Tax Analysts Blog

Congress Shouldn’t Make State Tax Systems Worse

Posted on Aug 13, 2014
I, like most Americans, am cynical about Congress. Our national legislature, whether the Democratically controlled Senate or the GOP-led House, is a joke.

Congress certainly doesn't do taxes well, or at least it hasn't since 1986. The federal corporate tax needs to be reformed. The personal income tax could stand some good tax policy revisions as well. Members of Congress have very little knowledge about good tax policy, so perhaps it's not surprising that several members have weighed in on the wrong side of a state tax issue.


As my colleague Maria Koklanaris reported, 29 Democratic members of Congress asked leaders of the California State Legislature to reauthorize and expand the state's film tax credit. Led by Rep. Adam B. Schiff, D-Calif., the federal lawmakers asked California to extend a very bad tax policy, saying that if it doesn't, film jobs will be lost forever to other states.


Schiff and his 28 colleagues are badly mistaken when it comes to tax policy. A sound tax system is built on low rates and a broad base. Anybody who has studied taxes for five minutes knows that. Film tax credits narrow the tax base -- and when you narrow the base, rates on everything else are higher than they should be.


The tax system should refrain from picking winners and losers in the marketplace. Why film credits? Why not some other industry? Politicians are the worst at determining what's best for the marketplace. Despite the studies funded by the Motion Picture Association of America that say otherwise, film tax credits don't work. In virtually every state that has them, there's no discernible economic effect -- that is, the tax giveaway did not result in more economic activity than would have occurred without it. In some states, the government paid out more than it got back in revenue. A study by the Michigan Senate concluded that "film incentives represent lost revenue and do not generate sufficient private sector activity to offset their costs completely."


But what is stunning to me is that 29 members of Congress would actively endorse bad tax policy. Instead of criticizing the use of tax incentives, they are urging California to adopt more. That's incredible.

Read Comments (3)

emsig beobachterAug 12, 2014

David:

What is truly stunning is that the other 406 members of the House of
Representatives and 48 Senators have not requested that the California
legislature and Governor Brown repeal all movie and television production
credits, under the guise of good tax policy.

edmund dantesAug 12, 2014

Excellent points. Hollywood liberals are all for higher taxes, until they have
to pay them. Then they want their own special tax credits.

Why the film industry? Because over the years everyone got on board on the
Hollywood gravy train, and the high costs and regulation of production in
California became uneconomic. I agree that when other states offer film tax
credits, they are not doing their own economies much good, but they are
definitely hurting California. That's why politicians think they have to fight
fire with fire.

travis rechAug 13, 2014

"Why the film industry?"

Because there aren't enough professional sports teams to go around for
politicians to spend taxpayer money making stadiums for. This is the next most
glamorous thing.

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