The Blockbuster Scam: A Surprising Way You're Getting Ripped-Off By Hollywood

For his work in the Hollywood blockbuster The Avengers, actor Robert Downey Jr. will make somewhere in the ballpark of $50 million. His co-stars Mark Ruffalo, Samuel L. Jackson and Scarlett Johansson are also slated to make millions of dollars each for their respective portrayals of Marvel superheroes.

Of course, paydays that high are much easier for a studio to stomach (in this case Marvel Studios, which is part of the Walt Disney Company) when they come after a film has made more than $1 billion at the global box office, as has The Avengers. But taxpayers should pause when they find out that they covered some of the cost of making the smash hit, sending free money to a huge multinational corporation at a time of economic distress.

The budget for The Avengers was a hefty $220 million, but a portion of it was defrayed by $22 million in subsidies that Marvel received from the state of New Mexico. Much of the film was shot at various locations around Albuquerque, New Mexico, and the state has decided to provide a 25 percent rebate for any film or television production done within its borders.

That New Mexico managed to find $22 million to subsidize a major motion picture should raise some eyebrows, considering that, in the last few years, it has cut funding for services for the elderly and the disabled, preschool, higher education, and its state workforce. "We could have spent that $22 million on all kinds of things, like education for our children. We could have spent it on roads,” said New Mexico state Rep. Dennis Kintigh (R).

New Mexico is far from the only state providing subsidies for film and television production. In 2010, 43 states spent $1.5 billion on film and TV subsidies. Of the nine films that were nominated for best picture in 2012, five received state subsidies, including The Help, Moneyball and The Descendents.

The common rationale used to justify such a cost is that the subsidies attract jobs and other economic activity to a state that otherwise will go somewhere else, benefiting someone else. However, as the Center for Budget and Policy Priorities found, the subsidies only tend to create short-term jobs. Furthermore, those jobs are filled by already well-off film professionals who come from a state other than the one that’s footing the bill:

"State film subsidies are a wasteful, ineffective, and unfair instrument of economic development. While they appear to be a “quick fix” that provides jobs and business to state residents with only a short lag, in reality they benefit mostly non-residents, especially well-paid non-resident film and TV professionals. Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services — such as education, healthcare, and police and fire protection — or higher taxes elsewhere."

The few analyses done of state film and television subsidies have found that their rate of return in terms of economic activity borders on pathetic. For instance, Rhode Island found that it receives just 28 cents in direct economic investment for every dollar it spends on subsidies. A 2005 study by Louisiana’s chief economist found that the economic activity generated by film subsidies only offsets 16-18 percent of their cost.

Piling on, in 2007, the Connecticut Department of Community and Economic Development found that its state “will not receive enough additional revenue from increased economic activity to pay for the estimated $16.5 million in tax credits” doled out to the film industry. The New England Public Policy Center at the Federal Reserve Bank of Boston added that “film tax credits do not ‘pay for themselves’ by indirectly generating additional corporate income, sales, and property tax revenues.”

Like many subsidies, those for film and television not only wind up lining the pockets of the already well-to-do, but also end up paying for activity for which they were not intended. Case in point, New Jersey lawmakers belatedly found out that that they were subsidizing the production of MTV’s "Jersey Shore," much to the chagrin of Gov. Chris Christie (R). (The state later canceled that particular subsidy.) Other times, the subsidies will go toward projects that would have happened in a particular state anyway, providing a convenient windfall rather than an enticement for production to move.

Even the film industry’s lobbying arm, the Motion Picture Association of America, can’t find any hard data to support its contention that film subsidies help a state succeed economically. In fact, a recent report by the MPAA in defense of film subsidies cited only a hypothetical $10 million production, not a real film, as evidence that subsidies work.

Fortunately, some states, such as Arizona and Kansas, have ended their subsidy programs, bringing the number of states spending tax dollars on film and television production this year down to 35, according to the conservative Tax Foundation. But other states are doubling down, betting more on the film industry with the economy still struggling in the wake of the Great Recession. That may be a way for Hollywood to get ahead, but it’s doing precious little for those taxpayers who are ultimately providing the dollars.