The Political Theater of Film Tax Incentives
Shortly after President Trump made waves in Hollywood by proposing tariffs on films produced overseas, California Governor Gavin Newsom stepped into the fray with an unexpected offer. Despite the politically charged atmosphere and the public enmity between the two, Newsom reached out to the White House with a bold proposal: a $7.5 billion federal tax incentive aimed at keeping more film and television productions in the U.S.
The Call for Federal Support
For years, Hollywood insiders have clamored for a federal tax incentive program that could compete with generous offerings from foreign countries. Newsom’s Monday proposal received some applause from within the industry, as various lawmakers, including Senator Adam Schiff (D-Burbank) and Representative Laura Friedman (D-Glendale), have long advocated for a national program. Their goal? To level the playing field and retain American jobs.
But this ambitious initiative is not without challenges. To many average Americans, an extensive federal tax incentive for the entertainment industry may seem like an uphill battle, especially given their perception of Hollywood as wealthy and politically liberal. Furthermore, it’s uncertain where the funding for such an undertaking ranks among the country’s array of pressing national priorities.
The Odds Stack Up
Sanjay Sharma, a media finance professor at USC’s Marshall School of Business, has expressed skepticism about the likelihood of the incentive’s success, estimating its odds at "50/50 at best." This sense of uncertainty underscores the complicated dynamics of bipartisan support in times of economic and political division.
Recently, a coalition comprising various Hollywood unions and industry trade groups, including the Motion Picture Association (MPA) and guilds representing screenwriters, directors, and actors, rallied behind the incentive. They argued that it would support both economic growth and the administration’s objective of reshoring American jobs. Their collective message emphasized the need for Congress to include a production incentive in the upcoming 2025 tax legislation.
The Competing Priorities
Nonetheless, lawmakers face a daunting task in justifying a vote in favor of effectively subsidizing the entertainment industry. With pressing issues like infrastructure, homelessness, and the opioid crisis demanding attention, the political optics surrounding a film tax incentive could prove challenging. George Huang, a professor of screenwriting at UCLA, highlights this concern, stating that the entertainment industry often appears “frivolous” to the average citizen.
Even if such a federal film tax incentive were to gain traction, there’s no guarantee that productions would flock back to the U.S. If other nations ramped up their own incentive programs in response, the competitive landscape could remain unchanged, diluting the potential benefits of any new U.S. initiative.
An Industry in Crisis
The stakes are high for the entertainment industry, which has faced a barrage of setbacks in recent years. The COVID-19 pandemic, combined with the dual writers’ and actors’ strikes in 2023, has placed immense pressure on the film and TV business. This precarious situation has given rise to what some describe as an employment crisis, particularly in California, where the industry’s impact is most pronounced.
“Right now the industry is teetering,” Huang notes, emphasizing that a federal tax incentive could help stabilize the sector and restore its status as the capital of global entertainment.
A Glimpse into Proposals
A federal tax incentive was also central to a proposal put forth by actor Jon Voight, one of Trump’s so-called Hollywood ambassadors, alongside his manager Steven Paul. They recently visited Mar-a-Lago to present a plan that aims to reignite filming jobs in the U.S. This proposal suggested a federal tax credit ranging from 10% to 20%, which could be layered on top of existing state incentives.
While some hailed its potential, Paul clarified that the proposal was more of a discussion starter than a formal policy. “The document does not claim to represent collective views of the participating film and television organizations,” he explained, highlighting the work-in-progress nature of the initiative.
Legislative Pathways
In addition to Newsom’s sweeping proposal, the MPA and its allies are pushing for changes to Section 181 of the federal tax code, which encourages film production to stay in the U.S. Enacted in 2004 when concerns about film relocations to Canada and Europe were mounting, Section 181 allows for significant deductions on qualified production expenses. By making these deductions available in the year costs are incurred—rather than post-release—independent filmmakers could benefit immensely from timely support.
Looking Ahead
Frank Albarella Jr., a partner at KPMG who specializes in media and telecommunications, encapsulated the hope surrounding these initiatives: “Maybe some of the U.S.-based companies will start taking a look at their domestic production levels.” With fingers crossed, stakeholders in the entertainment industry are hoping for an increase in both federal and state incentives that could pave the way for a revitalized domestic production landscape.
