Wednesday, June 17, 2009

We Are All Trickle Down Economists Now

A few years ago I watched a Denzel Washington movie called Deja Vu. Aside from being a pretty solid movie, it was also set and filmed in New Orleans. Filming actually began before the 2005 hurricanes, but instead of finding another locale to finish shooting, the movie's producers went back to New Orleans as quickly as they could. Here's how Denzel Washington explained it,
“It was important to me that we stuck it out, and returned to New Orleans to continue filming as soon as we could. Three months after the water receded, we were filming in the 9th Ward (the area of the city most devastated by the flooding) and we did that intentionally, to show the people that big projects like ours were not going to abandon them when they needed us the most. Think about a big movie production, the amount of people employed and all the others services that depend on it, from catering to hotels or what have you.
Think about that statement for a moment. In effect, Washington is saying that all that money being spent, and earned, by huge corporate movie studios trickles down to help the local economy. And New Orleans has embraced this strategy. Major movie and television projects have gone from 9 in 2005 to a record of 21 in 2008. Much of this increase can be traced to sizable tax credits the state has given to these production companies. The state believes that by cutting taxes for movie producers they can lure business to Louisiana and New Orleans and through this "all boats will rise". For instance, in an article on the television show K-Ville, which was filmed and set in New Orleans, city officials talked about the economic impact that this show and others were having,
“It takes eight days to film an episode,” she said. “Over that eight days a little more than a million dollars is pumped into the local economy.”

For New Orleans, show business is serious business. Several theatrical films have shot in the city this year, including “The Curious Case of Benjamin Button” with Brad Pitt and Cate Blanchett. Entertainment projects have generated more than $100 million for the city in 2007.
And it's not just New Orleans attracting business through tax cuts. According to the Wall Street Journal, 40 states have similar tax strategies to lure Hollywood. One of those forty is Utah. All of these states argue for the tax cuts because bringing business to their state will be a big boost to their economy. The strategy is that the economy as a whole will increase by more than what it cost to bring in business.

The inverse is also true. Business, when faced with higher taxes, leaves to find a better deal somewhere else. For instance, facing a large budget deficit, New York floated the idea of canceling their movie tax credit. Alec Baldwin, from the TV show 30 Rock, said,
"I'm telling you right now," Mr. Baldwin declared, "if these tax breaks are not reinstated into the budget, film production in this town is going to collapse, and television is going to collapse and it's all going to go to California."
New York caved and gave the movie industry a new tax deal.


Frank Staheli said...

Deja Vu is an awesome show, and Denzel Washington one of the most accomplished of actors. I'm glad they went back to New Orleans, and if the tax credits helped, so much the better.

Utah's similar tax credit strategy is one of the best--it helps ensure not only a booming movie-production industry in the state, but also the advantages of the extra commerce that movie production brings.

Cameron said...

Frank, how do you square your support of the movie tax credits with your feelings about the same for companies like Wal-Mart?

Randy said...

Good point, I hadn't thought about it. Next time I see a liberal suggesting things like this, I'll point out their relationship to Reagan.

Unknown said...

What if no State allowed tax credits? Where would the movie studios go? Movies have to be made somewhere. Tax "credits" for movies and businesses are a perfect example of a zero sum game.