Studio Facilities
The bill includes $30 million for capital spending, putting New Jersey on the hook as a direct investor in private movie studio facilities. If these ventures are profitable, then they should not need state subsidies. If they are not profitable, the state should not be propping them up and liable for losses if the studios fold.
Weakens Accountability Rules and Opens the Door to Abuse
In current law, if a film project costs less than $50 million in production expenses, the amount of the credit is reduced accordingly to prevent studios from overpromising and under-delivering. The new proposal would repeal this. Strong clawback measures are critical to ensure that tax credits at least yield the economic activity promised by the corporate beneficiary.
Stretches Deferred Compensation Over Two Years, Making Costs Impossible to Project
Film and TV tax credits are normally a percentage of a project’s expenses in any given year. If the expenses reimbursed by tax credits can be deferred into future years, the state will be on the hook for additional payouts with no way to estimate or anticipate those costs. To the extent that tax credits are needed at all, they should be covering costs in the current year, not costs the studio has chosen to defer to the future.
Mounting Research Shows Film and TV Tax Credits Provide Little Payoff
There is a growing consensus among independent economists that film and TV tax credits are a bad investment for state and local governments. These findings are mirrored in studies by non-partisan legislative offices across the country. A recent analysis by Maryland’s non-partisan legislative services found “for every $1 in film tax credits awarded, the State recoups just over 6 cents,” an abysmal 6 percent return on investment. Worse, the report found that the millions in tax credits failed to make sustainable economic development in the short- or long-term.
Below are eight major economic studies showing the high cost and minimal return on investment from film and TV tax credits.
Do Movie Production Incentives Generate Economic Development?
Kennesaw State economist J.C. Bradbury in 2018 noted that “The results indicate that neither [movie production incentives] in general, nor specific types or levels of tax credits, are associated with state economic performance.” The study analyzed tax credits across jurisdictions and time frames and found state film and television tax credits produced a negative return on investment, with the average return totaling just 27 cents per dollar spent.
Evaluation of the Maryland Film Production Activity Tax Credit
A 2015 report on Maryland’s film and television tax credit by the state’s Department of Legislative Services found the credit provided just 10 cents (and only 6 cents in state tax revenue) per dollar spent by the state. Beyond that, the employment effect was minimal: “The state is actually worse off in the later years as there are fewer jobs compared to if there was no credit.”
Lights, Camera, but No Action? Tax and Economic Development Lessons From State Motion Picture Incentive Programs
University of Southern California professor Michael Thom’s 2016 paper found minimal to no impact on employment from film and television tax credits. “We looked at job growth, wage growth, states’ share of the motion picture industry, and the industry’s output in each state. On average, the only benefits were short-term wage gains, mostly to people who already work in the industry. Job growth was almost non-existent. Market share and industry output didn’t budge.”
Do State Corporate Tax Incentives Create Jobs? Quasi-experimental Evidence from the Entertainment Industry
In a 2019 study, Thom followed up his 2016 paper to analyze the employment effects of film and television tax credits. He concluded: “Results mostly show no statistically significant effects.” Thom’s results aligned with the consensus view among economists that “as an economic development strategy, targeted incentive programs that carry large tax expenditures fail to encourage meaningful job creation.”
Do Tax Incentives Affect Business Location and Economic Development? Evidence From State Film Incentives
A National Bureau of Economic Research working paper in 2019 found that filming locations do change based on financial incentives, but that “there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries.”
State Film Subsidies: Not Much Bang For Too Many Bucks
The Center for Budget and Policy Priorities’ Robert Tannenwald found in 2010 that “[s]tate film subsidies are a wasteful, ineffective, and unfair instrument of economic development. While they appear to be a ‘quick fix’ that provides jobs and business to state residents with only a short lag, in reality, they benefit mostly non-residents, especially well-paid non-resident film and TV professionals.”
Motion picture production incentives and filming location decisions: a discrete choice approach
In the Journal of Economic Geography in 2018, Mark Owens and Adam Rennhoff write: “We fail to find strong evidence that incentives create a more permanent movie industry in a state.”
Policy Convergence, State Film-Production Incentives, and Employment: A Brief Case Study
Richard Adkisson in the Journal of Economic Issues in 2014 found that “Ultimately, the evidence suggests that state efforts to attract film-production employment were largely ineffective.”