How the GOP's Proposed Tax Plan Could Actually Help Hollywood
Proposals would dramatically drop the corporate tax rate, offer unlimited deductions for shooting stateside and might save studios $6 billion or more.
Republican lawmakers seem poised to do the entertainment industry a multibillion-dollar favor with a tax bill that opponents are criticizing as Robin Hood in reverse, with benefits going primarily to corporations instead of workers.
If it passes, a GOP tax plan likely will drop the corporate tax rate from 35 percent to 20 percent, a reduction that, had it been in place last year, could have saved major media conglomerates — Disney, Time Warner, Comcast, 21st Century Fox, Viacom and Sony — more than $6 billion, according to financial statements. That's one reason the MPAA said Nov. 15 that it "applauds the tax proposal" released by the Senate Finance Committee.
Not everyone is applauding. The Tax Policy Center notes that more than half of U.S. households with incomes between $150,000 and $300,000 would see a tax hike, and NBC News reported that President Trump and his family could save more than $1 billion.
Runaway production is addressed in the bills. Section 181 of the current tax code — which allowed deductions for the first $15 million of a production if filmed primarily stateside — expired last year. When in effect, it saved studios an estimated $400 million annually, and the new bills could return that — and more — since they reintroduce the deductions without the $15 million cap. One film industry insider believes the provision could save studios $2 billion a year.
The Senate bill changes the U.S. to a "territorial system," which means companies wouldn't owe taxes to Uncle Sam on profits where taxes already have been paid to foreign governments, a system that could be a boon to multinational corporations. Still to be worked out is how this would affect a growing overseas box office.
Lawmakers threw Hollywood a bone when they eliminated a provision that requires advertising expenses to be amortized over years instead of being able to deduct them all at once. This will help studios because they spend so heavily to promote individual films; it's even more beneficial to the television industry as it encourages all businesses to advertise on TV. "Advertising is the lifeblood of our industry," the MPAA argued in a letter to senators Orrin Hatch and Ron Wyden. The lobbying paid off, and the changes in the way advertising is expensed do not appear in the House or Senate bills.
The GOP proposals also include scrapping taxes on costs associated with the maintenance of private jets, which is expected to save owners a collective $50 million over 10 years. And an amendment is included in the Senate bill prohibiting companies from writing off secret settlements for sexual harassment. "As Congress rethinks our tax code, we need to rethink the way we treat Hollywood by eliminating the business expense deduction for hush money associated with sexual assault," says Ken Buck, a Republican congressman from Colorado.
Republicans also want some of the estimated $1.9 trillion parked offshore to come back to the U.S., so the Senate bill could slash repatriation rates to 10 percent on cash and 5 percent on non-cash assets, a provision that could especially impact Apple, since the new-media giant keeps an estimated $128 billion in countries with more favorable tax policies, The New York Times reported on Nov. 6.
The industry's many upper-middle-class workers in high-cost California and New York could take a hit with the House bill, as it lowers the homeowner deduction to a maximum loan of $500,000, while the Senate bill maintains a $1 million cap. That bill, claims Sen. Dianne Feinstein, "was written to help the rich at the expense of the middle class."
Nevertheless, several Hollywood executives are backing many provisions of the GOP's competing House and Senate bills. "Competitive business tax rates will ensure lasting economic growth, investment and job creation," says Randall Stephenson, the CEO of AT&T, which is trying to merge with Time Warner. And Rupert Murdoch's Fox issued a statement calling the House plan "a major step toward meaningful tax code reforms that will help grow the U.S. economy and boost investment and opportunity for American job-creators."
Disney hasn't weighed in on the GOP's proposals, but CEO Bob Iger has previously advocated for a lower corporate tax burden. "This country is charging among the highest rates in the world," he said in 2012. "We've got to take a very, very serious look at our corporate tax structure."
Sure to raise the hackles of celebrity environmentalists is a provision in the House bill that will eliminate the $7,500 per-vehicle tax credit for electric cars, including the $158,000 Tesla Model S that is popular in Hollywood nowadays.
Plus, Hollywood's pro-choice advocates might object to changes in 529 savings accounts for college tuition because they allow parents to open them for "an unborn child ... at any stage of development, who is carried in the womb."
"The sole purpose of this provision is to codify the radical, anti-choice idea that life begins at conception into law and begin the process of banning abortion," says Illyse Hogue, president of NARAL Pro-Choice America, an organization supported by Elton John, George Clooney, Ellen DeGeneres, Kathy Najimy and other celebrities.
"Hollywood can benefit from tax reform given heavy domestic operations for many of the major players," says Steven Birenberg of Northlake Capital Management. "The upside for consumers of Hollywood content may be less, especially middle-income Americans that watch TV and head to their local movie theater."
A version of this story appeared in the Nov. 29 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.