How Trump’s Call for a Federal Film Production Incentive Could Actually Help Hollywood

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It can be hard to put too much stock in what President Donald Trump writes on Truth Social or says seemingly off-the-cuff when talking to the press, but Monday’s rambling post was a very big deal for Hollywood.

“I am going to suggest that Republicans and Democrats get together and immediately craft Legislation to save the Movie, Television, and Entertainment Business in America. Congress should approve, immediately, a Federal Production Incentive to create Entertainment Jobs in America,” wrote Trump on the social media platform.

Why was this post such a big deal? There’s the possibility of stacking tax incentives, for one, but there are other reasons why, should such a scheme actually pan out, it could bring film and TV production (and the jobs that come with that) back to the United States.

Tariffs to Tax Incentives

Over a year ago, President Trump’s protectionist economic approach became focused on the entertainment industry when he wrote (again, on Truth Social), “If they’re not willing to make a movie inside the United States, then we should have a tariff on movies that come in. And not only that, governments are actually giving big money. They’re supporting them financially. That’s sort of a threat to our country in a sense.”

The President wasn’t necessarily wrong in his diagnosis; the U.S. has been losing productions at an alarming rate compared to other countries, largely because foreign governments were willing to give massive kickbacks in the form of tax incentives and rebates to lure productions. But Trump’s “solution” — “100 percent tariff on any and all Movies coming into our Country” — was widely seen as creating an even bigger problem than the one he was ostensibly trying to solve.

Regardless of what one thinks about Trump’s tariff policies, tariffs on movies are simply not practical. Movies aren’t steel or wine, a specific imported commodity that’s easy to tax, and as IndieWire wrote at the time, “Trump can place a tariff on a pair of scissors, but he can’t touch the haircut.”

Making movies is more of service — the haircut in this analogy — and as Brian Welk outlined, the number of open-ended and befuddling questions of how, on what, and at what point to apply a tariff to a movie or TV show are impossible to untangle. And the implementation of such a policy, no matter how well-written, would likely grind the business of Hollywood to a halt, while not addressing the actual problem.

Inside Hollywood, the hope was that Trump’s attention would shift from tariff to tax incentive, which has been proven to keep productions in the U.S.

As was discussed at IndieWire’s “Made In California” panel at this year’s Cannes, there was hope that that message was starting to penetrate Trump’s special ambassadors to Hollywood (actors Jon Voight, Mel Gibson, and Sylvester Stallone), aided by the Motion Picture Association, unions, and figures like Netflix’s Ted Sarandos and Paramount’s David Ellison (who Trump views as ally) making the case when given an audience with the president.

Trump’s comments on Monday were the first clear sign he had made that shift. Tuesday, Trump gave his yet-to-be-written legislation a name, “The Motion Picture, Television, and Entertainment Revitalization Act,” and reports said it may be introduced as a bipartisan bill.

Politically, Democrats, led by California Senator Adam Schiff (who drafted legislation for a 15 percent federal tax incentive), have been more supportive than Republicans of Washington stepping in to help the film and TV industry, which is why the president potentially bringing Republicans to the table makes a rare bipartisan bill a real possibility.

The States’ Burden

Currently, that burden of saving U.S. production jobs via tax incentives has fallen squarely on the states’ shoulders.

As IndieWire reported, New York City is the first major U.S. production hub to see the number of film and TV shoots recently start to approach its pre-COVID and strikes numbers. The reason for this is simple: Governor Kathy Hochul increased the state’s already generous 30 percent return on qualified below-the-line expenses, committing to increase New York’s yearly spend from a $420 to 800 million for the next 10 years.

There are those who effectively argue that an extra $360 million a year — $3.6 billion over the course of the bill — is an investment that has proven to pay for itself in the form of jobs, spending, tax revenue, and marketing (there’s no better advertisement for NYC than the “Sex in the City” ladies out to brunch, or Spider-Man swinging down Fifth Ave.). But when compared to spending on something like schools, increasing the subsidy to corporations like Netflix, Apple, Amazon, and Disney — to the tune of tens of millions of dollars a year — can be an understandably hard sell to voters.

When the kickbacks start to include (as New York’s now do) above-the-line costs, like the eight-figure salaries of the biggest stars, it becomes an even harder political pill to swallow. No one considers states subsidizing Tom Cruise’s salary an attempt to save good-paying middle-class jobs, like a grip or focus puller. And that’s where states like California have struggled to keep their incentives competitive with those abroad.

Stackable

A federal tax incentive would provide a new base for U.S. productions to stack incentives. Canada is a good example of this very concept working. For instance, let’s take the qualified production expenses of shooting in British Columbia. The province has a generous 36 percent tax credit (as a point of comparison, Ontario’s is 21.5 percent) which, when it comes to labor costs, is “stackable” with Canada’s federal incentive of 16 percent. That gives productions, according the Entertainment Partners (the studio’s go-to expert on crunching such numbers) a combined incentive rate of 46.2 percent. When coupled with the favorable U.S. dollar to CAD exchange rate, that is a triple threat that U.S. cities simply can’t compete with.

Depending on how the prospective federal tax incentive law is written, this ability to stack incentives could supercharge U.S. production, as even a 10 percent program (reports say it could go as high as 15-20 percent) boosts the states’ generous incentives.

Stacking becomes even more attractive if more production hubs follow San Francisco’s lead and start offering municipal incentives. In February, Mayor Daniel Lurie signed legislation that offers a 10 percent rebate on spending on the first $1 million spent, and a 20 percent rebate on spending above $1 million, for productions that shoot 55 to 65 percent of principal photography in the SF area, as well as slashing city fees on permits, police services, and shooting on city-owned property or buildings.

City + State + Federal would give some U.S. cities their own unstoppable triple threat.

Labor Uplifts: Additional Stacking

One of the things that has become particularly scary to U.S. filmmakers is not just that productions have gone abroad, but that countries have started building the infrastructure and expertise that once gave Los Angeles, New York, and other major U.S. production hubs a clear advantage. One of the ways different countries have accomplished this is with giving additional incentives to labor costs associated with the specific sector of the industry it was trying to build up.

Again, Canada offers a good example of this with the DAVE (Digital Animation, Visual Effects and Post-Production) tax credit in British Columbia, a refundable 16 percent corporate income tax credit for qualified local labor costs in these specific fields, which helps explain why Vancouver has become the home to so much of the VFX talent vendors turn to.

Just last week, we saw California politicians pushing for a post-production tax credit to counter the disappearance of its sound and editing talent and production houses, which were considered the best in the world. It wasn’t that long ago that, even if one shot abroad, it was assumed filmmakers would bring their film “home” to LA and New York to finish it with the best artisans and film technology companies in the business.

International Co-Productions?

It’s impossible to go to Cannes and not see how international co-productions are now how a vast majority of films are made outside of the U.S. This is not, currently, an option for American productions which don’t have the mechanism, treaties, or federal tax incentive required for the lift.

Could federal incentives open the door to yet another form of stacking incentives? The answer is not clear or direct, but it opens the door (in a post-Trump era) to that possibility.

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