Razzle Dazzle in a Recession

New York faces one of the largest state budget shortfalls in the country, but so far legislators are not looking to TV and film tax incentives as a place to cut spending.

Business Week explains:

As television and film studios line up for a 20-percent boost in their tax credit — one of the few windfalls proposed during New York’s fiscal crisis — the return on what is now a $350 million tax credit remains out of focus.

State Comptroller Thomas DiNapoli issued a report Tuesday showing the film and TV industry, which includes production of television’s “Gossip Girl” and “Law & Order” and several films, paid a total of $3.3 billion in wages to 36,000 people in 2008, the latest data available.

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The proposed increase comes as the state faces a current deficit now estimated at $2.1 billion, and a $9.2 billion gap projected in the budget due April 1.

But Matt Anderson, Paterson’s budget spokesman, said the film industry supports billions of dollars in economic activity and tens of thousands of jobs. He said the tax credit sustains long-term investments, permanent production facilities and jobs.

The trend of such subsidies from states is growing, but a Tax Foundation report explains that these tax incentives are not an answer to state budget problems or to economic growth. Unlike competition between firms, this competition between states to attract TV and film is unproductive. While billed to create jobs, such policies actually increase citizens’ tax burden and favor film and television over businesses that could be productive without subsidization.

Policymakers who support film and television tax breaks miss the unseen in these rules. Subsidizing specific industries through tax incentives distorts the states’ economies and diverts resources from their most productive uses.