An Incentive to Respond

A friend wrote to me about a Letter to the Editor that had appeared in the Los Angeles Times over the weekend, on Sunday.  She wanted to know how I would reply.  

What the original letter said was -

"To the editor: Right on the front page, there was article about the cost of tax breaks and giveaways Trump and Vice President-elect Mike Pence had to give to Carrier to keep about 1,000 jobs in the U.S. The people quoted in the article said those giveaways will be used as leverage by other companies to get incentives from the Trump administration.

"OK, fine. But in the same day’s Business section, there was an article on California providing tax breaks to film companies that return to or decide not to move out of the state. People interviewed said it was a good thing and helped our economy. 

"Why was it a bad thing for Trump to do and good thing for California? The bias of The Times is really starting to wear thin. ​

​I wasn't in a mood to sit down and craft a response, but jotted down some immediate thoughts.  What I wrote back to my friend was -- 

I would say that the letter-writer is conflating two separate issues.  One tax incentive is a pay-off to a single company.  The other involves an industry that is one of the foundations of the Southern California economy, which doesn’t only help any direct company involved, but all the supporting businesses that are impacted by having a vibrant film industry and all the related business of a movie community in Los Angeles – not just the studios and production companies receiving any incentives, but production rental companies, supply houses, screening rooms, property and wardrobe houses, individual actors and craft artists and technicians, talent agencies, casting agencies, craft unions, hotels, restaurants, ad agencies, florists, caterers and on and on and on.  There are many other air conditioner manufacturers besides Carrier around the country, not something indigenous to Indiana.  The movie industry is foundational to Los Angeles.  When you give incentives to Carrier, there are side benefits to the area but it is Carrier that most profits.  When you give incentives to film companies, it is the related-industry and the entire surrounding community that perhaps even most benefits.

Additionally, the two situations being addressed are totally different and therefore dealt with differently.  In the case of Carrier, it was likely that the cost of doing business is more expensive in the U.S., compared to a foreign country, which is a fundamental problem not changed in the slightest by a tax incentive payoff.  The basic problem still exists, which in turn then opens the door to all other business anywhere in the country threatening to move unless paid-off.  With movies and TV, however, the costs of making their product often are generally the same wherever produced, but other areas provide tax incentives that make filming less expensive.  So, changing tax incentives does tend to change conditions by equalizing the playing field.  Furthermore, with a company like Carrier, they could conceivably stay in Indiana to make the product, though it would cost more.  That might price it out of the market, but the point is it could be made.  With a TV series or movie, however, if the bottomline costs are too high to produce (including the cost of hiring "above-the-line" actors and filmmakers)…then it simply wouldn’t be made, period.  When a budget is too high for a TV series or movie, the jobs aren’t “shipped to Mexico" or elsewhere, the production simply doesn’t get done.  And there’s no way to jack-up the price on the back end to recoup the cost – you can’t charge the public more for watching a TV series or raise ticket prices for one specific film at a movie theater, the ticket price is basically set until general inflation kicks in.  
 
Also, often in the case of Hollywood, though not always, it’s NOT that the jobs were being moved to another country (which is the big patriotic argument we hear), but often just to another state, so the work was being kept right here in America.  Patriotism or even xenophobia is not a factor.  And in the case of movie companies, unlike Carrier closing down a division and moving its factory and jobs elsewhere, or even a company that moves itself entirely out of the country, it is most likely that the studio or company doesn't change one iota but just that an individual film or series was to be shot elsewhere, which is far more a temporary occurrence, perhaps even only a one-time issue. 
 
It's also important to look at what the specific tax incentives were in both cases, not only how they are applied, but also the amounts being given ($7 million in Carrier’s case), which might make the differences even much more significant and impactful. 
 
Among other things, too, the payoff to Carrier didn’t, in fact, keep The Jobs in the U.S.  It allowed the company to still ship 700 jobs out of the country.  And the head of the parent company, Ben Hayes, appeared on CNBC yesterday to explain that many of the jobs that remained in the U.S. would likely still be lost soon enough, not because of moving anyway, but due to efficiency through automation.  Making movies and TV, and all the related business that fuel the Industry, still tend to rely on people.
 
There’s another difference, as well: one of perception, which is always critical.  Trump initially told the world that he convinced Carrier to stay, as if his personal aura and power and argument was the cause of it all.  It turned out to be a lie, and that is part of the resulting negative reaction.  Further still, in making a payoff he and Mike Pence did what Trump especially so vociferously and Republicans in general have long-chastised President Obama and Democrats for -- the bail-out of the auto industry and of banks, stimulus packages to the economy and general opposition of any sort of bail out or welfare, yet turn out to be fine with all other manner of corporate tax incentives and such which are bailouts by any other name -- so it’s the hypocrisy, as well, that is driving the critical reactions.
 
In the end, if I lived solely in a Twitteresque world which seems to be the sort of prompt behind the question at hand, and I had to use just 140 charecters to address the criticism raised, I would say that the letter writer is overly simplifying an issue without knowing how the businesses actually work or how the incentives were made.

Which is the sort of thinking that ultimately brings us a Trump as President-Elect.