Hollywood shuffle

ASSEMBLY SPEAKER Fabian Nunez has teamed with Gov. Arnold Schwarzenegger on a tax-cutting plan designed to keep filmmakers in California. But as they pitch the bill to skeptical lawmakers, the Republican governor and the Democratic speaker are borrowing a page from a Republican actor from a different era: Ronald Reagan. Their proposal, which is awaiting action in a Senate committee, would give filmmakers up to $3 million in tax credits if they do at least 75% of their production in California. The state would cut a check to the studio even if, through the nimble accounting that’s commonplace in Hollywood, the production had no taxable income.

According to Nunez (D-Los Angeles), this giveaway should not trouble anyone concerned about the state’s budget crisis. The tax cut would not force more cuts in spending, Nunez told reporters Wednesday. Instead, it would keep more production in California and thus bring more money into state coffers.

The no-pain, all-gain argument recalls the supply-side economics advanced by President Reagan and his Republican successors. And while the federal government’s tax-cutting forays produced some real benefits, they also pushed the government more deeply into debt.

Unlike the supply-siders, Nunez and state Sen. Kevin Murray (D-Culver City), who sponsored a similar bill in the Senate, aren’t arguing that their cuts would help the movie industry grow. Instead, they say, the cuts would prevent the industry from growing in other locales, such as Canada, Louisiana and New York. California’s share, not the pie, would get bigger. That’s the theory, at least. Every film with a $70-million production budget is worth $10 million in state income, sales and other taxes, according to the L.A. County Economic Development Corp. Keeping that production in Burbank instead of Baton Rouge means the state would have to spend only $3 million (in tax credits) to make $7 million (in tax revenue).

But what if the feature would have been made largely in California anyway? Then the gain evaporates, and the state simply chalks up a $3-million loss. And it’s hard to imagine how a credit could be designed to reward only those features that were in danger of becoming “runaway productions.” What’s easy to imagine, though, is every film currently in production threatening to take their cameras to Toronto.

The filmmaking industry is enormously valuable to California. And there is no doubt that other states and countries have attracted a growing piece of the industry with tax credits and subsidies.

But if lawmakers want to single out Hollywood for a subsidy, they have to abandon the free-lunch argument. Make the case that spending on this industry is more important than spending on any other industry or on the many things California taxpayers cannot afford. And then be prepared to ratchet up the subsidies when other states respond in kind. Somehow, we don’t think the governor and the speaker are ready to do that.