So, get this: corporate tax entitlements and business incentives are now so far out of whack that the tax-fueled Public Employee Pension System in Michigan is being raided to pay the bills of a foundering movie studio, no less.
Michigan Motion Pictures Studios, based in financially-strapped Pontiac, Michigan (producers of the new movie, Oz: The Great and Powerful) has missed its last three payments on $18 million dollars in bond obligations. Under a 2010 deal, Michigan’s state retirement system (?) is legally obligated to make those payments, and has already paid $1.68 million to help make up for the shortfall. Meanwhile, the pension funds being tapped are already $21.7 BILLION dollars short of the necessary amount to cover the actual pensions of state employees who pay into them.
In short, Michigan lured a film studio start-up into the Pontiac area by offering them massive tax breaks and backing them by borrowing cash from the already-strapped pension funds, and are now holding the proverbial bag.
Relying on massive government subsidies to stay solvent is NOT a legitimate business model. Unless such a start-up can be rendered self-sustainable, it’s just another fiscal vampire fastened to the collective neck of the hapless local taxpayer. The resulting temporary influx of jobs and capital into a localized region isn’t worth running up an unpayable bill. Economists have analyzed typical state incentives bestowed to lure in film production, and confirm they seldom deliver promised economic benefits, costing more in the long run than they earn. Which often happens when the state decides to play “venture capitalist” with taxpayer money.
Even New Zealanders now wonder whether or not it was a good idea to subsidize Peter Jackson’s new Hobbit trilogy. Warner Bros was given a $60 million dollar government subsidy to make the movies there, despite political and public opposition. NZ taxpayers overwhelmingly support recent demands that Hollywood companies repay such subsidies if the films prove wildly successful (as occurred with the original Lord of the Rings trilogy). The making of THOSE films was also partly funded by the New Zealand government, who received zero repayment when those films eventually earned over $3 billion dollars in revenue, all of which was siphoned back to its Hollywood backers.
Right now— even with the sequester in effect and the Bush tax cuts undone— American corporate profits remain at an all-time high, corporate taxes are still at near record lows, the DOW is higher than it’s ever been, the recently-bailed-out banking industry that cost a trillion dollars to rescue is back at work finding new loopholes in Federal banking and trading regulations and turning record profits. Capital gains taxes— which serve to tax Wall Street trading and much of the property of the rich— remain locked down to rates historically lower than they’ve ever been (as low as 0%).
Government is bending over backward to make sure the needs of big business are being met. Corporations post record profits while paying comparatively next to nothing back in taxes. Instead, their industry lobbies draft corporate law to roll back protective Federal regulations while loopholes mask corporate illegalities. Where’s the incentive NOT to stack the additional burdens of corporate fraud and deficit government spending atop the backs of individual taxpayers?
Capitalism is a good system. But unregulated capitalism swiftly devolves into a game of “screw everyone else over to get mine.” When no one pays, everybody pays.