Donald Trump’s idea to tax American businesses that move jobs offshore if they try to sell products back at home faces a difficult balancing act.
If the measure goes ahead, this could affect co-productions and films shot abroad that are then released in the US market. For example, Hollywood productions that ship jobs to China to shoot a blockbuster would, in theory, face a 35% tax penalty if they tried to release the film back in the US.
On the other side of the argument, this unfavorable tax hike could encourage entertainment companies to shoot locally instead of abroad in places like Canada or New Zealand, but this would require production costs to fall significantly. The strong dollar coupled with tax incentives have made other countries less expensive to shoot movies, hence why many major productions are shot outside of the US.
The U.S. is going to substantialy reduce taxes and regulations on businesses, but any business that leaves our country for another country,
— Donald J. Trump (@realDonaldTrump) December 4, 2016
fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. ......
— Donald J. Trump (@realDonaldTrump) December 4, 2016
without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies ......
— Donald J. Trump (@realDonaldTrump) December 4, 2016
In order for American production companies and entertainment businesses to choose to keep jobs at home, they would require additional tax incentives to make it more affordable to shoot in the US. Even with increased tax incentives and business tax cuts, it might still be cheaper to shoot abroad.
Then we have to question what will happen to American productions abroad. If China invests in US productions and shoots them outside of the US, they would face what they could perceive as an import tariff. China will be the world’s largest film market in the next 2 years, therefore it is not unreasonable to see them retaliating with a tax hike on American produced films. This would have a very detrimental effect on American companies and would lead to job losses at home as well.
States may also have to consider increasing their incentives to compete with China and make it affordable for American companies to shoot at home. This could have a detrimental impact on the local economy as fewer tax receipts would increase the deficit, and be seen as giving the entertainment industry an unfair tax advantage at the expense of other sectors.
The outcome of a 35% tax will have a broad impact, but it must be weighed with the pros and cons if it is going to be a success, otherwise we may see significant job losses and foreign markets hiking up taxes on American films, as well as falling investor confidence in American companies.
