Washington wants to use tax incentives to bring film production back to the United States. But Hollywood’s migration is being driven by costs, labor rules, and a global production network that money alone may not reverse.
By the New York Policy Editorial Board
Hollywood is once again at the center of a debate that has little to do with movies themselves. The question is whether the federal government can use tax policy to persuade studios to make more films in the United States — and whether taxpayers should help pay for that effort.
President Trump has backed a federal film-production tax credit that could cover between 15 and 25 percent of certain production or labor costs, though the final details are still being negotiated. The proposal has attracted an unusual coalition: Hollywood unions, California politicians, studio executives, and an administration eager to encourage more production inside the country all support it in some form.
But behind the politics sits a bigger question: Is the decline of Hollywood production really a tax problem? If it is, a large federal subsidy could make a meaningful difference. If it isn’t, Washington could spend billions of dollars subsidizing an industry whose underlying economics have already changed.
Hollywood’s Production Map Has Changed
For decades, California was the natural home of American filmmaking. Its climate, beaches, studios, skilled crews, and entertainment infrastructure made it difficult for other locations to compete. That advantage has since eroded, as production has spread across the United States and overseas. Other countries have built experienced crews, modern facilities, and financial incentives of their own — and filming outside California has gotten easier as travel costs have fallen, technology has improved, and international crews have gained experience. A movie that needs to portray another country no longer has to fake it on a California soundstage; it can simply film there.
These are structural changes. A tax credit can lower the cost of making a movie, but it cannot recreate the economic advantages that made Hollywood dominant in the first place.
The Federal Government Is Entering an Old Game
States have competed for film productions through tax credits for years. More than 40 have offered some form of incentive, according to material cited by The Washington Post — and more than a dozen have eventually repealed their programs. The results have been mixed: some states attracted productions, created temporary jobs, and built real film infrastructure. But attracting a production doesn’t guarantee taxpayers recoup what they spent. A movie can generate plenty of local spending without generating enough tax revenue to offset the subsidy that brought it there — and that distinction is the crux of the entire debate.
The Georgia Question
Georgia is the most instructive example. The state became a major production hub after introducing generous incentives, but critics point to the gap between what the state spends and what it gets back — the Post‘s source material cites an estimate that Georgia receives only 19 cents in tax revenue for every dollar it spends on film credits.
Whatever one makes of that particular figure, it raises a legitimate question: should governments measure success by the number of movies attracted, or by the net economic benefit left behind? A production can create jobs and local spending while still being a losing bet for taxpayers.
California’s Different Problem
California’s challenge is more complicated still, because the state already offers substantial incentives — and productions keep leaving anyway. That suggests the tax credit is only one variable in the equation; high operating costs, complex labor arrangements, and regulatory friction all factor into where producers choose to work. One telling example from the source material: California is offering $21 million in credits for a “Baywatch” reboot, even as producers face other costs and regulatory complications that come with filming in the state.
That raises an uncomfortable possibility for policymakers: California may not need bigger subsidies so much as a production environment that’s competitive on its own terms.
The Labor Question
Film production is also unusually sensitive to labor rules. Union agreements affect wages, working conditions, and scheduling, and the source material describes cases where a production that begins nonunion can become subject to union rules mid-stream, changing costs retroactively. That’s not an indictment of unions — workers’ protections matter, and are not the reason Hollywood production has shifted elsewhere. But from a studio’s perspective, labor costs and regulatory predictability factor into the calculation, and a tax credit only addresses one line item in a much longer list of costs.
Hollywood Is Now Part of a Global Production Economy
The biggest change may simply be that filmmaking has gone global. A production no longer needs to be near Hollywood; countries around the world have invested in studios, soundstages, crews, and incentives of their own to attract American productions. As those ecosystems mature, filmmakers have more options — and the competition is no longer California versus New York or Georgia versus Louisiana. It’s California versus an increasingly capable global network, which makes Washington’s task considerably harder.
The Case For — and Against — a Federal Incentive
There’s a real argument for federal support. Film and television production employs far more than actors and directors — electricians, drivers, caterers, technicians, and hotels all benefit — and a strong domestic industry carries cultural and strategic value. If other countries subsidize their film industries, American producers can reasonably argue the U.S. needs to compete rather than watch production drift abroad.
The strongest counterargument is that Washington risks entering a subsidy competition with no natural end. If one country offers a 20 percent incentive, another can offer 25. If a state adds a new credit, productions may simply move again. Governments can end up competing to see who’ll pay the most, while studios — with every incentive to chase the cheapest location — treat the whole system as a menu rather than a home. That dynamic doesn’t build a stable American film industry; it builds a permanent bidding war.
Taxpayers Need a Clear Definition of Success
If Washington moves forward, the program shouldn’t be judged by how many productions receive credits, but by harder questions: How many permanent jobs did it create? How much private investment followed? How much revenue actually returned to government coffers? Did production stay in the U.S. after the subsidy expired? Did local businesses benefit?
Most important: would those productions have happened anyway? If taxpayers are funding movies that would have been made in the U.S. regardless, the program isn’t creating new economic activity — it’s simply padding the industry’s margins at public expense.
The Political Risk
Government support for entertainment carries a subtler danger. The more dependent an industry becomes on government incentives, the more leverage government gains over it — and film and television are unusually sensitive given how closely they intersect with culture, politics, and speech. A future administration could use financial incentives to reward favored productions or punish disfavored ones. That risk should concern people across the political spectrum, since an industry that depends heavily on government money is, by definition, an industry with less independence.
A Tax Credit Is Not a Strategy
Hollywood’s production problem can’t be reduced to one tax rate. The industry is contending with changing technology, international competition, production costs, labor structures, and shifting consumer behavior all at once — and government incentives can influence those forces without reversing them.
If Washington wants more movies made in America, it may need to think past subsidies entirely. The country still has extraordinary advantages: world-class talent, established studios, sophisticated financing, enormous audiences, and decades of institutional knowledge. The challenge isn’t acquiring those advantages — it’s making them economically competitive again, which requires predictable regulation, efficient permitting, reasonable production costs, and an environment companies want to invest in even without a subsidy attached. That’s a far harder task than writing a tax provision, but it’s also the more durable one.
Hollywood’s Next Act
The debate over film tax credits is ultimately a debate about what kind of industrial policy America wants. Should Washington subsidize strategic industries because foreign governments do the same? Should states keep competing for mobile businesses? How much should taxpayers pay to preserve domestic production, and how should policymakers measure whether that money actually works?
There are no easy answers, but one principle should guide the debate: government support should be judged by results, not by the size of the subsidy or the popularity of the industry receiving it. Hollywood may well benefit from a federal tax credit, and taxpayers may benefit too — if the credit generates activity that would otherwise leave the country. But if the underlying reasons production has migrated remain unaddressed, Washington could spend billions without solving the problem it set out to fix.
The real test isn’t how much money the government offers Hollywood. It’s whether Hollywood still wants to stay once the government stops paying.
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