It’s rare when a state program ends.  But a bit of good news occurred last year in the legislature when Arizona lawmakers refrained from extending the dismal motion picture tax credit (we lobbied aggressively to kill the program).  It shouldn’t have been a difficult decision given the facts.

An Arizona Department of Commerce report revealed that Arizona gave out $8.6 million in credits in exchange for $2.3 million in new tax revenue.  Whoops.

Arizona isn’t alone in ending this misery, according to Bloomberg Businessweek.   In Michigan, jobs created by their film tax credit cost the state $193,000 each, thereby causing the governor-elect to re-examine the program.  Film credits have been scaled back in Wisconsin, capped in Rhode Island, and suspended in New Jersey, Iowa and Kansas.  Arizona’s will end at the end of the year, according to the magazine.

There is a lesson in the demise and failure of film tax credits.  When lawmakers are sworn in, they are not endowed with special insights into foolproof ways to manipulate the economy.  If Arizona just had a burgeoning film industry, the notion went, it would be a win-win for everyone.  As it turned out, it was a win only for those who received the subsidies.  Arizona never became a mini-Hollywood (not enough scripts calling for deserts or mountains?) and taxpayers were left holding the bag.

Because the credits failed to incentivize movie production, lawmakers should ask whether they’re in any position to micromanage some other industry.  They aren’t.  Incentives bestowed on some are paid for by others.  The tax code should not be used this way.  Not for manufacturing, not for health care, not for anything.

The best thing lawmakers can do is to minimize distortions in the tax code.  Ensure it is fair, neutral, transparent, and has the lowest rates possible.  The elimination of Arizona’s film tax credits is the first step in this direction.

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