Thanks to the state of Michigan’s film incentive program — the most aggressive in the nation — the silver screen to many is a silver bullet for the state’s foundering economy.
Under the program, filmmakers still pay Michigan business taxes, but to entice filmmakers to shoot movies here and employ Michigan workers, state government provides movie producers with refunds of up to 42 percent of what they spend on filmmaking in Michigan.
Because the state’s film incentive refund can exceed a filmmakers’ tax payments, that anticipated economic boost can also have economic costs for Michigan taxpayers.
In fact, starting this year, the state Treasury Department will write refund checks to film companies for tens of millions of dollars at taxpayer expense. This corporate windfall even had a major Michigan filmmaker, Michael Moore, questioning the film incentive and its value to Michigan.
During a Traverse City forum featuring Michigan Film Office Director Janet Lockwood, Moore said, “These are large multinational corporations — Viacom, GE, Rupert Murdoch — that own these studios. Why do they need our money, from Michigan, from our taxpayers, when we’re already broke here? I mean, they play one state against the other, and so they get all this free cash when they’re making billions already in profits. What’s the thinking behind that?”
We asked Michigan Film Office Director Janet Lockwood about Moore’s concerns. She said, “That was a set-up deal, you know, when he challenged me.”
We responded: “That’s what I wanted to ask you, because I watched it. He was a good actor then, because it came off as being very serious.”
She answered: “It is a serious question. But some people in the audience said, ‘Michael was so mean to you!’ I said, ‘Well, I kind of knew he was going to do that.’ It was okay. We wanted to get that out there. That question had to be answered.
“There’s probably not parity in incentives,” she continued. “The MEDC [Michigan Economic Development Corporation] gives incentives to so many companies, and I’m sure there are other companies that feel this is unfair. Yes, we understand that giving incentives to filmmakers may seem — what’s the word? — shallow. But when you think of the jobs it brings into the state of Michigan, it’s not a bit shallow. It’s thousands of jobs. It gives excitement and hope to so many.”
Would those film jobs remain in the long term? At the January meeting of the Film Office Advisory Council, we posed that question to Film Office Chief Operating Officer Tony Wenson, asking: “Films come and go. How do you ease people’s fears and concerns that it’s just a flash in the pan?”
He answered, “To be able to ease concerns, one of the ways to do that is really just to give it time, to show what the significant value will be to the state of Michigan.”
But the effects of similar programs have been studied over a period of many years. Michael LaFaive is the fiscal policy director with the Mackinac Center, a Michigan-based think tank. LaFaive has examined economic incentive programs in Michigan going all the way back to the 1940s, including those administered by the MEDC, the state program Lockwood referred to.
LaFaive says he’s skeptical when the state proposes spending money to create new jobs, commenting: “The Mackinac Center has studied in detail Michigan’s number one premier economic development program. It’s a tax credit program called the Michigan Economic Growth Authority. We’ve found empirically that the program did not improve employment, the unemployment rate or per capita personal income over the nine years of the life we studied. The state has not refuted a single point of fact in our study that we know of, yet the program marches on.”
In fact, LaFaive didn’t just find that the Economic Growth Authority, known as MEGA, failed to achieve its stated purpose of providing overall economic benefits; he even found the MEGA program frequently failed to generate the specific jobs it promised in the first place.
When MEGA announced in three prominent news releases that it would use targeted tax breaks in an attempt to create more than five thousand jobs, the Mackinac Center discovered the number of jobs directly created was closer to 1200. That’s about 36 percent of the initial projections. Also, of the 127 MEGA deals that were supposed to be fully functional in MEGA’S first nine years, less than 10 percent produced the jobs originally projected, leaving only 38 percent of the jobs initially expected.
And LaFaive notes, even those jobs might have been created without the tax breaks. That being said, LaFaive acknowledges these programs can sometimes lead to new jobs within a specific industry: “There are benefits — but there’s also a liability side to every balance sheet.”
LaFaive says Michigan’s film incentive could be even more unfavorable to our state’s economy than the MEGA program, because of one major difference: “The Michigan film tax credit incentive program also includes a tax credit, but it actually goes one step farther and is quite a bit worse because the tax credits are refundable, which means there’s a direct robbing of Peter to pay Paul in order to facilitate this alleged economic growth.”
With Michigan’s unemployment rate having just reached 10.6 percent, and with the state refund checks rolling out soon, Hollywood’s silver lining may be harder to find in the storm clouds swirling over Michigan’s economy.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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