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Like Writing a Check to Movie Producers

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By Lowell L. Kalapa

It is always difficult to go up against issues and proposals that have wide-ranging “sex-appeal” that not only look good but sound good. Such is the case with tax proposals to grant all sorts of tax incentives to producers and makers of television and film productions.
After all, who wouldn’t like to have their picture taken while having a conversation with some famous movie star or perhaps even snaring a bit part in some television show or an independent film. With all the glamour and hype that goes with being “in the movie business,” promoters will argue that Hawaii must stay competitive with other jurisdictions by offering tax breaks and tax incentives.
But this idea seems to sell Hawaii short of assets that no other place in the world has like natural beauty, year round climate, ethnic diversity, and exotica in a safe and secure location. And while Hawaii does have a unique tax structure, much of that has already been mitigated with refunds for the 4% general excise tax on production costs and Hawaii’s 7.25% hotel room tax or transient accommodations tax.
In addition, some movie productions are taking advantage of some of the high technology tax breaks available to investors and production activities. Thus, there are already measures that attempt to address perhaps the onerous burden of Hawaii’s tax system on such productions, but advocates want more.
In the past, advocates have proposed that Hawaii provide tax credits equal to some percentage of the payroll, so Hawaii taxpayers would be asked to subsidize a portion of the payroll for a movie or television production. When was the last time the state subsidized the payroll of any business in Hawaii, large or small?
Another proposal would have granted a tax credit equal to as much as 20% of the cost of such film productions in Hawaii. While the film production companies would have to meet all the state criteria to qualify, the real question is whether or not Hawaii taxpayers are willing to subsidize this type of activity at the cost of higher taxes for everyone else. Further, as the track record shows, because these proposals are so broadly drafted, they have been subject to abuse, costing far more than had been originally anticipated.
Providing these tax credits is no different than if lawmakers had adopted an appropriation or cut a check to these film production companies. However, lawmakers push for these proposals so they can look like they are doing something without initially having to make the hard choices on whether or not state funds should be spent on film production or on education or for that matter prisons. Advocates argue that the tax credits don’t cost anything until someone claims them and then if they do, they will have spent money in Hawaii producing those films. But when the time comes and the credits are claimed, sapping the general fund tax revenue collections, lawmakers refuse to accept the fact that adopting these credits produces a shortfall of revenues to fund their favorite programs.
Ah, but the advocates argue that these activities have created all sorts of wonderful jobs and produced new tax revenues for the state. And this is the very point the last Tax Review Commission makes, no one has done a cost benefit analysis of these tax incentives to truly understand what sort of benefits these activities produce and whether or not the state, and therefore the taxpayer, gets back more than what was invested or given away in tax incentives. To go one step further, no one has done an analysis of whether or not those tax incentives are really needed versus the fact that Hawaii has natural assets that makes it attractive to do film production here. In other words, is Hawaii wasting precious tax resources when the productions would have been made here anyway? To put it another way, do production companies see tax incentives as nothing more than gravy that boosts the bottom line?
Before lawmakers jump on the tax credit/tax incentive bandwagon again this session, they need to stop and think about the fact that someone has to pay for all of these tax giveaways. They also need to be careful about just accepting the claims about the increased economic activity that these productions bring to Hawaii. And finally, while local businesses are always hit up to give back to the community, one has to ask what these film productions do to give back to the community.
Again, “taking care” of a select group of taxpayers with tax breaks comes at a dear price to all other taxpayers who are not so favored. Such tax giveaways prevent lowering the tax burden for all taxpayers.

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