Hollywood has been in decline for years as studios cut spending and shift production overseas. Now the companies and unions that run the town are seeking a bailout from federal taxpayers in the form of a costly “incentive,” and their friends in Congress are happy to oblige.
Last week, lawmakers released the Motion Picture, Television, and Entertainment Revitalization Act — a gilded name for an open-ended subsidy to the film industry. The bill would create a federal tax credit for movies and television shows produced predominantly in the United States, covering 20 percent of nearly all their labor costs. Bonuses for special conditions could raise a project’s subsidy rate up to 30 percent. One such bonus is for filming in declared disaster areas, which — because of last year’s wildfires — includes all of Los Angeles County until 2030.
Proponents in Hollywood say the credit is needed to rebalance the playing field after other countries developed their own subsidies. In the United Kingdom, Canada, and Australia, government programs can rebate nearly half of film-production costs. Projects are highly mobile, the argument goes, so America must match these incentives if it wants to compete. Since 2021, a third of U.S. motion-picture jobs have disappeared while employment has risen abroad.
Yet foreign subsidies can’t explain why domestic filming collapsed in the past few years, as most have existed for decades and U.S. employment peaked as recently as 2022. The story of Hollywood’s fall is more complicated. Though the box office has rebounded, total industry spending has stalled since the post-pandemic streaming surge. Releases are down, meaning workers have fewer productions to join worldwide.
The greatest job decline after Covid was in 2023, before Hollywood’s chief competitor, the U.K., expanded its film subsidies. That was the year of the industry’s “double strike,” when actors and writers simultaneously walked off studio lots for months. Hundreds of projects were delayed or outright canceled as filming rolled to a halt, costing the entertainment industry billions of dollars. When studios finally signed contracts to end the strikes, they had to accept unions’ core demands, ballooning their compensation in perpetuity. Is it any wonder they have looked to film elsewhere?
The proposed federal tax credit would bail out the union workers who bargained for more than they were worth. It would subsidize almost all labor costs — for employees and contractors, both pre-production and post-production — of film crews, animators, special-effects artists, writers, actors, and even producers and directors. There are no limits on eligible compensation, so taxpayers would pick up a good chunk of the salaries of Christopher Nolan and Tom Cruise.
Advocates suggest that all Americans would benefit from the subsidy spurring economic activity across the nation. It’s rich that Hollywood, which usually slanders “trickle-down” economics, is calling for a tax cut to boost supply. But, as opposed to broad rate reductions, targeted tax incentives don’t have a strong record of goosing economic growth. Dozens of states already have film subsidies to woo studios away from one another, costing taxpayers billions with no discernible effect on employment or wages. Why would another giveaway stacked on top perform any better?
Unlike most state incentives, the federal tax credit would be entirely uncapped. It would therefore cost the federal government billions of dollars each year at a minimum, with the fiscal burden rising with industry spending. Congress needs to be shrinking the gap between federal revenues and outlays, not widening it.
Sadly, it is not just California Democrats who want to increase the deficit by giving Hollywood a special break. Many Republicans, including President Trump, have also endorsed the subsidy. The bill’s sponsor in the Senate is Tim Scott (R., S.C.), whose history of using the tax code for industrial policy is instructive. Scott was the author of Opportunity Zones, a tax exemption for low-income areas that was recently expanded at a ten-year cost of $41 billion. Studies find that the zones seem to create jobs but in fact merely reallocate them from nearby communities.
This evidence reflects the theory of the “broken window” fallacy, in which policymakers point to the visible benefits of an intervention — like the repairman hired to fix a broken window, or an investment made in response to a subsidy — while ignoring the unseen production that had to be redirected. To the extent a federal credit would result in more projects filmed in America, it would shift jobs and resources away from more valuable uses.
Of course, the true purpose of the tax credit is probably not to foster prosperity but to help Hollywood pay off the unions that wrecked its labor market. Either way, Congress should leave this handout on the cutting-room floor.