Minnesota film tax credits are a waste of taxpayers’ money
On August 1, the Minneapolis St. Paul Business Journal reported that
Minnesota’s multimillion-dollar film production tax credit is working, according to the Department of Employment and Economic Development, which said that the program has attracted projects worth more than $10.2 million to the state.
The state’s Film Production Tax Credit, which provides 25% tax credit on production costs for companies that spend at least $1 million in a taxable year in the state, was enacted in 2021 to help lure more productions here.
In total, the state granted $2,563,342 of tax credits in exchange for $10,253,368 of spending on the six projects, DEED said in a statement.
“These projects positively impact our economy, jobs, and spending at local businesses. And people from around the country can experience the amazing quality of life in Minnesota.” said DEED Commissioner Steve Grove, in a release.
Development incentives don’t work
States are in competition with each other for labor, capital and businesses. And sometimes states take extra steps to appear more attractive to businesses and investors. Among these steps include things like providing subsidies in the form of grants or favorable tax environments — the Minnesota film tax credit being one good example of that.
But do these efforts work?
According to research, no they do not. Development incentives — as they are collectively called — usually have little to no influence on businesses regarding where they would locate. While taxes are a big part of most firms’ decisions when choosing where to locate, tax credits usually end up going to businesses that were going to locate in that particular state anyway.
However, because states are in a competition to outdo each other, it might look like these tax incentives are influencing decisions. But even to the extent that they influence decision, they only end up costing taxpayers.
Consider the current example. Minnesota tax payers paid $2.5 milllion for $10.25 million of economic activity. Considering the whole Minnesota economy, $10.25 milllion is a drop in the bucket, especially for that price.
This is also true of subsidies awarded internally for existing Minnesota businesses. Evidence from the State Legislative Auditor, for example, showed that most businesses that get subsidies from the Minnesota Investment Fund would still be in operation even without these subsidies. The subsidies are, in other words, not necessary.
Film credits are only part of a bigger issue
Certainly, $2.5 million would not significantly blow a hole in our budget, but this is part of a bigger issue. Minnesota has all sorts of programs providing grants and subsidies to all sorts of businesses all in the name of incentivizing job creation and growth.
It’s true that films that end up coming here do impact the economy. But there is no evidence indicating that these projects would not come here if the tax credit was not available.
At best, these tax credits add little to the economy, but at worst they only cost taxpayers money. And this is true for all other development incentives that the state spends money on.