Opinion: Daily Journal

Keep Your Head in the Sand and Reach for the Stars

North Carolina’s film tax incentive program is in the news again. The Fayetteville Observer recently carried a puff piece about how “Stars have aligned for North Carolina’s film industry.” That would be movie stars, of course, whose famous names make up the story’s opening lines: “Robert Downey Jr., Gwyneth Paltrow, Hilary Swank, Jennifer Aniston, Julianne Hough, and Josh Duhamel all are filming movies in Wilmington or nearby Southport, causing a stir every time they go out in public.”

The article provides no mention of the criticism of film tax incentives, which comes from the N.C. Institute for Constitutional Law, the Civitas Institute, the Tax Foundation, The Economist, which called the rush to adopt film incentives a “stupid trend,” and yours truly in the second report in the Carolina Cronyism series.

Nevertheless, the Observer offers some good points. Readers learn that North Carolina had a bustling film industry until other states and nations began offering incentives, that North Carolina has a diverse array of natural resources that provide productions all kinds of settings (“We can play middle America, beaches, upstate New York, small towns, vast landscapes, farms — just about everything other than specific large cities”), that the cost of living is low here, and that there are stages and experienced crew workers here.

Discerning readers can wonder whether the incentives are necessary. Granted, it’s not fun when the stars go elsewhere. Even California has gotten into film incentives. Nevertheless, California — like Georgia and Michigan, among others (see page 5), and notably even like the unofficial capital of film incentives, Louisiana, which is paying $7.29 in incentives for every dollar of revenue received (PDF link) — is also questioning whether the incentives are a good idea.

As my report shows, states are reaping mere pennies on the dollar of revenue spent on film incentives. As things stand, they are also locked in a race to the bottom with themselves as well as with other nations. We’ve already seen state policy change once because the hero didn’t get the girl — i.e., after North Carolina whiffed on a Miley Cyrus flick, embarrassed state leaders upped the incentives from 15 percent of qualified expenses to 25 percent.

As my colleague Fergus Hodgson points out in the John Locke Foundation’s Agenda 2012, North Carolina’s business tax climate ranks 44th in the nation and is the worst by far in the South. North Carolina’s rankings in personal income tax (43rd), retail sales tax (47th), and corporate income tax (29th) are nothing to boast about. North Carolina has one of the worst unemployment rates in the nation. If lower taxes and regulations are what it takes to get film productions coming to North Carolina, why limit that incentive to just film production?

If state leaders opted for a broad-based incentive — that is, if they cut taxes and regulations across the board, bringing in all kinds of production — they could be telling entrepreneurs across the country, “You don’t have to be a star, baby, to be in our show.”

Jon Sanders (@jonpsanders) is director of regulatory studies for the John Locke Foundation.