On Tax Credits

Tax credits are a way to reward people for making “good” decisions such as going to school, having kids, buying your first house. For businesses, it’s about rewarding companies who hire locally or make significant contributions to the local economy. Whatever the social construct is for “good,” tax credits are meant to entice you to participate.

It’s a carrot on a stick.

However, when it comes to animation, production companies use tax credits as a means to secure financing. Here’s where it gets shady…

  • Hiring local people, OK.
  • Working within the community, sounds pretty good.
  • Using tax payer dollars to fund a for profit pre-school show?

Production companies have to show that they need the help or that they’re spending a lot of money within the area and in order to do that, they’ll pad the budgets to show they need the help.

They have to show that they’re operating at a loss and the tax break will help them relieve some financial pains. But did they really need to buy their large building, have valet parking, beer on tap, pizza Fridays, massage Mondays and a slide from the third floor to the first? Sure it all sounds nice and makes for great press releases and behind the scene footage… Not so much when the team working on it isn’t doing so hot, working tremendously long hours and in bad health.

Tax credits are a way to lure businesses thinking that they’ll be saving a lot of money because studio A has a refundable tax credit… Meaning, you pay low in the front and the studio makes its profit margins — they pad the budget so they can — on the back end via the public dollar.

Again, if the business is using it to genuinely help the community at large; it makes sense of tax dollars to be used to help build, nurture and grow.

Having never used tax credits or incentives — and it’s not for a lack of trying — to try to lure projects in; after nearly 8 years of working without it and operating purely on cashflow; my outlook on it is simple… Deficit financing is not making money, it’s just spending it. Carelessly.

You’re a business, you either make money it or you don’t.

If you can’t operate without the incentive… Well… Time to rethink you business model.