Governor Newsom Advocates for Federal Tax Incentive to Boost U.S. Film Industry
In the wake of President Trump’s recent discussions about imposing tariffs on films produced abroad, California Governor Gavin Newsom has taken an unexpected step. He has reached out to the White House to propose a substantial $7.5 billion federal tax incentive designed to retain more film and television productions within the United States.
Hollywood’s Demand for Incentives
The push for a nationwide tax incentive program has been a long-standing sentiment among Hollywood insiders. Governor Newsom’s proposal has received a warm reception from many in the industry. Influential lawmakers such as Senator Adam Schiff (D-Burbank) and Representative Laura Friedman (D-Glendale) have consistently advocated for a national framework to better compete with foreign nations that offer more lucrative incentives.
Challenges Ahead
Nevertheless, implementing such a program may encounter significant hurdles. Many American taxpayers might find it challenging to justify supporting an initiative perceived as favoring an affluent and politically liberal industry. Funding for the entertainment sector competes against pressing national concerns, requiring careful consideration by lawmakers.
“I would give it a 50/50 chance at best,” said Sanjay Sharma, a lecturer in media and entertainment finance at USC’s Marshall School of Business, reflecting the uncertain prospects for the incentive.
Industry Support and Coalition Efforts
Recently, a coalition of Hollywood unions and industry trade groups, including the Motion Picture Association and various guilds, publicly endorsed the idea of a domestic production incentive. They argue that this initiative aligns with the administration’s goals of revitalizing American jobs and spurring economic growth nationwide.
“As Congress prepares for 2025 tax legislation, we urge lawmakers to include a production incentive to support film and television production made by workers in America,” the coalition stated in a public release.
Political Optics and Competing Priorities
However, the political landscape surrounding this issue is intricate. With competing priorities, ranging from infrastructure improvements to managing homelessness and addressing the opioid crisis, the incentives may struggle to attract necessary bipartisan support.
George Huang, a professor at UCLA, noted that “the political optics on it are going to be very, very difficult,” as many perceive the entertainment sector as non-essential.
Market Dynamics and Incentive Effectiveness
Should a federal film tax incentive be established, it is not a guarantee that significant filming will return to the U.S. Other countries may respond by enhancing their own tax credit programs, potentially offsetting any advantages gained.
Leaders in the industry have stated that the entertainment sector is currently facing a crisis, exacerbated by the impacts of the pandemic and recent labor strikes that have led to financial difficulties for both independent and studio filmmakers.
“Right now the industry is teetering,” Huang remarked, emphasizing the potential benefits of such an incentive in stabilizing the field and reinforcing the U.S. position as a leader in global entertainment.
Historical Context and Future Considerations
The federal tax incentive proposal echoes similar initiatives from influential figures in Hollywood, including actor Jon Voight, who has collaborated with industry leaders to address the decline in domestic filming. Voight’s proposal recommended a federal tax credit ranging from 10% to 20% to complement state incentives, aimed at reviving filming jobs in the U.S.
Following these discussions, the Motion Picture Association has also been lobbying for enhancements to Section 181 of the federal tax code, which allows filmmakers to deduct up to $15 million in qualified production expenses in the year they are incurred. This approach, originating in 2004, was implemented in response to the trend of American productions moving to countries like Canada.
With the potential for improving funding structures, the hope is that U.S.-based companies may reconsider their production strategies and invest more domestically. As industry professionals like Frank Albarella, Jr. from KPMG note, “Maybe there will be some more federal and state incentives right here in the U.S. That’s what people are hoping for.”