On March 13th, the New Jersey Economic Development Authority unanimously voted to award Sony Corporation a $1.6 million tax credit to move 50 jobs from Manhattan to New Jersey. Erin Gold, a spokesman for the Authority, said the credit would be for $162,000 a year for 10 years.
In its application for the tax credit, Sony said that “the grant of tax credits is a material factor in the company’s location decision.” The credits in this case apply to employees of Sony Music Entertainment.
This is the latest chapter in the long drama of entertainment companies seeking state and local tax credits to underwrite the costs of production or overhead. It is a policy one could think of as “crony federalism.” One of the economic strengths of the federalist system is that states can compete against each other and attract businesses and citizens through sound tax, fiscal, and regulatory policy. An individual’s ability to freely move to other jurisdictions acts as a brake on state policymakers.
Building tax or fiscal policy around individual businesses or industries, however, introduces distortions into the state marketplace. Individual firms may benefit, but usually at the expense of other businesses or industries.
Almost every state has some form of tax credit program to attract entertainment jobs and production. There is a cottage industry, even, allowing individuals to participate in these programs through investments in film and film production. There is little evidence that these programs have generated economic benefits for the states. A study in Massachusetts a few years ago found that around a quarter of the state’s tax credits were used to help cover the costs of non-resident stars making more than $1 million a year.
There may be a larger story in this, however. The limits of governments’ ability to attract jobs in this economy, especially relatively high-tax states like New Jersey, leads to a situation where the addition of 50 jobs is noteworthy.