Legislators’ Hollywood Dreams Defy Economic Reality

(Note: A version of this commentary appeared in the Lansing State Journal on March 30, 2008.)

Michigan legislators are rushing to grant extensive refundable tax breaks, government loans and even outright cash handouts to the film industry. Upping the ante from the usual discriminatory tax breaks betrays a tinge of desperation among business subsidy advocates.

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The film package is being sold as an economic development initiative, but it’s unlikely to have any significant effect on this state’s failing economy. That’s because Michigan’s current gross domestic product is nine times the size of the entire U.S. film and sound recording industry, according to the federal Bureau of Economic Analysis.

A comparison with the auto industry puts this in perspective. In terms of personal income by industry, the entire U.S. "motor vehicle body, trailer and parts" industry accounted for $86.2 billion in 2006. Michigan got $22.1 billion of that, while California’s share was $2.6 billion. The entire U.S. "motion picture and sound recording" industry was a bit more than one-fourth that size: $25.7 billion. Michigan’s share was a measly $186 million, while not surprisingly, California got $15.3 billion.

For context, the total personal income for Michigan residents was $341 billion in 2006.

One could look at this state’s tiny share of the film industry and rightly conclude that there’s room to grow, but not even the legislators who voted for the handouts or the governor who called for them can believe that Michigan will ever get more than a tiny slice of that industry. And even if the Great Lakes State somehow managed to garner 5 percent of the nation’s entire film production (half-again more than our "fair share" on a per capita basis), our state GDP would increase by a barely-noticeable 0.6 percent.

Looking at just the feature-film portion of the industry (the bill seeks to attract TV shows, music videos, sound recordings and more in addition), the Motion Picture Association of America reports that 603 movies were released in 2007. To capture 5 percent of that Michigan would have to attract the equivalent of 30 average-sized productions.

Our chances of meeting that milestone are slim, given that scores of states are also looking to "pick each other’s pockets" by using similar tax breaks and handouts to pursue the same Hollywood dreams. Reportedly, the just-passed package puts Michigan in line with the richest of these, offered by New Mexico and Louisiana.

It’s not as if Michigan is bidding for a role in a fast-growing industry, either. Film industry growth has been so dismal since 2002 that Michigan’s faltering GDP growth rate has actually kept pace with it.

Like all such targeted subsidy and tax break programs, the main purpose of the film handouts will be to give the appearance of "doing something" while legislators avoid the heavy lifting of passing the broad-based tax, regulatory and labor law reform that would genuinely fix our broken economy. If they were less star-struck, legislators would finally begin the transformational restructuring and downsizing of government needed to make possible lower taxes for all job providers — not just those who hire movie stars.


Jack McHugh is senior legislative analyst and James Hohman is a fiscal policy research assistant for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the authors and the Center are properly cited.

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