The Probelm with Incentives

Often cited but rarely defined, the Law of Unintended Consequences suggests that the actions of people—and especially of government—always have effects that are unanticipated or “unintended.”

As an example, when the United States imposed quotas on imports of steel in order to protect steel companies and steelworkers from lower-priced competition, they also made cheap steel less available to U.S. automakers. As a result, the automakers had to pay more for steel than their foreign competitors, and American car-makers became less competitive.

In other words, there are ALWAYS perverse, unanticipated effects on legislation and regulation. Your efforts to provide dynamic film incentives for your area are no exception.

The problem with film incentives, of course, is that, no matter how good your intentions, there will always be someone, somewhere, who will use their powers for evil. For example, referring back to the list of preferred processes highlighted by producers, each has the potential for unintended consequences. For example, if the certification process does not include numerous exceptions and detailed or complicated qualification criteria, a leading pornography producer may want to use your tax dollars for adult content.

When defining what kind of tax incentive you want to develop, you are very clear on both the outcomes you want to achieve and also the outcomes you definitely do not want for your area.

NOTE: It’s very important to begin by understanding your jurisdiction’s unique financial/tax structure.
For instance: Does your jurisdiction….
• Have income tax? At what rate?
• Have Sales and Use tax? At what rate?
• Have state/provincial as well as local taxes? At what rates?
• Have other types of taxes?
• Have exemptions from tax?

No two jurisdictions are set up exactly alike. A common mistake for those trying to create a new incentive program is to attempt replicating every last detail of another jurisdiction’s program. Cutting and pasting legislation from another jurisdiction is a recipe for disaster.