Film aid bombs in the senate

The motion picture industry’s record-setting month at the box office may have cost it $246 million in tax breaks, as the Senate on Tuesday stripped a provision from the economic stimulus bill that critics derided as an unnecessary Hollywood bailout.

In denying the tax breaks on new film projects, senators cited the $1.03-billion haul from movie ticket sales in January, a 19% year-over-year increase, according to industry tracking firm Media by Numbers.

“They had their best January ever,” said Sen. Tom Coburn (R-Okla.), who led the charge against the tax breaks.

Movie studios actually share a portion of ticket sales with theater owners. And despite the box-office figures, the motion picture industry has suffered during the recession like other industries. Film financing has dried up as part of the credit crunch, and DVD sales, which had propped up studios’ profits for years, dropped 9% in 2008.

Case in point: Walt Disney Co. on Tuesday reported its fiscal first-quarter profit had fallen by nearly a third.

Hollywood’s economic troubles gave the Motion Picture Assn. of America fodder to argue that its member studios needed the tax breaks. Inserted into the legislation by Senate Finance Committee Chairman Max Baucus (D.-Mont.), the provision in the $885-billion stimulus package would have allowed film projects started in 2009 to qualify for an immediate 50% write-off.

But the arguments of Coburn and Sen. John McCain (R-Ariz.), punctuated by January’s surprising box-office figures, proved persuasive. The Senate voted 52 to 45 to remove the provision -- 13 Democrats and one independent, Sen. Joe Lieberman of Connecticut, joined with 38 Republicans to pass Coburn’s amendment removing the studios’ tax breaks from the legislation.

“Hollywood’s doing OK,” McCain said.

California Democrats Barbara Boxer and Dianne Feinstein opposed the removal.

The MPAA said it was not giving up.

“There is no doubt that the motion picture industry is a vital component of the American economic engine, generating billions of dollars every year in state and federal taxes and employing workers all over the country,” spokeswoman Angela Martinez said after the vote.

She said the MPAA would keep pushing for policies “that keep our industry strong.”

The MPAA argued that filmmakers should get the same depreciation tax break in 2009 as other businesses in the bill.

“Every sector of the economy is eligible, plus software,” said Michael O’Leary, the group’s chief counsel for federal affairs and policy. “Our view is films are intellectual property the same as software, [and] we create jobs and tax revenues.”

The so-called bonus depreciation in the stimulus package is designed to spark economic growth. It gives companies an incentive to make large capital purchases in 2009 by increasing the amount of the cost they can write off in the first year.

Baucus said the movie industry incorrectly had been left out of previous versions of the temporary bonus depreciation tax break.

“The film industry is like any other industry: like the steel industry, like the auto industry, like other manufacturing industries,” Baucus said.

But Coburn said including Hollywood amounted to an unwarranted handout.

Meanwhile, Sens. Ben Nelson (D-Neb.) and Susan Collins (R-Maine) were leading a bipartisan group drafting an amendment to strip more out of the legislation -- tens of billions of dollars of spending for items not deemed effective job creators, such as $75 million for smoking cessation programs.

Senate Majority Leader Harry Reid (D-Nev.), who is not part of the group, said President Obama and Senate leaders were committed to “getting everything out of the bill that causes heartburn to a significant number of senators.”

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jim.puzzanghera@latimes.com

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Times staff writers Janet Hook and Richard Simon contributed to this report.