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Thursday, October 30, 2008

Did Pennsylvania taxpayers "pay" to make a porno?

Insider Online raises an interesting question (the continuation of a dialogue between Americans for Tax Reform and the Tax Foundation): Are targeted tax breaks the same as government spending/corporate welfare? That is, if a tax credit is designed to benefit one individual or company, should it be viewed the same as an earmark?

On the one hand, a targeted tax credit isn't quite taking money from some to give to another but letting some people/businesses keep more of their own money (except in the case of "refundable" tax credits, which allow for "spreading the wealth". On the other hand, absent reductions in spending, targeted tax credits mean that everyone else has to pay higher taxes.

I point this out as the raunchy comedy Zack and Miri Make a Porno opens tomorrow. That being the film that, while orignally received an NC-17 rating, was awarded a $5.7 million tax credit from the state of Pennsylvania.

Does this tax credit mean, as Lowman Henry puts it, that Governor Ed Rendell and Taxpayers made a porno? In part yes, as everyone pays higher taxes because of the film tax credit.

It should also be noted that unlike most tax credits, the film tax credit can be sold - so that even if the film company doesn't owe the full amount in Pennsylvania taxes, they can sell the rest to another company that does owe taxes. In this regard, the film tax credit (though not all targeted tax incentives) is a gift from taxpayers.

Finally, after some research, we learned that the Pennsylvania Film Office does have some discretionary authority in choosing films to receive a tax credit - the enacting legislation bans "obscenity" and allows discretion as to whether the project "will tend to foster a positive image of Pennsylvania" and "other factors as it may deem appropriate". But the issue isn’t necessarily that Zack and Miri shouldn’t have been awarded a tax credit, but that there shouldn’t be tax credits to award to filmmakers at all.

Regardless of the selection process--whether we ban obscenity, hire Roger Ebert to select worthy films, or disqualify billionaires from taking the tax break--it will remain a carve-out for a select few. Instead of tax breaks for the politically selected, and higher taxes for everyone else, Pennsylvania should be cutting the tax rate for everyone.

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