The Arizona Free Enterprise Club has fought for years against crony capitalism and corporate welfare in Arizona. In our fight against special deals, one of our main targets has been the creation of a tax credit program for Hollywood filmmakers to make movies.  In his My Turn column in the AZ Republic (“New Mexico keeps taking our movies. Let’s fix that“), Alberto Guitier III of the Arizona Film and Media Coalition contends that Arizona needs House Bill 2621 to compete with other states, and without the movie production credits we are missing out on the jobs and revenue that come along with it.

If this idea sounds familiar, it’s because Arizona already tried doing a film subsidy program back in 2005.The program lasted five years, and ended up costing taxpayers millions while providing little benefit. In just the last year of the program, the Arizona Department of Commerce calculated that taxpayers shelled out over $2.6 million in tax credits to moviemakers, while only generating $600,000 in tax revenue for the state.

It created no real permanent jobs, and the temporary jobs it did create were low paying. Fortunately, when the credits were up for renewal in 2010, the Arizona Legislature took a pass on extending the program.

Arizona is not alone in getting ripped off by the movie tax credit gambit. Multiple nonpartisan studies and independent reports that have reviewed similar programs have found that movie tax credits cost states revenue and only shift jobs to different locations throughout the country.

That is why several states, including North Carolina, Massachusetts and Michigan are currently revisiting or have scaled back their tax credit programs. Even Louisiana, which has one of the largest incentive programs in the nation and is referred to as ‘Hollywood South’, acknowledged in their performance audit that the program cost taxpayers $170 million in 2012.

The other claim made in favor of film incentives is that we are letting other states steal the movie business from Arizona.The inherent problem with this logic is when we try to “compete” with other states by giving away more taxpayer money to filmmakers the only winners end up being Hollywood studios. By pitting states against one another, film companies have been very successful in convincing lawmakers that they must increase the amount of their subsidy packages or otherwise risk losing the industry to another state.Even California has set up a very lucrative tax credit program, which should be a clue that this is an incentive game Arizona cannot win.

The reality is that this isn’t about jobs or competing with other states, but whether or not the government should be in the business of picking winners and losers through our tax code. Taking money from one taxpayer to provide special perks to another is costly, benefits a few well connected industries and only encourages other businesses to pursue the same sweetheart deals.  The best tax system for Arizona is one that treats all businesses and taxpayers the same, not one that plays favorites.

Last session, there was a vigorous debate at the Capitol regarding HB 2011, legislation that would have greatly expanded the venture capital tax credit program in Arizona. Proponents for the “Shark Tank” tax credit claimed that the credits were needed because of a lack of access to venture capital funds in Arizona.

The Club has argued for years that this is not true and that venture capital is available for good ideas. Now after some investigation into the subject, the Phoenix Business Journal has reached the same conclusion. Namely, the problem is not a lack of funding, but rather a perceived lack of good opportunities for investment. Providing tax credits doesn’t solve this problem, it only creates a new one by picking winners and losers among entrepreneurs and investors.

 

The Arizona Free Enterprise Club, along with over 50 other organizations and groups from around the country, is urging Congress to oppose the reauthorization of the Export-Import Bank. Primarily used to subsidize politically connected businesses to increase US exports, the bank is a poster child of the type of insider crony capitalism that has existed in Washington for far too long.

Despite the fact that the bank distorts the international trade market and costs taxpayers money (the Congressional Budget Office projects it will cost $2 Billion over the next decade), it continues to survive solely on the political strength of the few beneficiaries of the program. It’s time we stop picking winners and losers and let the free market determine who should succeed.

We urge congress to end the corporate welfare and oppose the reauthorization of the Export-Import Bank.

To read the letter sent to congress opposing the Bank, click here.



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The Arizona Free Enterprise Club is a free market policy and lobbying group dedicated to promoting a strong and vibrant Arizona economy.