The Governor of New Mexico, Lujan Grisham, campaigned to eliminate tax rebates capped at $50M. Like most politicians, she reneged on her promise and doubled the cap to $110M, and coupled with a $250M backlog of unpaid rebates, the State of New Mexico was faced with supporting an industry-wide welfare program.
The thought behind this tax rebate was that it would incentivize movie producers to film in New Mexico, generating wealth and creating jobs across the State. However, taxpayers were being shortchanged. A study found that tax rebates for the film industry in New Mexico returned $0.43 for every $1 in tax incentives — meaning the State was accruing a $0.57 loss on every dollar.
This was not surprising as subsidies, by their very description, violate base principles of economics. Subsidies are simply part-payments the government makes to reduce the cost of goods and services. This has been seen across different sectors of the economy, and each has failed.
Subsidies are artificially pricing a commodity lower, helping neither the government nor the taxpayers. It is pure inefficiency. Lionel Robbins' widely used definition of economics reads; "...the allocation of scarce resources which have alternative uses."
New Mexico was not correctly allocating its scarce resources. As one of the poorest states in America, it doled vast sums of money to Hollywood that harmed the economy more than it helped. New Mexico taxpayers paid 25% to 35% of the cost of making movies and TV shows, about $1,000 per household over five years.
The supposed benefits of the subsidies also failed to show signs of growth. It cost the State $39,000 to create a job based on this subsidy. This money would've been better invested in public housing, healthcare, infrastructure, and education.
New Mexico had the highest per capita subsidy on Hollywood filmmaking over any other state, yet it was among the least wealthy in the nation. When this policy was introduced, it was projected to cost the State $3.2M annually, at 15% reimbursed. In late 2020, it stood at 35% — inefficiency at its peak.
With the cap at $110M, New Mexicans were set to pay a whopping $750M over five years, and analysts said that that is likely a conservative estimate and could be $1B. Many considered this to be a failure of leadership.
This money could have been better invested in struggling sectors of the economy, yet it was being used to pad the budgets of some of the wealthiest companies in America.
However, it was not all gloom and doom, and there was support for eliminating these tax rebates in the state legislature. Representative Antonio Maestas co-sponsored a bill that wanted to eradicate these freebies.
Subsidies are not a good way to attract business to New Mexico. The State should focus on other streams of revenue.
