This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Imagine a state government scheme that takes money from the poorest of Utah taxpayers and gives it to Hollywood billionaires. Preposterous? Well, no, it's actually a painful reality.
Utah spends millions each year for handouts to Hollywood productions in the name of economic development. This boondoggle comes from a state Legislature that regularly (and correctly) decries the idea of government picking winners and losers among companies in the private sector. Virtually every Republican in Utah justifiably excoriated the Obama administration for lavishing millions of dollars in loans for failed businesses such as Solyndra. Yet Utah doles out big money to lure and subsidize Hollywood productions.
Nobel laureate economist Milton Friedman of the University of Chicago discovered that people make decisions about spending and investments based on long-term changes in their income and wealth. In other words, you might buy a new house if you got a $10,000 per year raise in your salary. But if you got a one-time windfall of $10,000, probably not. If you're a business, and Wal-Mart starts buying a large amount of your products each month, you might expand your factory. But if a Hollywood TV show, which could get canceled at any time, starts buying your product, you probably don't start any expansions. Hollywood movies that might film in Utah don't build new factories. They don't hire Utah-based workers as permanent employees. Their economic impact is transitory.
I have reviewed one of Utah's contracts for a Hollywood TV show. Utah promises to pay up to 25 percent of what is spent in Utah to make the show, with the payout capped at $8,340,000.
The term Utah uses in its contract is "dollars left in the state." It's basically money spent that is subject to a Utah tax of some kind. It could be sales tax or income tax. But the state sales tax rate (before local sales taxes are added) is 4.7 percent and the state income tax rate is 5 percent. If a Utah actor is paid $10,000 for working in the show, the moguls may be able to recoup $2,500 of that from Utah taxpayers, but how can Utah collect more than $500 in income taxes from the actor? How does Utah come out ahead by paying a 25 percent rebate for these kind of expenditures?
The assertion that these expenditures are a very bad deal is not mine alone. The North Carolina General Assembly's Fiscal Research Division concluded that the state lost 54 cents for every dollar spent for its film production tax credit. The research went on to conclude that each new job created in North Carolina under the program cost the state at least $429,000 for a job that paid, on average, $36,000 per year. Florida studied its program and found out it did even worse. Florida lost 57 cents for each dollar spent.
Nearly all of the poorest of the poor of Utah eventually pay some amount of sales tax. That money goes into the state coffers, which then doles out the subsidies described above, thus moving money from the very poor to the very rich.
Hollywood movies are by definition one-time events and Hollywood TV shows lead a notoriously uncertain existence. Does anyone seriously believe that Utah citizens will change their spending and investment decisions on the basis of such a fleeting and uncertain source of employment/business?
Milton Friedman's Permanent Income Hypothesis is a lynchpin of economic theory. For Utah's allegedly free-market legislature to be ignorant of it is appalling. The new legislative session is upon us. It's time to end this corporate welfare.
Eric Rumple lives in Sandy. He has an MBA from the University of Chicago and is the author of the novel, "Forgive Our Debts."