In a recent article in the entertainment trade paper Variety, high-powered Hollywood money man Harvey Weinstein publicly called for California to expand its production tax incentives to make film production in California more financially attractive to investors.
Now, this may be the equivalent of speaking heresy in the eyes of some, but I just have to ask:
The state of California is near bankruptcy. Why can’t the 50 billion dollar a year film industry just pay all of the taxes legally required to do business there, like everybody else?
Instead, the government of California is being asked to cough up more tax incentives (special subsidies and tax reduction credits) to keep film productions in the state, in the community that virtually INVENTED that industry. BTW, another name for such tax subsidies is “corporate kickbacks.” But would offering tax relief to the massive Hollywood film production machine really be a good thing for California tax payers?
It might attract business, we are told. Because the bigger the size of such subsidies, the easier it is for people like Mr. Weinstein to put together 500 million dollar film production deals. Anything that widens the profit margin makes such deals a better investment. But out-of-control subsidies also encourage huge, bloated, production deals by multinational one-shot dummy corporations created specifically to finance a single franchise, taking vitally-important creative control from the film production execs and industry professionals and handing it over to corporate bean counters, who can—and will— crush whole subcontracting industries (digital FX houses, for example)— with the stroke of a pen, all to increase the end payout to their owners and investors.
When deals get that big, a single tent-pole project (would-be blockbuster)— if it FLOPS— can kill a dozen production houses. But if a film service subcontractor is forced to reduce its OWN profit margin to garner multinational business, it often can’t just fall back on other work to be a safety net if the big corporation drops the ball in marketing or distribution. If the big corporate productions squeeze too hard, it allows small FX houses and suppliers little means to secure themselves and grow. All that the hardworking people who comprise the industry can do is keep lowering their prices until a flop or series of flops pulls the rug out from under them.
The bigger the corporate deal, the worse that local businesses and industry subcontractors— and tax payers— get screwed. The multinational megacorporations treat subcontracting companies and their workers as disposable utilities: kill one to raise your profit margin, another will spring up to take its place. If bigger tax subsidies guaranteed less pressure on local businesses in that industry, it might be worth consideration. But they don’t. They just mean bigger, riskier projects that are tougher and tougher on the industry’s established home base, with a larger group of investors whose interests are put ahead of the local population.
The government of New Zealand is currently grumbling about how badly its own film tax subsidies have failed them, after spending the past twenty years subsidizing a series of film mega-hits (Lord of the Rings, Chronicles of Narnia, etc.) for a film industry that offshores all of the profit back out of that country when it’s time to settle up and do the books. When multinationals are involved, vendors or contractors who work for those corporations—especially if not supported by a union or trade association— and whose jobs can be easily shipped off to a different country to evade work regulations or taxes— often get screwed as part of a “monopsony” of scattered companies forced to run themselves into bankruptcy trying to keep the bottom line low enough to please the corporations. That’s what we call “a race to the bottom.”
I guess we’ll see what happens to New Zealand film now that The Hobbit is over and the NZ government has realized the tax credits it offered were a huge mistake, and the rest of the industry is pulling up stakes for the greener pastures of British Columbia… or whatever new place is willing to stripmine its tax base for the transient promise of magical movie money, punctuated by the giant sucking noise of tax-free industry draining them into debt for decades to come.
Drop back by on Thursday, when we’ll answer the elusive question we asked above.