Photo by Jakob Owens on Unsplash
For thirty years, deciding where to shoot a movie has had less to do with scenery than spreadsheets. A film tax incentive is a government promise to producers. If you spend money making your production here, we’ll give some of your investment back; either as a rebate, a transferable credit a studio can sell off to someone else, or a credit against its own tax bill. The goal is always the same: convince a footloose industry that will shoot wherever the accounting works best to choose your state or zip code instead of someone else’s.
Canada kicked this off in the mid-’90s when it began offering tax credits and producers followed the money to Australia, the U.K. and other countries around the world. The industry calls this “runaway production,” and for three decades, the only players fighting back have been individual U.S. states who are competing with foreign countries and with each other. That’s starting to change.
Film Tax Credits 101
A film tax credit is essentially a way for a state to return some of the money a production spends locally. How that credit pays out varies. A refundable credit means the state cuts you a check even if you don’t owe enough in taxes to use it. A transferable one means you can sell it to some other company that does owe taxes there, usually at a discount. A non-refundable, non-transferable credit only offsets your own tax bill and if you don’t owe enough, you’re out of luck on the rest. And some states skip credits entirely and just rebate cash directly.
A federal player shows up
At the beginning of September, a new idea popped up. President Trump publicly backed a bipartisan federal film tax credit to curb the ongoing tide of runaway production, and six members of the House (three Democrats and three Republicans) formed the new Congressional American Film & TV Production Caucus to introduce a bill proposing a federal production incentive. Congresswoman Laura Friedman (D-CA), one of the bill authors, is describing the bill as a “jobs bill for an industry that employs almost 2.5 million people and supports thousands of small businesses across the country.”
The emerging shape of the bill includes a base tax credit of 20% of qualified labor expenditures, including above-the-line talent (the primary creative people and decision-makers who guide the artistic direction and financial packaging of a film or television project like producers and directors), rising to as much as 30% for productions relocating back to the U.S. from abroad or shooting in a FEMA-designated disaster area. A study commissioned by the Motion Picture Association projects the credit could bring back as many as 143,500 entertainment jobs annually and push U.S. production spending to $36 billion by 2035, compared to roughly $16 billion without it.
Crucially, it’s designed to stack, not replace credits that already exist in various states. The proposed federal incentive could be combined with existing state incentives and include additional bonuses for productions filmed in rural areas or those that spend a certain amount across various states. Some lawmakers are pointing to related legislation we’ve mentioned in this Substack - the CREATE Act (H.R. 4840), which would restore and expand the expired Section 181 deduction that let productions immediately write off costs rather than depreciate them over time. Whether the final policy is a direct credit, a revived deduction, or a hybrid is still unsettled, since the White House hasn’t released text yet.
You might be wondering how this happened and the backstory behind the proposal’s bipartisan support. Key Republican advocates like Jon Voight, an actor serving as special ambassador to Hollywood, have been advocating and talking about how the shift of film projects overseas has led to massive unemployment among the people who made the industry work. Other advocates, including Representative Brian Jack (R-GA) and Coalition for American Production have pointed to the tangible impact film production had on the state and district economies that have film tax credits.
The existing state-level race
A federal floor lands on top of fifty states that have been racing each other for two decades, with wildly different outcomes.
Georgia built the closest thing to an independent Hollywood on the strength of one of the country’s most generous, effectively uncapped credits, and it keeps layering incentives on top of that base. As of January 2026 the state allows a 20% tax credit for post-production companies on a $500K spend, with an additional 10% if the project was filmed in Georgia, plus a rebate of up to $100K for productions with a $1M minimum spend in Savannah.
New Jersey just made an even bigger bet. It extended its film incentive program through 2049 and raised the allowable credit up to 40% for in-state studio partners, including credit on A-list star salaries and even bigger tax breaks if studios commit to 10 years and the breaks can be used during construction. This was a commitment big enough that Netflix broke ground on a new production facility in the state and Paramount is set to occupy more than 285,000 square feet of studio campus space there.
New York has spent three straight budget cycles re-upping its own bid. Signed into law in May 2025, the state’s film and TV incentive program now carries an $800 million annual cap. This is the highest in the program’s history, up from $420 million, alongside a base rate increase from 25% to 30%. The 2025 budget also added two new wrinkles built specifically to out-compete rivals: a “Production Plus” bonus of up to 10% for studios that commit to multiple large productions, and a new Empire State Independent Film Production Credit designed to accelerate credit payouts for indie producers. The individual cap on above-the-line costs was eliminated, so long as total above-the-line spend stays under 40% of the budget. New York officials frame this explicitly as competitive necessity: the program has generated over $20 billion in spending and created 57,300 direct and indirect jobs in the Empire State, and the state keeps raising its cap in near lockstep with California’s own proposed expansions.
New York’s tax credit doesn’t stop at film. It’s one of the few states that has extended similar treatment to live theater. The New York City Musical and Theatrical Production Tax Credit lets Broadway and Off-Broadway shows apply for credits covering up to $12 million in qualified production expenditures, and Governor Hochul added $150 million to the program in 2026, bringing its cap to $550 million, evidence that the film-credit playbook can migrate to other art forms when the political will (and lobbying muscle) exists.
Delaware and Florida are newer, smaller entrants trying to buy their way in: Delaware established a 30% transferable tax credit on labor and spending with $10M in program funding, while Florida’s Orange County committed $25 million over five years for a 20% rebate on qualifying expenditures.
