Why Minnesota’s film tax credits are a waste of taxpayers’ money

On July 1, Gov. Tim Walz signed Minnesota’s COVID-19 recovery budget into law. The budget, which directs Minnesota’s government spending for the next biennium, includes film tax credits aimed at attracting TV and movie production to Minnesota. Minnesota taxpayers will spend $5 million a year over the next four years on these credits.

Lowering the tax burden is one of the ways through which Minnesota can improve its competitiveness among the states when it comes to attracting businesses. It is good to see that lawmakers are starting to realize that on some level, although it would be better to see this logic being applied across the board and not just one industry.

However, that being said, there are better ideas that legislators can use to lower the tax burden for most businesses other than using tax credits. Business incentives are usually a waste of money for taxpayers. And there is little evidence that exists proving that incentives towards the film industry are any different in attracting businesses and jobs into a state.

Christine Wen, a project coordinator with Good Jobs First — a national nonprofit that studies economic development subsidies by state and local governments — said film credits and rebates generally have not been found to be worth the money spent on them. Wen also said it is hard for states with smaller programs to compete with the most lucrative programs in Louisiana, Georgia, New Mexico, California and Florida

Yet even those states haven’t been able to show a positive effect of the subsidies, Wen said. “Film tax credits are a losing investment,” Wen said.  “No state can win because even the most successful states … are finding it very hard to hold onto the production companies that have come. The competition is pretty fierce. It’s just not worth running this race at all.”

A 2016 study by Michael Thom from the Price School of Public Policy that analyzed incentives geared towards the entertainment industry proves this point. The study found that such schemes had little to no benefits in most states that offered them.

More specifically, while more than 40 states provided film tax credits, only 18 states that implemented transferable credits saw employment growth in the entertainment industry, and jobs only grew one percent per year. The 26 states that implemented refundable credits, on the other hand, saw no measurable job growth. And while refundable credits produced wage gains, they were only short-term. Transferable credits had no effect on wages.

It is easy to see that much like other business incentives, film tax credits offer very little “bang for the buck,” if any. It would be illogical to expect Minnesota’s experience to be any different.