The state legislature regularly draws fire for its decision to end an old, very generous tax break for film and TV production and replace it with a smaller, more-targeted grant program. Industry executives issue insults. North Carolinians who used to get more work in the industry cry foul. The critics often point to our neighboring state of Georgia, which has kept its state coffers open for Hollywood to raid and, not surprisingly, attracts more productions.
The amount of political invective involved is wildly out of proportion to the stakes involved. According to a new report from the U.S. Bureau of Economic Analysis, motion-picture production represents about one-half of one percent of the American economy. Outside of a few states — it’s about two percent of gross domestic product in California and in New York, for example — film production is, economically speaking, small potatoes.
The larger sector of arts and cultural production, on the other hand, is at least a very large baked potato with butter and sour cream. Including the performing arts, information, design services, arts education, and related services, it accounted for 4.2 percent of the national economy in 2015.
At 2.7 percent of GDP, North Carolina’s cultural sector is smaller than the national average, and smaller than Georgia’s 3.9 percent. But film production explains only one-sixth of the difference. Primarily because of companies based in Atlanta, Georgia also surpasses North Carolina in economic output from advertising, design services, publishing, broadcasting, and the performing arts.
Should North Carolina bestow special tax breaks on ad agencies, book publishers, news networks, or concert promoters to induce them to move from Atlanta to Charlotte, the Triangle, or the Triad? By the numbers, that would make at least as much sense as fixating on filmed entertainment. But it wouldn’t be a prudent economic policy. And it wouldn’t be popular with the vast majority of taxpayers, for good reason.
By the way, the most “artsy” economy in our region is actually Tennessee. It matches the national average of 4.2 percent of GDP devoted to cultural output, largely because of its massive industry of music production and performance. It was built over many decades, on both historical and entrepreneurial foundations, not by Tennessee politicians throwing targeted tax breaks at the music business.
North Carolina is comparatively strong in some parts of the sector. They primarily involve not creation but distribution — the manufacturing and logistics required to bring artistic products to market, for example. The state is also competitive in certain artistic-design sectors such as home décor. Residing in a longtime manufacturing and transportation hub, North Carolinians have clearly been playing to their strengths.
When fiscal conservatives argue against tax breaks or subsidies aimed at specific businesses or industries, they aren’t arguing that North Carolina ought not welcome anyone who want to live, work, invest, and build businesses in the state. They simply don’t want governments to try to play favorites or guess which sectors are more valuable than others. Such judgments require information and foreknowledge that no politician has, or could ever have.
The arts organizations, cultural amenities, and creative industries in North Carolina make it a wonderful place to live. In some cases, they are growing rapidly and creating new jobs at a higher-than-average rate. In most cases, however, their economic footprints are comparable to what you’ll find in most of the rest of the country, outside of Hollywood, Manhattan, and a few other large cities.
Rather than chase headlines or crave status, state policymakers should continue to focus on state government’s core enterprises. Those include public safety, infrastructure, education, and a minimum safety net. Deliver the services the public demands, at the lowest possible cost in taxes and regulations, and otherwise stay out of the way.
Every tax preference or subsidy has a small but highly motivated group of net beneficiaries. They will always scream the loudest. But decibel level doesn’t correlate with persuasiveness. They should not be able to compel taxpayers to invest in their next movie project.