Then there are the cautionary tales. California, the state that built the modern movie industry, has watched production drain to cheaper competitors for years despite running its own credit program, which is part of why Governor Newsom has publicly pushed for a federal partnership, framing it as a way to “Make America Film Again.” And on Friday, he signed a bill that expands their tax credit and provides a 35-50% credit on post production expenses in California. Nevada shows what happens when the politics don’t line up: state legislators proposed, and then rejected, competing bills that could have delivered $1.5 billion in tax credits over 15 years to build a Las Vegas production hub. The money and the jobs never materialized.
According to research firm, ProdPro, spending across the US for movies and TV was down 20% in 2025 as streaming services produce fewer shows and blockbuster movies are made overseas. Are these tax incentives making enough of a difference?
The competitor that’s actually winning: the United Kingdom (UK)
While U.S. states have been racing each other, the UK has quietly become the biggest single beneficiary of runaway production, and it’s worth understanding why the pending federal bill may not be enough to touch it.
In 2024, the UK replaced its old system with the Audio-Visual Expenditure Credit (AVEC). The AVEC is a 34% rate for films and high-end television, which the British Film Institute credits with attracting £4.8 billion (~$6.4 billion) in foreign spending on local filmmaking in 2023 alone, making the UK Europe’s largest production incentive market. Two features explain its pull specifically on American productions:
Visual Effects (VFX): Since April 2025, qualifying UK visual effects costs receive a gross 39% credit, and visual effects spend is exempt from the cap that limits other production costs. This means that producers can claim the full incentive on 100% of UK visual effects expenditure.
Independent film: The UK’s Independent Film Tax Credit offers a 53% gross credit (39.75% net) for films under £15 million (~$20 million) which is one of the most generous indie incentives anywhere, introduced specifically to keep smaller UK productions from being crowded out by big studios.
The UK isn’t competing with U.S. states on labor costs. Instead, it’s competing on infrastructure and tax credit design, paying out as a direct refund rather than requiring a tax liability to offset. The pending U.S. federal credit, topping out around 30% with uplifts, is roughly competitive with the UK’s standard rate. It doesn’t come close to matching the UK’s VFX or indie-film rates. The question for the U.S. federal credit is if it will be enough to reverse the UK’s pull on the post-production and effects work, not just stop movement to Canada and Australia.
Can tax credits extend beyond film and live theater?
Often film and sometimes live theater are treated as drivers of “economic development,” and worthy of tax incentives and a seat at the economic development table when other artistic disciplines are left out. So what would it actually take for the rest of the creative economy to get access to the same kind of leverage?
Several states have music-specific incentive programs: Texas has a Music Incubator Rebate, while Ohio and Illinois operate similar programs. But they do not rebate production costs, touring artists’ fees, staging, or rehearsal expenses. They only rebate the sales tax on beer and wine sold at the venue, capped at $100,000 per venue per year, with funding capped at $10 million statewide. The purpose, stated explicitly in the Ohio and Texas legislation, is to help venues and festival promoters recruit touring acts to come play in their rooms and not to subsidize the artists’ cost of touring itself.
Washington’s approach to long-run theater is closer to a real production incentive. It is a business-and-occupation tax preference explicitly designed to attract nationally recognized long-run shows and compete with other theater cities. New York’s Broadway credit, mentioned earlier, is the closest thing to a film-style credit outside film and applied to qualified production expenditures the way a film credit applies to below-the-line costs.
Some point to mobility as the reason for the disparity. Film productions are mobile. They are temporary, relocatable mini-ecosystems with crews, trucks, and sound stages that can be constructed and dismantled anywhere. But orchestras, musicians, dancers, theater productions, and even gallery exhibitions move. Mobility isn’t the variable that predicts subsidy.
It could be more about scale and visibility. A single film production can spend $100–200 million into a local economy in a few months. A touring orchestra or dance production spends a fraction of what a studio feature spends in a given city over a comparable window, so there’s less to fight over per event, even if the total touring economy nationally is sizable. Or perhaps many of these non-film organizations are non-profits and tax credits aren’t as helpful as a different type of credit.
Film also has the Motion Picture Association and national entertainment unions, and studios lobbying as one bloc. Touring music and dance are fragmented across independent promoters, nonprofits, and artists with no equivalent single voice. Organized, well-funded lobbying is key. The lobbying is buttressed with a jobs and economic multiplier framing that is strong enough to warrant a large financial commitment. The work becomes industry policy and moves beyond cultural policy, which is perpetually vulnerable to cuts.
The bottom line
For the U.S. film industry to survive and thrive, it has to figure out what combination of incentives works and provides the best return on investment. So far, some states’ choices haven’t demonstrated strong returns on investment. New York’s Department of Taxation and Finance research demonstrated that the state program prior to 2023 was “at best a break even proposition and more likely a net cost.” And researchers at Georgia State University found the film tax credit of Georgia created fewer jobs than the counterfactual.
A federal credit doesn’t end the state-versus-state race, and it might not solve the UK problem. States like Georgia, New Jersey, and New York will keep bidding against each other regardless of what Washington does, because the federal proposal is designed to stack on top of, not replace, their programs. And the international fight now has a much better-resourced opponent in London than it did a decade ago. The real question is whether a national floor would close that gap or just raise the stakes for everyone at the table.
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