Roll Closing Credits on New Jersey’s Film Subsidy

This year’s Academy Awards drew of 37.6 million viewers. Whether or not Americans came away feeling their favorite movie won, or that their favorite celebrity looked fabulous, it is doubtful anyone turned off their television and thought, “New Jersey’s workers should help pay these people’s tax bills.” Sadly, you did for several years, and it is time for this subsidy to fade to black.

A law passed in 2005 allowed film companies that incurred 60% of their project costs in New Jersey (excluding post-production) to write off up to 20% of those expenses on their taxes. A similar subsidy was later developed for digital media companies. The $10 million program was suspended as part of last year’s budget.

Some legislators and the film industry want to see the subsidy revived and expanded to up to $50 million. Their desire to expand the state’s economy is admirable, but their strategy of bribing an industry to do its work in New Jersey is proven to be misguided.

Advocates of the subsidy point to specific shows and films that were created here, and the secondary, often temporary, jobs they generated as evidence of success. First, it is important to note that getting businesses to accept free money is not a significant accomplishment. More importantly, they fail to consider that the $10 million - $50 million in taxpayer money is now unavailable for other, more worthy causes. While it is relatively easy to see the effects of a show such as Law & Order SVU being filmed here, we cannot forget that other New Jerseyans are forced to pay higher taxes, or have their levels of government service reduced, in order to have Detectives Benson and Stabler walk our streets. There are many industries and companies that employ New Jerseyans, and many of those pay high wages. Why is it the proper role of government to select one of them for a subsidy?

Of course, that presumes the subsidy is at least revenue neutral. Michigan recently discovered that tax receipts from new activity in their state offset just 10% of the cost of handing out the tax credits to film companies. The chief economist in New Jersey’s Treasury Department estimates the subsidy is a net loser for New Jersey taxpayers as well.

About 45 states have some sort of film subsidy, as industry lobbyists get states to compete against each other. This race to hand out taxpayer money to business means the various tax credit programs must be large, and are unlikely to meet the promises made to each state. Not only was New Jersey using a bad economic model, but it was doing so in a very crowded industry.

The film tax credit is a relatively small program, and shuttering it is less than a drop in our ocean of debt. However, it speaks to a larger point. For the last decade, New Jerseyans have shouldered heavy taxes while politicians got to pick favorite or well-represented businesses and industries as targets for tax breaks. That strategy for economic growth made some politicians popular on the cocktail party circuit, but failed miserably in its stated objective. Meanwhile, other states chose to have the broadest possible tax bases and the lowest possible rates. A look at which states are gaining and losing Congressional seats after the latest Census is a good guide as to who chose what.

There is no substitute for a low tax structure. We should be focused on improving our infrastructure, making the state affordable for the middle class and creating a tax and regulatory climate that unleashes the power of entrepreneurship and the collective intellect of our state. And when we have downtime, we should enjoy the TV and movies that other states did us the favor of subsidizing.

Paul V. Tyahla is Executive Director of the Common Sense Institute of New Jersey, a nonpartisan think tank dedicated to bringing free market solutions to the public policy challenges facing New Jersey.

This op-ed was published in The Times of Trenton and The Burlington Times