Zombie Subsidy! Hollywood Corporate Welfare Rises from the Grave

Participants attend the "Zombie Walk" in Paris on October 7, 2017. / AFP PHOTO / Thomas SAMSON (Photo credit should read THOMAS SAMSON/AFP/Getty Images)

It’s baaack!

A federal tax break for film, television, and theater productions that expired a little over a year ago has been revived by the budget deal signed into law by President Donald Trump Friday.

The tax break, created back in 2004, was originally scheduled to expire after just a few years. Under pressure from Hollywood, however, Congress renewed the tax break time and again. But with the election of President Trump and Republicans in control of both the House and Senate, the break was finally allowed to expire in 2017.

Except now it is back in a particularly strange and zombie-like way. The new budget law reinstates the tax break but only retrospectively, extending the tax-break to film, television, and theater productions made last year. As a result, the subsidy can no longer accomplish its professed goal of promoting film production and creating jobs–it can only act as a handout to productions already made or significantly underway.

The tax break was created by the Jobs Creation Act of 2004. Intended to shore up the U.S. film industry, which claimed it was suffering from unfair competition from Canada and other countries providing tax subsidies to television and filmmakers, Section 181 of the Internal Revenue code allowed the costs of productions costing up to $15 million to qualify for immediately expensing, rather than having them depreciate under standard amortization schedules that would apply to capital investments. That was expanded by a law signed by President Obama to allow all productions, regardless of the to coast, to immediately expense costs up to $15 million.

In other words, a subsidy that originally applied only to smaller productions became available to even the biggest Hollywood films or studio television shows.

It’s not clear that this was ever an effective jobs creator, although Hollywood lobbyists always insisted it was very important. The Motion Pictures Association of America and the Directors Guild of America pushed hard for the creation of the subsidy and for each renewal. Studies of the tax breaks, however, suggest they produce very little benefit at all–except to the Hollywood studios that benefit from them.

But even granting the arguments that the subsidy would lead to more entertainment production in the U.S., it’s hard to see how a retrospective subsidy could do that. Instead, this appears to be a handout without any promise of benefit to anyone except the producers of films made last year.

“You can’t create jobs retrospectively. You can only pad the balance sheets of Hollywood content creators with this,” said one Capitol Hill staffer familiar with the subsidy.

There was no need to extend the break for future years because the tax overhaul passed by Congress last year allowed for the immediate expensing of 100% of the costs of domestic film, television, and theatrical productions produced after September 27, 2017–and removes the $15 million upper limit altogether.  That left a gap, however, in the trail of subsidies for films produced after the old tax break expired at the end of 2016 and before the new tax break kicked in.

This new tax break, similar to the bonus depreciation applied to many other capital expenditures, begins to phase out after 2022 under the law.

Although, given the history of Hollywood tax breaks, that may not play out according to the script.


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