U.S. Senate candidate Linda McMahon's World Wrestling Entertainment (WWE) has received $36.7 million in Connecticut film tax credits in 20 separate deals since 2006, reports CTPost.com (thanks to Karin Richmond on the LinkedIn Public Incentives Forum). As in many states, what historically began as tax credits for motion pictures are now available for TV and online media as well, and it is in these two latter categories that the WWE received its subsidies. Also as is typical of other states, the Connecticut program has no job creation requirements, but is calculated simply as a percentage of "qualified expenditures," with the rate being 30% in Connecticut. In fact, in WWE's case, the company had laid off about 60 workers in 2009, yet continued to receive the credits.
Moreover, according to the Sacramento Bee blog, "Cageside Seats," WWE has so little state tax liability that it sells the vast majority of its tax credits via a broker, including 93% of the tax credits it earned in 2007-9. While selling tax credits is perfectly legal (in David Cay Johnston's memorable phrase), it also increases the subsidies that states give, because they wind up giving subsidies to companies that did nothing to qualify for them under any subsidy program.
Nor is WWE alone in its sale of Connecticut tax credits. According to a 2010 article at the CT Post, "of the 80 productions that received credits, only nine applied them to state taxes." The rest, presumably, sold their credits via brokers. The article also states that the national tax credit market had reached $500 million annually in 2010, from $50 million per year in 2005.
Robert Tannenwald of the Center for Budget and Policy Priorities (CBPP) has analyzed state film subsidies and concluded they provide very little bang for the buck. This should not be surprising. Unlike most subsidies, film/TV/digital media subsidies do not go to an investment, but to operating costs. There is nothing left after the crew packs up. Tannenwald points out that even the early adopters of film subsidies (New Mexico and Louisiana), which appeared to have built up some in-state film capacity, are now finding it difficult to maintain their position as the number of states offering such incentives skyrocketed to over 40 by 2010. The increased competition has led states to bid up their reimbursement percentages, to over 40% in Alaska and Michigan. Moreover, it's hard to have job creation requirements for jobs that are inherently temporary.
Tannenwald estimates that the 43 states that gave film tax credits in fiscal 2010 spent $1.5 billion. This is enough to hire back 30,000 state workers laid off since the recession began, at an average of $50,000 per year in salary and benefits.
Although not members of the Forbes 400, Linda and Vince McMahon follow their example in collecting millions in subsidies from government. This is particularly hypocritical since as a Senate candidate McMahon has tried to portray herself as an opponent of "corporate welfare."
Besides having little bang for the buck, film subsidy programs have been rocked by scandal in both Iowa and Louisiana, where the film commissioner was convicted of bribery to accept inflated expense submissions. The Iowa Film Office director was convicted of felonious misconduct, but acquitted on eight other felony charges. A number of credit claimants in Iowa were convicted of felonies as well in other trials.
As I have argued before, investment incentives generally constitute a race to the bottom. However, film and related media subsidies have shown us a high-speed race to the bottom for amazingly little economic benefit. While a few states have cut back on the subsidies due to the recession (and Iowa suspended its program for three years due to the scandal), only federal controls can truly address this problem. My research in Canada (paywalled) found the provinces there similarly unable to control their film subsidy wars. At this point, only transparency in program costs, plus information on the low benefits and frequent scandals, is the only way to generate political pressure for reform.
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