Movies

Newsom wants a federal tax credit to save Hollywood. Why that’s a long shot

BBG News

Following President Trump’s surprising proposal for tariffs on foreign-produced films, I, as a follower, found California Governor Gavin Newsom stepping into the discussion with an unanticipated proposition.

Regardless of their open hostility towards each other, Governor Newsom extended an olive branch to the White House, aiming to collaborate on establishing a $7.5-billion federal tax break to encourage more film productions to stay within American borders.

As a passionate film enthusiast, I’ve always been rooting for a federal tax incentive program to support the Hollywood industry. Hearing Governor Newsom’s proposal on Monday made me genuinely excited, and I can’t help but share my enthusiasm with fellow movie lovers.

A number of policymakers, such as Sen. Adam Schiff from Burbank and Rep. Laura Friedman from Glendale, have been vocal about establishing a nationwide initiative aimed at leveling up the U.S. benefits package to match those offered by other countries with attractive incentives.

But such an initiative faces significant obstacles.

Explaining the potential challenges in securing public support from U.S. taxpayers, it’s worth noting that the entertainment industry, often perceived as affluent and politically progressive, might not be an immediate priority for funding, considering the multitude of pressing issues on our nation’s agenda. The specific allocation of funds for this sector within the broader context of national priorities remains uncertain.

In his opinion, Sanjay Sharma (who is a professor teaching media and entertainment finance at the University of Southern California’s Marshall School of Business) believes that the chances are around 50% at most.

On Tuesday, a group consisting of Hollywood unions and industry associations such as the Motion Picture Association and guilds for screenwriters, directors, and actors endorsed the concept of a local production incentive. They argued that this plan would aid in achieving the administration’s objective of bringing back American jobs and fostering economic development across the nation.

In regards to the upcoming 2025 tax laws, we strongly recommend that legislators incorporate a financial boost for American film and television productions, produced by our homegrown workforce, as stated in their declaration.

However, given the numerous pressing issues the nation is grappling with, such as infrastructure, homelessness, and the opioid epidemic, legislators may find it challenging to justify a decision that essentially supports the entertainment sector financially.

George Huang, a professor at UCLA’s School of Theater, Film, and Television, stated that navigating the political aspects of it will be extremely challenging. To many, the world of entertainment appears as something trivial or unimportant.

If a federal film tax incentive gets approved, it doesn’t necessarily mean that movie productions will immediately return to the United States. This could still be challenged if other countries decide to enhance their own tax credit schemes as well.

However, this idea could significantly bolster the struggling entertainment sector, a field that’s endured hardships from the pandemic, the 2023 writers’ and actors’ strikes, as well as cost-cutting measures taken by studios over the years.

The circumstances have led to a predicament that’s being referred to as a job shortage in the movie and television industry, especially in California.

Currently, the industry is in a precarious state, according to Huang. This change could significantly stabilize our position and lead us back towards becoming the global center for entertainment.

A federal tax break was included in a plan put forward by actor Jon Voight, one of Donald Trump’s alleged representatives from Hollywood, and his manager, Steven Paul. This duo visited Mar-a-Lago last weekend to pitch Trump on a strategy aimed at reinstating film production jobs within the United States.

As a film enthusiast pouring over the latest industry news, I stumbled upon an exciting proposition in a recent article from Deadline: It suggests a potential 10% to 20% federal tax credit, which could be stacked on top of individual state incentives!

It’s been reported by a source with knowledge of the situation (but unable to speak publicly about it) that Charles H. Rivkin, head of MPA, had a meeting with Voight last week as well.

Following the publication of the story, Paul advised that the document should be understood as not encompassing an exhaustive policy plan.

The document is not asserting that it reflects the shared opinions of all the movie and TV companies involved, but rather it presents various thoughts we brainstormed during our conversations about ways to enhance our influence as innovative leaders in the industry. – Paul wrote.

Concurrently, the MPA and other parties have additionally advocated for an extension and enhancement of Section 181 of the federal tax code, with the aim of persuading more film productions to remain within the United States.

Making such a decision would significantly benefit both small, autonomous film projects and major studio productions. This provision regarding movie production was established in 2004, as it became clear that an increasing number of films were migrating to Canada and Europe. The United States recognized the need to stay competitive in this field.

According to the MPA, Section 181 permits deducting up to $15 million (or $20 million for projects made in low-income areas) of eligible film and television production expenditures in the year they are spent. This is applicable if at least 75% of the labor costs are incurred within the United States.

This regulation enables movie creators to claim their expense reduction as soon as they incur the cost, instead of following the film’s release. This aspect is crucial for independent filmmakers with limited resources, who can’t afford to wait extended periods to reap the benefits due to their tight budget constraints.

Frank Albarella, Jr., of KPMG’s media and telecommunications department suggested that if there is a positive aspect, some American companies might reconsider their current production levels within the U.S. He also mentioned the possibility of increased federal and state incentives in the United States as something many people are hoping for.

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2025-05-07 01:31

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