Making a Run for the Border: Should the United States Stem Runaway Film and Television Production through Tax and Other Financial Incentives?

By Wicker, Heidi Sarah | The George Washington International Law Review, January 1, 2003 | Go to article overview

Making a Run for the Border: Should the United States Stem Runaway Film and Television Production through Tax and Other Financial Incentives?


Wicker, Heidi Sarah, The George Washington International Law Review


I. INTRODUCTION

From the Academy Award winning musical Chicago1 and blockbuster action movie X-Men2 to the independent feature film My Big Fat Greek Wedding,3 Hollywood is producing an increasing number of motion pictures and television programs internationally that are intended for release in the United States to take advantage of favorable exchange rates and government-sponsored financial incentive programs.4 The effect of these so-called "runaway productions" is an economic loss of approximately $10 billion annually to the U.S. economy, nearly five times the loss of $2 billion a decade earlier in 1990.5 International locations have become more attractive to U.S. entertainment companies as foreign governments challenge Hollywood's traditional dominance in entertainment production by sponsoring training programs for workers, supporting the construction of state-of-the-art production facilities, and offering tax and other economic incentives to attract film and television productions.6

While beneficial to the producing corporations, runaway production has been detrimental to the U.S. economy, most notably in the labor sector. In the Report on the Impact of the Migration of U.S. Film and Television Production (Migration Report), issued in January 2001, the United States Department of Commerce (Commerce Department) estimated that film production and distribution contribute at least $18 billion in direct and indirect export revenues, "constituting a substantial portion of [the U.S.] overall trade surplus in services."7 The economic fallout due to runaway production is even more severe than the statistics indicate because film production and distribution are "locomotive" industries, contributing at least $20 billion annually in measurable dollars to the U.S. economy.8 A locomotive industry is one in which the "number of production workers directly working in the industry belies the true impact of the industry on the economy because so many upstream, downstream, and peripheral industries depend on the primary production plant," thus acting as a "multiplier" of the effect on the economy.9 Over 270,000 U.S. jobs directly depend upon the film industry and thousands of others are employed in secondary industries that serve the film industry on an "as needed" basis, such as caterers and carpenters, demonstrating that runaway production affects workers far beyond Hollywood.10 The exportation of production affects more states than the traditional hub of California, including New York, Illinois, Texas, Florida, and North Carolina, which all host significant entertainment production industries.11

This Note first discusses recent developments in the battle over runaway production in light of increased vertical integration in the entertainment industry and the subsequent concentration of ownership of production and distribution entities. Next, it examines government tax and other financial incentive programs of competitors of the United States in film production, focusing primarily on Hollywood's major competitor, Canada, but briefly discussing three other major players: the United Kingdom, Australia, and Ireland. It then analyzes proposed U.S. federal wage credit legislation and loan guarantee programs as well as various state incentive programs. Finally, this Note evaluates whether federal or state legislation is warranted and, as the international entertainment community becomes more interconnected, whether it is realistic for the United States to maintain a protectionist outlook. The Note concludes that incentive programs should be encouraged on the state level, perhaps through grants for displaced worker retraining and assistance programs, but proposed federal intervention in the form of tax incentives for low-budget productions targets the wrong subset of productions and would be disruptive to the traditional conduct of the entertainment business. While low-budget productions constitute a major source of revenue for several states, this Note points out that the percentage of high-budget features going abroad is increasing. …

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