by Scot Mussi | Jan 18, 2011 | News and Updates, Uncategorized
We’ve written before about the failures of film tax credits. Here’s another post. If there are better examples of tax policies gone bad, I’d love to see them. Check this one out that ran in the Boston Globe.
Mass. tax credits used to cover movie stars’ wages
January 12, 2011 03:29 PM
Associated Press
A quarter of the tax breaks given movie companies under Massachusetts’ film tax credit program have gone to help cover the salaries of millionaire movie stars.
An Associated Press review of a Department of Revenue report on the program found that $82 million of the $330 million in film spending eligible for the tax credits in 2009 went to pay the salaries of nonresident actors earning more than $1 million.
Under the program a film production can apply for a tax credit equal to 25 percent of a film’s production and payroll costs. In 2009 film companies applied for a total of $82.4 million in credits.
Critics have complained the state shouldn’t be giving tax breaks to Hollywood stars, but supporters say that without the program, there would be virtually no feature films shot in Massachusetts.
by Scot Mussi | Jan 18, 2011 | News and Updates, Uncategorized
Lost in discussion about Gov. Brewer’s FY11-12 budget proposal is the fact that she proposes to control future state spending by limiting revenue (and expenditure) growth to an ongoing 10-year rolling average. While we would prefer a limit based on the state’s population and inflation, this is a positive foray into controlling future state spending with a couple of important caveats.
First, the spending limit needs to be constitutional. The constitution, in fact, already has a spending limit, although it is so high that its meaningless. After all, if the current limit didn’t control spending when revenues jumped 50% over a three-year period, it will never control spending. Arizona needs a constitutional limit with the appropriate flexibility to allow a legislature to override the limit with a supermajority vote.
Second, the governor’s proposal would direct any “surplus” (revenues that exceed the spending limit) in the following manner:
- Debt reduction
- Rollover reduction (another form of debt)
- Filling the Rainy Day Fund
- One-time capital projects
- Tax rebates
To begin with, how state revenues are appropriated are decisions that should be left to the legislature, period. Having the constitution yet again direct where appropriations go is partially what got us into this mess to begin with. However, because the first three priorities can reach an end point (debt can be paid off, for example), there is a compelling argument to take care of those items first, as long as it doesn’t encourage new debt.
Items number 4 and 5, however, should be left to the legislature. There should be no requirement enshrined in the constitution (assuming the limit were constitutional) that one-time capital projects be funded at all, let alone in favor of reducing taxes. Again, prioritizing spending is the job of the legislature.
Finally, when it comes to reducing taxes, rebates are the worst way. Sending checks to people who have already worked to earn their after-tax dollars is better than a kick in the shin, but it does nothing for economic growth nor does it provide any incentive to work to earn that next after-tax dollar.
The legislature should be able to decide whether to give rebates, reduce tax rates across-the-board, or spend it on one-time capital projects. A robust debate would ensue and frankly, that’s ok.
So while improvements to a new state spending limit can and should be made, Governor Brewer deserves credit for intending to leave a solid fiscal reform as part of her legacy.
by Scot Mussi | Jan 7, 2011 | News and Updates, Uncategorized
If you thought Pres. Obama was a died-in-the-wool liberal, who would risk his presidency (and the number of Democrats in Congress) on his ability to ram through as much of a leftist agenda as quickly as possible, you were right. But if you’ve also concluded that he was no Bill Clinton in the sense that he would not triangulate like Clinton and that Obama simply did not possess the ability make a political shift toward the center in order to get re-elected, well, we’re all about to find out.
Now that the mid-terms are over, Obama is taking practical steps to demonstrate that his official team (i.e. those who work for him in the White House) will shape his campaign. Obama is now courting big business, he’s hired as his chief of staff a businessman who criticized Obama’s financial markets regulations, and other similar changes are expected. The message: I will listen. The reality? Who knows?
