Governor Charlie Baker is proposing that the state kill a controversial tax credit for the film industry and expand one for thousands of low-income workers.
Baker’s proposed state budget, to be released Wednesday, will call for doubling the state’s Earned Income Tax Credit, which currently adds as much as $937 to the tax returns of low-income working families with three or more children. Within three years, that figure would increase to $1,873.
To pay for it, Baker calls for phasing out the state’s film tax credit.
“I think it’s an important opportunity for us to both do something real and also send a signal that we believe in supporting people who are working real hard to get ahead,” the governor said in an interview Monday. “This is one way, in addition to increasing the minimum wage and some others, to provide them with more bang for their buck.”
The film tax credit, with some exceptions, pays for 25 percent of wages and production expenses for films, commercials, and TV shows shot in Massachusetts. Those productions also do not have to pay sales taxes. It has long had critics who say its costs outweigh the benefits to the Massachusetts economy.
According to a report by the state Department of Revenue, the state gave the film industry $80 million in tax credits in 2012 — the most recent year for which figures are available — but the savings generated by those credits were felt mostly outside the state.
Baker, echoing that criticism, said he doubted the importance of the film tax credit.
“I think it’s hard to conclude from the reports that I’ve read that [the film tax credit] is the most fundamental piece of why someone chooses to make a film here,” he said.
Baker said he sees the two tax proposals — assuming the Democrat-dominated Legislature goes along with them — as making good on campaign promises to expand a tax credit to some of the state’s most vulnerable workers while also simplifying the overall tax code.
And at least one aspect of Baker’s proposal appears to have the support of Senate President Stan Rosenberg, who called for updating the state’s Earned Income Tax Credit in his inaugural address.
“The Senate will welcome Governor Baker’s attempts to change it and to reward even more people whose hard work often leaves them [with] little to show for it,” Rosenberg said at the time.
But state budget watchers wonder whether the Legislature would endorse Baker’s priorities. Instead, they suggested, lawmakers might split their support for Baker’s plan, green-lighting the increase in tax breaks to low-income workers while protecting those for the film industry. His Democratic predecessor, Deval Patrick, tried to cap the film-industry credits several times, only to have lawmakers beat back his efforts.
The tax credit has been cited by supporters for encouraging a number of films in Massachusetts.
In 2012, the tax credit supported 118 projects, but the overwhelming majority of the credits — $60.1 million — went to just three feature films, according to a state Department of Revenue report. One of the three, “R.I.P.D.,” starring Jeff Bridges, received $26.6 million in state financing but did poorly at the box office, according to a Globe article about the report.
‘We believe in supporting people who are working real hard to get ahead.’ - Charlie baker, on raising the Earned Income Tax Credit
The other two movies — “Grown Ups 2,” which received $24.2 million, and “The Heat,” which received $9.3 million — were profitable, the Globe reported.
Robin Dawson, executive director of the Boston Film Festival, wrote in a Nov. 16 Globe op-ed column that tax breaks and incentives, like the ones given in New York and California, can become the deciding factor in a film studio’s choice of location.
“It may also be time to boost Massachusetts’ film tax credit,” she wrote. “The current tax incentive is directly linked to securing continual film and television production and is a requirement in order to keep the industry one that is lucrative for all involved.”
Instead of giving that money to the film industry, however, Baker proposes using it to fund the increase in the Earned Income Tax Credit.
Currently, the state is on track to spend about $136 million on the Earned Income Tax Credit in the year starting Jan. 1, 2016. Over the next three years, the total would increase to about $290 million.
Baker’s proposal links the increase to the federal tax credit, taking it from 15 percent of the federal tax credit to 30 percent.
And while redirecting the funds from the film credit would pay for most of the increase in the tax credit for low-wage workers, the state will be responsible for finding an additional $65 million to reach full implementation by 2019.
Noah Berger, president of the liberal-leaning Massachusetts Budget and Policy Center, which has been critical of the film tax credit, said research shows the Earned Income Tax Credit is “a very effective way” of helping families who are struggling financially to make ends meet. Doubling the credit, he said, would help thousands of families in Massachusetts.
According to the Center, between 415,000 and 430,000 people file for the credit each year.
“It’s certainly not going to solve all the problems that low-wage workers face, but it’s a significant increase in income that has a positive effect in helping parents pay the rent, pay for food for their kids, and support their families,” Berger said.
The increase, he said, is “a meaningful step forward.”
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