Hollywood is not paying its fair share

Glenn Harlan Reynolds:

At the Democratic National Convention last year, actress Eva Longoria called for higher taxes on America's rich. Her take: "The Eva Longoria who worked at Wendy's flipping burgers—she needed a tax break. But the Eva Longoria who works on movie sets does not."

Actually, nowadays an Eva Longoria who flipped burgers would probably qualify for the Earned Income Tax Credit and get a check from the government rather than pay taxes. It's the movie set where she works these days that may well be getting the tax break.

With campaign season over, you're not likely to hear stars bringing up taxes at this weekend's Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine "Best Picture" nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives, including "The Help" (in Mississippi) and "Moneyball" (in California). Virginia gave $3.5 million to this year's Oscar-nominated "Lincoln."

Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's Adam Thierer has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.

In its 2012 study "State Film Studies: Not Much Bang For Too Many Bucks," the Center on Budget and Policy Priorities found that film-related jobs tend to go to out-of-staters who jet in, then leave. "The revenue generated by economic activity induced by film subsidies," the study notes, "falls far short of the subsidies' direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies' positive economic impact."

Sometimes it is even worse, as demonstrated by Michigan's effort, begun under former Gov. Jennifer Granholm, to woo the motion picture industry with an expensive state-of-the-art studio facility built on the site of a former General Motors GM +2.26%factory in Pontiac. State leaders ballyhooed the plan as a way of moving from old-style industry to new.

Despite tens of millions of dollars in state investment, the promised 3,000-plus jobs didn't appear. As the Detroit Free Press reported last year, the studio employed only 15-20 people. That isn't boffo. That's a bust. The studio has defaulted on interest payments on state-issued bonds, and the guarantors—the state's already stressed pension funds—may wind up holding the bag. "In retrospect, it was a mistake," conceded Robert Kleine, the former state treasurer who signed off on the plans in 2010.

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Other states have wasted money on these Hollywood dreams.  The new Republican governor of Michigan stopped the nonsense and said he would rather spend the money on education or advertising the states beauty to potential vacationers.   It is interesting that California sees Hollywood as a goose to be plucked while other states try to get their shot at a part in a film.