Presidents can re-invent. Obama already got his health care bill, and the financial oversight bill, and the stimulus, and so forth, so the first two aggressively liberal agenda years weren’t a total waste. Then came the elections, which were clearly a referendum on his agenda. The bully pulpit is powerful, however, and he knows it. Just because the first two years were repudiated, doesn’t mean the next two won’t be rewarded. People can often have short memories. So if Obama has decided that to remain viable he needs to moderate his positions, and if he’s also decided that indeed wants to be viable, then a Clinton-like pivot is forthcoming.
by Scot Mussi | Dec 17, 2010 | News and Updates, Uncategorized
There’s been much discussion about ASU professor Paul Bender’s eligibility on Arizona’s Independent Redistricting Commission. Bender appears not to qualify because he is the Chief Justice of the Fort McDowell Nation Supreme Court (commissioners generally cannot have held any other public office within the previous three years).
But there’s another and more obvious reason Bender should not be on the commission. It seems he has an agenda that doesn’t comport with the language of Prop. 106, which is now part of Arizona’s constitution.
Bender told the Yellow Sheet Reports, “I was really disappointed in the results of the first commission. The primary purpose was to get politics out of it and to make more competitive, less-safe seats – more districts in which there is real competition – to see who would win. The first commission reduced the amount of competitive districts rather than making it larger. I really believe this is an important
process, and believe it’s important to get it going right in Arizona.”
Bender is flat wrong. It may have been the intent of Jim Pederson, who financed Prop. 106 and later ran as a Democrat for U.S. Senate, to have more competitive districts (i.e. fewer districts held by conservatives), but whoever crafted the language for Pederson didn’t make competitiveness a high priority.
ARTICLE IV, PART 2, SECTION 1, PARAGRAPH 14 states:
(14) THE INDEPENDENT REDISTRICTING COMMISSION SHALL ESTABLISH CONGRESSIONAL AND LEGISLATIVE DISTRICTS. THE COMMENCEMENT OF THE MAPPING PROCESS FOR BOTH THE CONGRESSIONAL AND LEGISLATIVE DISTRICTS SHALL BE THE CREATION OF DISTRICTS OF EQUAL POPULATION IN A GRID-LIKE PATTERN ACROSS THE STATE. ADJUSTMENTS TO THE GRID SHALL THEN BE MADE AS NECESSARY TO ACCOMMODATE THE GOALS AS SET FORTH BELOW:
A. DISTRICTS SHALL COMPLY WITH THE UNITED STATES CONSTITUTION AND THE UNITED STATES VOTING RIGHTS ACT;
B. CONGRESSIONAL DISTRICTS SHALL HAVE EQUAL POPULATION TO THE EXTENT PRACTICABLE, AND STATE LEGISLATIVE DISTRICTS SHALL HAVE EQUAL POPULATION TO THE EXTENT PRACTICABLE;
C. DISTRICTS SHALL BE GEOGRAPHICALLY COMPACT AND CONTIGUOUS TO THE EXTENT PRACTICABLE;
D. DISTRICT BOUNDARIES SHALL RESPECT COMMUNITIES OF INTEREST TO THE EXTENT PRACTICABLE;
E. TO THE EXTENT PRACTICABLE, DISTRICT LINES SHALL USE VISIBLE GEOGRAPHIC FEATURES, CITY, TOWN AND COUNTY BOUNDARIES, AND UNDIVIDED CENSUS TRACTS;
F. TO THE EXTENT PRACTICABLE, COMPETITIVE DISTRICTS SHOULD BE FAVORED WHERE TO DO SO WOULD CREATE NO SIGNIFICANT DETRIMENT TO THE OTHER GOALS. (Emphasis added.)
The first commission followed the letter of the law. The result ended up being fewer contested general election campaigns. Republicans and Democrats held safer seats, but Republicans held even more than before Prop. 106. It was a stinging defeat for Pederson.
Bender doesn’t intend to similarly follow the letter of the law. Before competitiveness can move up the chain of priorities, it must be weighed against the potential detriment to the other goals. In other words, the other five goals have higher priority. As a constitutional law expert, Bender knows this. It doesn’t matter what he or other commissioners want. Drawing district lines according to the constitution is pretty clear cut. As someone who sat through many of the statewide hearings 10 years ago, I know there isn’t much wiggle room after the first five goals are met.
