Tax credit cap: What makes the film industry so special?

California legislators are so close to getting it.

Last week, nearly 40 state lawmakers sent a letter to Gov. Gavin Newsom
and top legislative leaders urging them to exempt the state’s
politically powerful film and TV industries from a cap on corporate tax
credits. A provision of the recently passed state budget, the measure
limits the credit that a company can claim at $5 million or 70% of its
tax liability, per news reports. 

The cap “creates short-term budget savings by reneging on commitments
made to the entertainment industry and the working families who depend
upon it for their livelihoods,” according to the bipartisan group of
legislators. The motion picture industry has likewise been sounding the
alarm over the limitation, complaining that it causes uncertainty and
“kneecapped” Gov. Gavin Newsom’s doubling of the credit last year. 

“Why would a company choose to do business in California under those
conditions?” asked a separate letter from the Motion Picture Association
and the Entertainment Union Coalition. 

That’s similar to a question every other California industry could ask:
Why would they choose to stay in California given the tax burdens that
businesses of every sort face? 

We agree the motion-picture industry offers great benefits to our state,
but what makes it special? 

Why should film companies get exemptions while others don’t?

The governor this month issued a statement boasting that his expanded
film credit created $6.6 billion in economic benefits, as production
companies stepped up their efforts in California. Even granting that
those numbers are probably exaggerated, it is true that lower taxes lead
to more economic activity. It turns out that when the government takes
less money from businesses, businesses can do more with their money.
Imagine that. 

If it’s true for movies and TV shows, then it’s true for technology,
retail and manufacturing firms, too. 

While it is politically expedient for politicians to rally behind a
favored special interest group, and for special interest groups to
advocate for themselves, cherrypicking which industries get a reprieve
from counterproductive tax policies is the wrong way to go. 

Selective tax breaks are naturally limited in what good they can do.
“There is currently no compelling evidence to suggest that film tax
credits have a positive effect on the size of the state’s economy
overall,” the nonpartisan Legislative Analyst’s Office noted last year
in a report on the state’s film tax credit. The LAO further added that,
“Film tax credits generally have a negative overall effect on state
revenues.” This Editorial Board has long advocated for an overall
lowering of taxes across the board. While tax credits indeed lower
taxes, they do so in a way that lets politicians pick winners and losers
in our state. Lowering taxes on businesses across the board not only
avoids the problems of cronyism and favoritism, but gives everyone a
better chance to grow and succeed. 

As we’ve argued before, Hollywood should use its massive political clout
to pressure Sacramento for an overall better tax and regulatory climate
that benefits everyone, filmmakers included. 

https://www.ocregister.com/2026/07/14/tax-credit-cap-what-makes-the-film-
industry-so-special/