State tax credit marred by scandal, facts

By Dan Walters

The term “rent-seeking” entered the economic lexicon in the mid-1970s, meaning the employment of political pull to obtain a monopoly or some other unearned economic benefit.

The term rarely arises in the California Capitol, being a little too abstract for its denizens, but the practice permeates state politics.

When infamous lobbyist Artie Samish controlled the California Capitol before and after World War II, for example, his primary goal was the protection of a monopolistic liquor industry.

Much of what Samish wrought has disappeared, but one remnant, called the “tied-house law,” still requires those in the liquor trade seeking to expand operations to seek legislative exemptions. Just this year, for instance, small distillers had to get special legislation to conduct tastings similar to those of vintners.

One of the more nefarious forms of rent-seeking involves loopholes in the state's complex tax codes.

The Legislature is besieged by lobbyists for particular communities, particular industries, and sometimes particular companies, seeking particular changes in tax law to benefit themselves.

Nearly 30 years ago, for example, the Legislature created something called “enterprise zones,” aimed, or so it was said, at encouraging companies to locate jobs in areas of particularly high employment and receive hefty tax credits.

Eventually, it became evident that enterprise zones were largely shams that did almost nothing for the communities they were supposed to benefit, but cost the state treasury hundreds of millions of dollars. More recently, they were abolished in favor of another tax “incentive” scheme still being formulated.

One of the more esoteric rent-seeking loopholes on the books is the “film tax credit” that former Gov. Arnold Schwarzenegger, himself an action movie actor, and Southern California legislators championed.

Last year, Gov. Jerry Brown — always a movie industry favorite, as a recent Hollywood fundraising event showed — signed a two-year extension of the $100 million annual credit aimed, it's said, at stemming the shift of production to other locales that offer even more lavish benefits. The industry has been seeking an expansion of the credit.

However, that was before the FBI ran an undercover sting investigation, with an agent posing as a movie executive seeking to loosen limits on the credit, which allegedly ensnared state Sen. Ron Calderon.

The Calderon scandal may make another film tax credit bill politically untouchable, but there are much better reasons to shun it.

A Senate Governance and Finance Committee report this month declared that movie tax credits don't pay for themselves in additional production, are claimed by productions that would have been made in California without tax breaks, and divert funds from other, more worthwhile, uses.

Dan Walters covers state politics for the Sacramento Bee.

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