Beyond Red & Blue

Revenue Dept. says film tax credit could cost Mass. millions

From CommonWealth editor Bruce Mohl:

The Massachusetts Revenue Department says the state's 25 percent film tax credit would not come close to paying for itself in terms of generating new tax revenues, even including economic multipliers.

In its analysis, the Revenue Department assumed $100 million in film tax credits would generate qualifying movie expenditures in Massachusetts of $400 million. The analysis indicated the film tax expenditures would generate at best $23 million in new state taxes, resulting in a net tax loss to the state of $77 million.

Hypothetical numbers were used in the analysis because not enough actual data is available yet, but the Revenue Department said the hypothetical numbers were consistent with the information on film tax credit applications obtained by the agency so far this year.

The analysis assumed $256 million in payroll spending, with half of the money paid to big-name stars and directors who don't live in Massachusetts and are unlikely to spend most of their salaries inside the state. The analysis also assumed that $20 million to $40 million of the movie spending would occur in Massachusetts even without the tax credits.

The Revenue Department plugged the numbers and assumptions into a model developed by Regional Economic Models Inc. and concluded the tax credits would boost the state's gross domestic product by $349 million and increase state employment by as much as 3,658, with as many as 2,963 jobs in the film industry and the rest in support areas.

The analysis concluded the movie spending would generate new income, corporate, sales, meals, room, and other state taxes of $17.9 million, or as much as $23 million if the state wasn't required to reduce spending to pay for the film tax credits.

The film tax credit analysis was contained in a letter sent May 19 to Rep. Steven D'Amico of Seekonk, a critic of the film tax credit who had requested the study. D'Amico said supporters of a bill that would offer a 20 percent tax credit to companies that build movie studios in Massachusetts were trying to push the bill out of committee before members could read the Revenue Department analysis.

D'Amico said the state needs to be make sure that any tax credits offered by the state generate tax revenue gains for the state. "This is corporate welfare for highly profitable corporations that are playing one state off against another," he said.

No more gambling with second-hand smoke

No more smoking in the public areas of Atlantic City casinos, thanks to a new law by the city council. The state government may have mixed feelings about this, since New Jersey has the highest cigarette tax ($2.57 per pack) in the nation. Always tricky when government tries to discourage an activity and make money from it at the same time...

A taxing label

The Bay State may no longer deserve the “Taxachusetts” label that was a drag on our reputation, if not economy, for so long. We place squarely in the middle (28th) in this year’s ranking of overall state and local tax burden by the nonpartisan Tax Foundation. But the Washington-based think tank says we still deserve the unflattering moniker when it comes to one particular area of taxation.

In an op-ed in yesterday’s Boston Herald, Curtis Dubay, an economist at the foundation, says the Massachusetts economy is held back by “the state’s egregious business taxes.” Massachusetts ranks 34th in the group’s 2008 State Business Climate Index, giving us a less business-friendly tax environment than Illinois, Michigan, and Lousiana (places that Dubay says are “thought of as tax hells”). Dubay cites the state’s 9.5 percent corporate income tax rate (4th highest in the country) and high unemployment insurance taxes as major culprits.

Dubay is dubious of Gov. Patrick’s plans to give the state’s economy a long-term boost through initiatives such as his proposed big investments in education, saying “a much quicker fix would be to attract companies and their jobs with a more competitive tax system.” There is considerable debate, however, over how big a role taxes play in business location decisions. Indeed, the Tax Foundation’s own 2007 report on state business taxes pointed out that research by Bob Tannenwald of the Boston Federal Reserve Bank suggests that public expenditures such as education spending are more important to businesses than tax burden.