I read an article this morning in the Christian Science Monitor with the title “Should Innovation be Tax Deductible.”
The issue is whether Congress should amend the tax code to give companies engaging in research to pay lower taxes on the profits of such activities. Supporters of the idea believe it will increase innovation at home and keep well-paying research jobs from going overseas.
I am not going to offer an opinion on the proposed legislation itself, beyond saying that the argument presented against the idea in the article seemed to be to be less than persuasive. It consisted of the notion that corporations would abuse the benefit by re-classifying various activities in order to qualify for the incentives.
This is what corporations do. Saying that there should not be any incentives in the tax code because corporations will work around them is like saying we should not have speed limits because people will drive faster than them anyway.
But that is not what I am here to talk about. One particular paragraph caught my attention:
For example, a 2004 effort by Congress to lower tax rates for US manufacturers expanded far beyond lawmakers’ original definition of “manufacturing,” Mr. Gardner notes. “When the dust settled, the final law expanded the concept of ‘manufacturing’ to include roasting beans for coffee (an early example of the lobbying clout of Starbucks) and film and television production. When policymakers initially began discussing the manufacturing tax break, few would have imagined that the Walt Disney Company would reap more than $200 million a year in tax breaks for ‘manufacturing’ animated films,” he wrote…
What bothers me here is the mocking of the notion that television and film production deserve to be classified as “manufacturing.”
Manufacturing is making something as contrasted with agriculture (growing something) or service. Now I will be the first to admit that the Walt Disney Company is far from being a struggling entity in need of government assistance. That is not the point.
I assume that the reason Congress wanted to lower these tax rates was to keep jobs in the United States. Well, television and film employ a lot of people– real people who buy houses and cars and go shopping and raise families. According to the Bureau of Labor Statistics motion pictures and broadcasting show an annual average of 20,869 employees and total annual wages of $1.55 billion.
They make a product that American consumers value so much we spend an average of five hours a day watching it.
When you think of the movie industry, you probably imagine actors and directors. But it takes a lot of people to make a movie or a television show from caterers and hair-stylists to construction workers and lighting technicians. USA today recently cited the film industry as an area of growth for blue collar workers in an otherwise fairly stagnant economy.
Atlanta needs construction workers, lighting experts and others to work in its fast-growing film industry. Skill is required, but not necessarily film experience for the 77,000 film workers (average pay $84,000) and support personnel in 2012, who turned out movies such as The Fast and the Furious and The Hunger Games franchises, according to the Motion Picture Association of America.
The good news is that film production is still less outsourced than some other industries. About 65 percent of the big, profitable “Hollywood” productions are still made here– although tax incentives from other states have taken a lot of those jobs away from California.
Mr. Gardner, quoted above, particularly mocks the idea that tax breaks were intended to benefit the making of animated films. So it might be worthwhile to know that animated film-making is starting to move overseas in a big way. According to the Hollywood Reporter:
Extremely generous subsidies in Vancouver, British Columbia enticed Pixar Animation and Sony Pictures Imageworks to open satellite locations in the Province in 2010…Sony Imageworks decided to double the size of its studio space in the city and grow its Vancouver workforce from 100 people to more than 250. In January 2014, Sony Imageworks announced layoffs at its Southern California facility and that it was shifting more positions to Vancouver. As the workforce in British Columbia grows, it shrinks in California. In 2012, DreamWorks Animation announced plans to open a studio in Shanghai, China… Dreamworks CEO Jeffrey Katzenberg said the size of the studio in China could eventually surpass DreamWorks’ headquarters in Glendale, California, which employs more than 2,000 people. It appears job growth is happening in the animation world, but it’s happening in places like China, not California.
Are those 2,000 jobs not American jobs? Are they less worth keeping here than jobs making mechanical devices?
The reason, I think, it is easy to mock making cartoons as an example of manufacturing (in a way that I doubt one would mock the notion of, say, software as manufacturing) is that it falls into that broad category of “the arts.”
It is the same mindset that says giving a rich person an incentive to build a sports stadium is an investment in economic growth whereas giving funds to build a fine arts theater is supposed to be philanthropy and charity. Making music, dance, theater is art not commerce. It should be done for love not money.
I don’t know whether we need to give tax incentives to large corporations to keep them from moving overseas. If we do, though, we should care about the jobs making film sets as much as we care about the jobs making automobiles. Most of us spend more time each day using the film-makers’ products than the car-makers’.