How does Hollywood manage to keep a $430 million tax break?

In the context of trillion-dollar budget deals, it's strictly nickel and dime - and yet the extension of a federal tax break for movies and TV shows shooting in the U.S. typifies the giveaway mentality that still pervades Congress. First implemented in 2004, Section 181 of the federal tax code allows producers to write down the first $15 million of expenses. It was seen as a way of creating jobs by discouraging movies and TV shows from being shot in foreign countries - what has become known as runaway production. But there's scant evidence on how effective the program has been or whether these shoots generate enough revenue to offset the taxes being lost. Besides, most states, including California, have their own tax credit giveaways - and all this for an industry that hardly needs any government relief (last year's box office revenue is expected to reach $10.8 billion). But the entertainment industry has lots of friends on Capitol Hill - Democrats and Republicans - who are willing to peddle this terrible piece of policy-making even as other tax breaks rightfully go by the boards. Who said pork was passe?From THR:

The tax credit -- originally championed by Republican senators Orrin Hatch and Olympia Snowe and Democratic senators Blanche Lincoln and Max Baucus -- offers a particular benefit to television producers, since the deduction applies to each episode of a series. The bill, which has been extended several times since 2004, provides "that each episode of such series shall be treated as a separate production," up to a maximum of 44 episodes. Chicago-based entertainment lawyer Hal "Corky" Kessler, who urged Congress to pass the tax incentives nine years ago, said Wednesday that he has been working closely with Baucus' office in recent months to make sure the measure was extended. He said he's planning to moderate a panel at the Sundance Film Festival this month to educate filmmakers and investors on what they need to do to qualify for the tax breaks.

This is really a rigged debate. Backers include most all the big guilds and trade associations, while opposition is scattered at best - not because there isn't plenty to oppose but because no single group has the same level of interest as the industry itself. One other point: Federal and state tax incentives are less relevant to the rank and file as they are to investors willing to bankroll the productions. Some details from the website Film Closings:

Section-181 is a very lucrative, accelerated tax deduction that American investors can use to offset (i) Passive Income (e.g. income from residuals, royalties, real estate, oil & gas, etc.), or (ii) All Income (including wages) if the investor participates in the production. The incentive allows investors to deduct the entire amount of their investment in the tax year(s) the money is spent, as opposed to being required to amortize it over several years. This is not a tax credit that producers can sell for cash, nor is it a rebate check from the Feds; it is an accelerated deduction that can amount to significant tax savings for investors, which, in combination with a some state credits (like Louisiana) can cover as much as 50% of the investment risk.

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Hollywood stories:
Obama meets with victims of LAX shooting*
THR's Stephen Galloway wins entertainment journalist of the year
Finke, Waxman, Penske, Min: Battle of the Hollywood trades
Photos: AARP Films for Grownups Film Festival
Best thing about next year's Oscars night probably just happened

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook