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House of Cards Blackmails Maryland Taxpayers

Jared Meyer, Neil Deininger | 04/02/2014 |

While many Netflix subscribers have been binge-watching House of Cards since Season Two premiered in February, the show’s producers have been binging on Maryland taxpayers’ money. Through its first two seasons, the production company of House of Cards, Media Rights Capital, has received more than $26 million in tax incentives from the State of Maryland. MRC is threatening to leave the state for production of Season Three if it is not given even more taxpayer money.

Under current law, Maryland has a cap of $7.5 million on its fully refundable film production tax credits beginning next fiscal year. This fiscal year, the cap was $25 million. However, two bills are currently being considered by the Maryland General Assembly that would raise this cap, to $11 million or $18.5 million. Maryland has promised $4 million to Season Three of House of Cards, while the producers of House of Cards are hoping for $15 million, on par with what they received for Season Two. 

As tax season draws to a close, people can be forgiven for equating production tax credits with the income tax deductions they are familiar with. Credits are more valuable than deductions because they directly reduce tax bills, not just taxable income. Production credits are also calculated based on what is spent, not what is earned. When these credits are refundable, states actually use taxpayer money to pay companies if their tax liabilities are under their credited amounts.

In a series of masterful manipulations seemingly inspired by the show’s main character, Frank Underwood, MRC has extorted Maryland legislators in efforts to increase its tax credits. Its first move was to delay the start of production for Season Three until June—long enough to see if the tax credit cap is raised. 

Charles Goldstein, the Senior Vice President of Television Production for MRC, threatened Governor Martin O’Malley in a letter, which blatantly stated, “In the event sufficient incentives do not become available, we will have to break down our stage, sets and offices and set up in another state.”

Maryland House Speaker Michael E. Busch received a similar letter. The hostile tone of these not-so-veiled threats discomforted a number of state legislators. Delegate William Frick introduced an amendment last week that would seize MRC’s property under eminent domain if production left the state. His inspiration? “I literally thought: What is an appropriate Frank Underwood response to a threat like this? Eminent domain really struck me as the most dramatic response.”

MRC’s next move, which showed slightly more tact, was to send actor Kevin Spacey, who plays Frank Underwood in the series, to a wine bar in Annapolis to schmooze with all of the members of the Maryland General Assembly. Politicians eagerly snapped selfies with the two-time Academy Award-winner. 

The bill to raise the tax credit ceiling to $18.5 million has already been approved by the Senate by a vote of 45-1 and now awaits a vote by the House. It is widely expected to pass. Apparently Kevin Spacey is just as convincing in real life as Frank Underwood is in the show.

Proponents of targeted tax incentives such as these argue that film productions boost employment, promote tourism, and even increase tax revenue. For Maryland, which is used as a stand-in for Washington, D.C. in both House of Cards and HBO’s Veep, the tourism argument does not really apply, and both the employment and tax arguments stand on dubious grounds. 

In terms of employment, House of Cards Season Two hired more than 3,700 Marylanders. While creating jobs might seem like a good use of taxpayers’ money, film positions are almost all short-term, and many are highly specialized—they simply move to whatever state is offering the best incentives. 

House of Cards is estimated to have had a $120.5 million economic effect in Maryland. The assumptions behind this economic benefit are disingenuous and lead to overstated claims. Even if House of Cards produced this high of a return on investment, the $15 million in credits could have produced an even bigger economic impact if it had been used to benefit a more a productive sector of the economy. Better yet, the money could have been returned to taxpayers through lower rates or put towards decreasing business taxes across the board.

Positive effects of film tax credits only tell half the story. It is a truism that when something is subsidized, there is more of it—similar to how taxing something leads to less of it. States could attract any industry if they picked up the tab for a quarter to a third of its costs, but is doing so worth the unseen costs to taxpayers? An even more important question is if picking winners and losers in such obvious ways is the proper role of government.

Maryland is not alone in increasing its production tax credits. Since 2003, tax incentives for films have spread across the country—though support for these programs has recently waned as their significant costs have become apparent. Now 38 states offer motion picture incentives of some kind, and the extent and specifics of these incentives vary from state to state. 

Film and television producers are eager to take advantage of as many of these incentives as they can. If a film is set in Chicago, but Pennsylvania is offering better tax incentives than Illinois, it will likely be cheaper to take their highly-skilled film crews and turn Pittsburgh into Chicago.

Washington, D.C. is much better off letting cities such as Baltimore or Cleveland stand in for it. In just a few days of production last summer, Captain America: The Winter Soldier shut down the Teddy Roosevelt Bridge, a number of streets around Dupont Circle, and sections of the National Mall. If Maryland and Ohio are willing to spend millions of dollars to get productions to shoot in their states, Washington, D.C. can spend its citizen’s tax dollars on projects that will accomplish public goals such as reducing, not subsidizing, traffic jams. 

Barring Maryland lawmakers gaining a sudden understanding of basic economics, House of Cards will shoot its next season in the state and receive another $15 million in tax credits. If lawmakers cannot resist the allure of TV and movie stars, taxpayers will be on the hook for even more money come Season Four. Frank Underwood can be a very persuasive man, but as Maryland tries to bend over backwards to keep the show, legislators should realize that working to create a real life House of Cards is not the best use of taxpayers’ money. 

 

Jared Meyer is a policy analyst at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here. Neil Deininger is a student at American University and an intern at Economics21.

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