In late September, a bipartisan group of lawmakers introduced the Motion Picture, Television, and Entertainment Revitalization Act in the House and Senate. The proposal addresses a real issue: Big-budget film and TV productions are increasingly moving overseas, with places like Budapest, Prague, and Vancouver portraying American cities on screen.
But will a new proposed federal credit stem the tide of so-called “runaway productions?” A review of state experience with similar incentives is not encouraging. And set against the backdrop of last year’s One Big Beautiful Bill Act (OBBBA) and a worsening federal fiscal outlook, a federal credit is worthy of skepticism.
The proposed federal film credit aims to bring productions back to the US
States used to compete with one another to attract big productions with lucrative tax incentives aiming to boost local employment and wages, build up an entertainment industry, and secure future tourism dollars. Now other countries have gotten into the act. For example, Australia, Canada, Hungary, and the United Kingdom offer particularly generous cash rebates, tax credits, tax exemptions, and direct grants.
An EY study documents a 30 percent decline in the domestic share of major studio film and TV budgets over the last 25 years. However, it notes that the rise of overseas subsidies coincided with other industry changes. Moviegoing dropped after the COVID-19 pandemic, workers of the US-based industry have gone on lengthy strikes, and streaming services have expanded production of original programming around the world.
The proposed federal film credit would be stackable and transferable
Film, TV, and visual effects productions that spend at least $1 million on labor and shoot at least 75 percent of their principal photography days in the US would be eligible for the proposed film credit. The credit’s base rate would be 20 percent, with bonuses of up to 30 percent available to independent film studios and productions occurring in federal Opportunity Zones or declared disaster zones, among other criteria.
Critically, the proposed federal credit would be uncapped, unlike the now expired Section 181 deduction. It could also be stacked on top of existing state credits. Combined with incentives like California's Film and Television Tax Credit Program 4.0 enacted earlier this year, the federal credit could bring total subsidies to as much as 65 percent of production costs, making subsidies for US film production among the most generous in the world.
The credit would also be transferable. Production companies with little or no tax liability could sell their credits to unrelated parties. The 2022 Inflation Reduction Act offered a similar mechanism for energy tax credits to increase uptake of the credit.
But transferability comes at a cost. Companies that purchase tax credits generally pay less than their full value, and production companies may also incur fees for arranging the transactions. As a result, a $1 million tax credit could cost the federal government $1 million in foregone revenue but provide considerably less than $1 million in financial support to the US-based production.
It’s also worth considering transferability given two provisions of OBBBA. Last year’s law made “expensing,” or immediate deductibility, of most business investment permanent. It also allows companies to continue deducting net interest payments.
Together, the deductions can push the effective tax rate on some new investments below zero: The federal government would essentially pay companies to invest. Add transferable credits to the mix, and there could be even more room for investment deals that pay off thanks to tax benefits, not new economic value.
The state film tax credit track record is not promising
Rigorous research has found many state and local business tax incentives produce minimal new jobs at a high average cost per job—with no lasting increase in economic growth. Some of the benefits may also go to people who live outside the subsidizing jurisdiction, including non-resident workers who commute to jobs and absentee landowners who benefit from rising property values.
Given these concerns, the Upjohn Institute’s Tim Bartik recently created a two-part test that decisionmakers can use to evaluate incentives:
- Did the incentive work—creating jobs and improving earnings for residents?
- Did it pay off—generating enough new tax revenue from job and wage growth to cover the costs of the incentive?
Applying Bartik’s test to film and TV incentives, a substantial body of research from academics and state auditors suggests the answer to both questions is “no.”
Film subsidies do appear to influence where productions choose to shoot, in part because film and television production is relatively mobile. Although some locations offer advantages such as specialized talent and infrastructure, production companies may still opt to work in other states (or countries) based on available financial incentives.
But attracting production is not the same as generating measurable gains in jobs, wages, and economic growth. Measurable means, for example, accounting for whether productions are simply pulling workers away from other employment in hospitality, food services, and tourism.
Research using a variety of methods and over many time periods finds that any gains in employment from film and TV incentives are limited and temporary. (For example, see Table I-1 and Appendix B.) The subsidies cost taxpayers more than they bring back in new tax revenue (see Graphic 1).
Beyond the state record, a federal credit raises new issues and could worsen others
The federal government has a long history of investing in place-based policies, or policies to address regional and economic disparities. But a film tax credit could have unintended place-based consequences.
The map below shows which states are already home to a concentration of film and TV production workers. The highest concentrations are in California and New York. While such “agglomeration economies” can in theory generate important new ideas and economic growth, their benefits are limited: New workers cannot always afford to relocate and pay high housing costs.
Despite the geographically targeted bonuses described above, a new federal credit could simply reinforce these regional disparities, especially when California and New York also lead in state film incentives.
And this summer, debt held by the public, excluding intragovernmental holdings, surpassed the size of the entire US economy. In other words, as my TPC colleagues Aparna Mathur and Joe Rosenberg recently concluded, the US has a big, rapidly growing fiscal problem.
With federal finances already strained, this may not be the time to add a new federal tax credit on top of expensing and net interest deductibility without clear evidence that its economic benefits would justify its still-unknown cost.
State experiences point to other ways forward
State film and TV incentives vary considerably in design. (See pages 10-12.) California, for example, caps the total credits available and allocates them according to a competitive process using a formula. Unlike the current federal proposal, California’s credit does not cover the salaries paid to key creative and “star” personnel, including well-compensated directors, writers, and actors.
A federal credit could set similar limits and add reporting requirements to assess whether stated goals are met and a sunset provision if they are not. As some states have done, Congress could specify independent measurement and evaluation, perhaps by the US Government Accountability Office.
Protecting an iconic American industry is an understandable goal. Any federal incentive must be designed to reflect what states have already learned and acknowledge the broader fiscal landscape.
