Testimony Opposing HB 99 (Motion Picture Incentives Amendments)

Sutherland Institute supports reducing taxes for companies in order to promote economic growth, as the Motion Picture Incentive Fund (MPIF) and other GOED programs are intended to do. However, in our view, any tax benefit offered should be available to all companies in order to maintain a level playing field. If giving tax rebates to select film companies encourages economic growth, then certainly lowering taxes for all films produced in Utah would benefit the state economy even more. When it comes to tax policy, what’s good for one company is good for all companies. According to GOED data, in 2010, only 16 of 111 films produced in the state, or 14 percent, received a film incentive. And of the 61,000 total companies in Utah, only 210, or one third of one percent (0.34 %), were under contract to receive incentives through GOED’s three major incentive programs. While giving tax breaks to these few companies directly benefits them and indirectly benefits some other companies, 99.66 percent of Utah companies are receiving no direct benefit from GOED incentives. We are concerned that by giving tax rebates or cash grants only to select companies, we have transformed a valuable free-market tax policy idea – keeping taxes low – into a government-driven corporate subsidy program. In a free-market system, competition through natural market forces – not government intervention – determines which companies win and lose by weeding out bad companies and rewarding good ones. Government does not give special treatment to favored businesses or intervene unnecessarily. Each entrepreneur or company has equal opportunity to succeed based on ingenuity, efficiency and hard work. The Motion Picture Incentive Fund picks winners and losers by giving preferential tax treatment to specific companies. As one Utah filmmaker recently told us, subsidized film companies often happen to be large, out-of-state production companies, creating a bias against entrepreneurial, Utah-based film companies, which are more committed to the state. Filmmakers and companies in other industries that do not receive GOED incentives and pay full tax rates year after year have a competitive disadvantage as compared with those who do receive them. Corporate subsidy programs concentrate – rather than disperse – economic and political power. They concentrate economic power into the hands of businesses with greater resources and political connections, while disadvantaging smaller businesses that are focused on working to survive and grow and that are the principal drivers of Utah’s economic engine. Utah’s corporate subsidy programs concentrate political power by delegating taxing and spending authority from the state Legislature, a body of 104 elected officials who represent constituents statewide, to a board of 13 unelected individuals who determine which companies receive special tax treatment. Furthermore, economic development programs that target specific companies encourage businesses to work to influence the legal and political environment to benefit their own interests, often at the expense of their competitors. This practice, called “political rent seeking,” can inflate the profits of rent-seeking companies beyond what they would earn through natural competition while stifling the growth of productive companies and the economy as a whole. For all these reasons, we respectfully urge you not to raise the 20 percent ceiling for film incentives or expand the program otherwise. As an alternative, we invite you to consider enacting policies that provide tax benefits to any legitimate company operating in Utah, such as reducing the corporate income tax rate, so that all Utah businesses have equal opportunity to succeed. Such free-market policies will not only benefit existing Utah businesses but also make the state even more a magnet for out-of-state companies searching for a favorable business environment, which will help Utah’s economy continue to thrive now and into the future, for the benefit of all Utahns. Thank you for your time and for your consideration of our concerns and recommendations.