Bender is not eligible because of his position with the Fort McDowell Supreme Court, and he is not qualified because he intends to sidestep the constitution in order to fulfill his own agenda.
by Scot Mussi | Dec 15, 2010 | News and Updates, Uncategorized
It’s rare when a state program ends. But a bit of good news occurred last year in the legislature when Arizona lawmakers refrained from extending the dismal motion picture tax credit (we lobbied aggressively to kill the program). It shouldn’t have been a difficult decision given the facts.
An Arizona Department of Commerce report revealed that Arizona gave out $8.6 million in credits in exchange for $2.3 million in new tax revenue. Whoops.
Arizona isn’t alone in ending this misery, according to Bloomberg Businessweek. In Michigan, jobs created by their film tax credit cost the state $193,000 each, thereby causing the governor-elect to re-examine the program. Film credits have been scaled back in Wisconsin, capped in Rhode Island, and suspended in New Jersey, Iowa and Kansas. Arizona’s will end at the end of the year, according to the magazine.
There is a lesson in the demise and failure of film tax credits. When lawmakers are sworn in, they are not endowed with special insights into foolproof ways to manipulate the economy. If Arizona just had a burgeoning film industry, the notion went, it would be a win-win for everyone. As it turned out, it was a win only for those who received the subsidies. Arizona never became a mini-Hollywood (not enough scripts calling for deserts or mountains?) and taxpayers were left holding the bag.
Because the credits failed to incentivize movie production, lawmakers should ask whether they’re in any position to micromanage some other industry. They aren’t. Incentives bestowed on some are paid for by others. The tax code should not be used this way. Not for manufacturing, not for health care, not for anything.
The best thing lawmakers can do is to minimize distortions in the tax code. Ensure it is fair, neutral, transparent, and has the lowest rates possible. The elimination of Arizona’s film tax credits is the first step in this direction.
by Scot Mussi | Dec 10, 2010 | News and Updates, Uncategorized
Republicans were elected overwhelmingly nationally. There was a backlash against incumbents, special interests, and Obama successfully (in some cases) pursuing his leftward agenda.
Candidates for state legislative offices benefited from the wave, too. In Arizona, there are now only nine Democrats in the Senate. Both Houses have super-majorities. Balancing the budget and fixing the economy are common themes for the newly minted GOP lawmakers.
But when it comes to fixing the economy, the early reports indicate the Republicans might be a little tone deaf to the sentiment of the people who just elected them.
On tax policy, for example, there appears to be some life left in the notion that state policymakers can manipulate the tax code to improve the economy by providing carve outs and incentives for certain businesses. The election should have driven a final nail in that coffin.
The expansion of enterprise zones, where companies who meet certain criteria would receive preferential tax treatment, is bad tax policy. The House plan last year included something similar and GPEC has been the lead driver of this policy. This provision won’t stimulate the economy and we hope it similarly fails to stimulate interest from new lawmakers.
There is simply no sound reason for this policy. Creating a new benefit that only some companies benefit from distorts the tax code for everyone else. Yes, some jobs pay more than others, some industries export more than others, some companies are high-tech, while others are not. But the state should not tip the scales in favor of some activities over others. It is not the job of state leaders to distort the tax code under the pretext that they know what they’re doing. They don’t. My favorite quote on this topic:
“The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.”
Alan Peters and Peter Fisher, “The Failures of Economic Development Incentives,” Journal of the American Planning Association 70, no. 1 (2004)
These are the policy reasons to oppose carve outs. There are political ones, too. Which constituency do carve outs appeal to? Aside from the beneficiaries of the carve outs, nobody supports these things. Do Republicans really believe they were given super-majorities in both the House and the Senate to bestow special tax favors to certain businesses? Are the Tea Party activists clamoring for special breaks for big business? Of course not.
One lawmaker told me that unless it benefits the guy running the hot dog cart, he’s not voting for it. That’s the right sentiment.
Arizona lawmakers should begin to phase out special carve outs and incentives. The tax code should become flatter with less distortion. To the extent rates can be reduced, they should be reduced for everyone. If they can’t be reduced for everyone, then reductions should be placed on the backburner, or phased in over time.
In short, Republicans should begin to simplify the tax code, not make it more complex. This would prove to be both a policy and political winner.
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