Businesses are moving out of California – or at least building new plants in other states – in droves because this is such a high-tax state. That’s the frequent claim of Republican politicians who have tried to bludgeon Democrats for years with the issue.
The idea has been repeated so often it is widely accepted as truth, even though here’s no proof any company relocates outside California except when a move puts it closer to existing plants and assets, as when Occidental Petroleum announced an impending move from Los Angeles to Houston this spring, saying that would put management much closer to the oil wells it manages. Or Toyota moving many jobs from Torrance to Dallas, much closer to its factories.
But the tax motive in corporate moves is often overrated, with the real reasons frequently factors like land costs and lower housing expenses that ease recruiting of young employees.
Similarly, Republicans have argued for decades – without proof – that lower taxes actually lead to higher government revenues because they encourage employers to add jobs. But it’s never been proven that when corporations get tax benefits, they put the money saved into employees rather than seeing it pocketed by top management and investors.
That’s why it behooves California politicians to pay heed when a substantial study shows lower taxes in other states actually do have an impact on a particular industry and that lower taxes do add both jobs and government revenues.
About the only area that’s been proven is in movie and television production, where California has steadily lost location filming to places as varied as Pennsylvania and Georgia, New Jersey and Louisiana over the past 20 years. The majority of feature filming now takes place outside this state, even though most pre- and post-production work – everything from casting and film editing to sound dubbing and musical scoring – still is centered here.
Altogether, states gave movie and TV studios and TV commercial production houses more than $1.5 billion in tax credits and rebates last year. States actively pursue location shoots because of the revenue they bring via catering, vehicle rentals, house rentals, hotel rentals, restaurant meals and much more. Pennysylvania ponied up a $1 million tax credit to get the Denzel Washington film “Unstoppable” filmed there, as just one example.
“You just follow the money,” actor-director Ben Affleck told a reporter last year, when asked why he planned to film his upcoming “Live by Night” in Georgia. Tax credits and incentives sometimes cover as much as one-third of production costs in an industry where profit margins can be thin. For the states, this can lead to new jobs (most of them temporary) and more government revenue without the kinds of environmental problems new factories often bring. Movie makers almost always guarantee host states they will leave conditions exactly as they were before, or better.
California now offers about $100 million a year in credits, not enough to keep a lot of filming from going elsewhere, even when it means producers must pay lodging and transportation bills for actors who mostly live in California.
This state’s tax credits produced at least $1.11 in state and local tax revenues for every dollar of tax benefits deployed, concludes a study performed this spring by the usually-accurate Los Angeles County Economic Development Corp. With 35 other states now giving tax incentives for location work, California’s current credits are not enough to retain most of the production that was traditionally centered here.
Relatively small as the California film location credits have been (less than one-fifteenth of national credits from a state with about one-ninth of the national population), the study concluded the spending they helped produce came to $1.9 billion for 109 projects over the last three fiscal years, with 22,300 jobs supported. Total economic activity from those projects was $4.3 billion.
The movie tax credit, opponents say, is a giveaway to the wealthy, while the poor languish as programs helping them are steadily cut back. But if the film credits actually produce more government money (via income taxes, sales taxes and more) than they cost, that means they’re really helping keep programs for the indigent alive, even as they benefit wealthy actors and producers.
The bottom line: This is a tax credit that works for California and could work even better. That’s why it should be increased, as called for in a bill now working its way through the Legislature.
Thomas Elias is a California author. Reach him at email@example.com.