RALEIGH – The state parliament regularly draws fire for its decision to end an old, very generous tax break for film and television production and to 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 badly. Critics often point to our neighboring state of Georgia, which has kept its treasury open so that Hollywood can raid and, unsurprisingly, is attracting more productions.
The amount of political abuse involved bears no relation to the operations involved. According to a new report from the US Bureau of Economic Analysis, film production makes up about half of 1 percent of the American economy. Outside of some states – for example in California and New York around 2 percent of the gross domestic product – film production consists of small potatoes from an economic point of view.
The larger sector of art and culture production, on the other hand, is at least one very large baked potato with butter and sour cream. Including the performing arts, information, design services, art education and related services, it accounted for 4.2 percent of the economy in 2015.
North Carolina’s cultural sector, at 2.7 percent of GDP, is smaller than the national average and less than Georgia’s 3.9 percent. However, the film production explains only a sixth of the difference. Largely because of Atlanta-based companies, Georgia outperforms North Carolina for economic performance in advertising, design services, publishing, broadcasting, and the performing arts.
Should North Carolina give advertising agencies, book publishers, news networks, or concert promoters special tax breaks to encourage them to move from Atlanta to Charlotte, the Triangle, or the Triad? In terms of numbers, that would be at least as useful as the fixation on filmed entertainment. But it would not be a prudent economic policy. And it would not be popular with the vast majority of taxpayers for good reason.
Incidentally, Tennessee is the most “artsy” economy in our region. It equates to the national average of 4.2 percent of GDP spent on cultural production, largely due to its massive music production and performance industry. It was built on historical and corporate foundations over many decades, not by Tennessee politicians who gave the music business targeted tax breaks.
North Carolina is comparatively strong in some parts of the sector. They do not primarily affect creation, but distribution – for example, the production and logistics that are required to bring artistic products to market. The state is also competitive in certain areas of artistic design such as home decor. The North Carolinians, who live in a long-standing production and transport center, have clearly exploited their strengths.
When fiscal conservative politicians argue against tax breaks or subsidies for certain companies or industries, they are not arguing that North Carolina should not welcome anyone to live, work, invest and build businesses in the state. They just don’t want governments trying to play favorites or guess which sectors are more valuable than others. Such judgments require information and prior knowledge that no politician has or could ever have.
North Carolina’s arts organizations, cultural institutions, and creative industries make it a wonderful place to live. In some cases, they grow rapidly and create above-average new jobs. For the most part, however, their economic footprints are comparable to those you find in the rest of the country outside of Hollywood, Manhattan, and a few other big cities.
Instead of chasing headlines or craving for status, state policymakers should continue to focus on the state government’s core businesses. This includes public safety, infrastructure, education and a minimum safety net. Provide the services the public is calling for at the lowest possible cost in terms of 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. However, the decibel level does not correlate with the power of persuasion. You shouldn’t be able to force taxpayers to invest in their next film project.