The Subsidy Show

Colbert, Fallon, and the crony capitalism of the creative class

Stephen Colbert (R) visits “The Tonight Show Starring Jimmy Fallon” at Rockefeller Center in New York City on Feb. 17, 2014. Theo Wargo/Getty Images for The Tonight Show Starring Jimmy Fallon

Modern “progressives” are not, as some economic conservatives would say, socialists. In fact, today’s so-called progressives are not even particularly progressive, at least in the usual sense of seeking to redistribute wealth from rich to poor. As Fred Siegel has noted, contemporary progressivism is an upper-middle-class movement that caters to the social libertarianism of coastal elites, while paying lip service to left-wing economic concerns. Even when modern progressives do support economic development, they often do so in ways that stand traditional progressivism on its head—redistributing wealth upward to favored industries. 

It would be hard to find a better example of this than Gov. Andrew Cuomo’s announcement last month that New York state will lavish $16 million in giveaways on CBS to keep “The Late Show” in Manhattan when urbane hipster Stephen Colbert succeeds David Letterman as host next year.

The CBS handout follows an even sweeter deal for NBC, which received over $20 million in tax credits and other funding to bring “The Tonight Show” back to New York from Los Angeles when Jimmy Fallon took over from Jay Leno as host earlier this year.

“The Tonight Show” didn’t actually qualify for the state’s $420 million-a-year film and television production tax-credit program, which excludes talk shows. But Cuomo asked the state Legislature to carve out an exception for “a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York” and is “filmed before a studio audience of two hundred or more.” E.J. McMahon of the Empire Center for Public Policy branded the provision Jimmy’s Law.

The Colbert subsidy faced an even bigger stumbling block. Even as revised for “The Tonight Show,” the state’s film and television tax credits still only applied to new productions, or productions newly relocated to New York. But the “Late Show With David Letterman” is already filmed in Gotham. Instead of going back to the Legislature for a Stephen’s Law, Cuomo decided to funnel $11 million in tax credits to CBS through another of the state’s corporate welfare spigots, the Excelsior Jobs Program. As a bonus, “The Late Show” will get a grant of $5 million to renovate the Ed Sullivan Theater. 

The maneuver seems blatantly illegal. The Excelsior Jobs Program’s purpose is to support “manufacturing and financial industries … in the knowledge, technology and innovation-based economy,” including such high-tech fields as “broadband, information systems, renewable energy and biotechnology.” The fine print extends the benefit to any “industry with significant potential for private-sector economic growth … as established by the [economic development] commissioner in regulations,” and the regulations are drafted vaguely enough to seem to allow almost any company to qualify, but both the law and the regulations state that “a business entity engaged predominantly in the entertainment industry” is not eligible.

Even putting aside the extension of the film and tax credit program to subsidize Fallon, or the effort to get around it to subsidize Colbert, the program is a regressive boondoggle channeling money from small businesses, middle-income taxpayers, and other state programs to a privileged few. Its $420 million price tag makes it the state’s second-largest tax subsidy, trailing only the credit for redevelopment of contaminated “brownfields” (itself a program of dubious merit benefitting a politically favored industry). Both were blasted in a report prepared last year for Cuomo’s tax-reform commission, which recommended cutting the film-credit program by $50 million because “it does not appear to pay for itself.”

The report spelled out how lucrative the film credits—which equal at least 30 percent of qualifying production costs—can be to their recipients. The “credit exceeds tax liability many times over,” the report’s authors noted. And because the credit is “refundable”—meaning that the taxpayer is entitled not only to a tax refund but also to a cash payment if the credit exceeds tax liability—the state in fact receives no tax revenue, but rather pays recipients to film here.

These payments go to a tiny sliver of the state’s businesses. The report noted that the “film production credit accounts for 22 percent of the total cost of New York’s business tax credits, but the industry accounts for less than one percent of the state’s employment.” And while the state has fought to keep details of the payments out of the news (claiming that the amount received by a company is a trade secret and therefore exempt from the Freedom of Information Law), what it has been forced to disclose so far suggests that the lion’s share of the credit bonanza has gone to the industry’s upper crust, with the largest payouts going to CBS, NBC, ABC, Warner Brothers, Columbia Pictures, Universal, and 20th Century Fox.

This largesse to entertainment-industry giants “comes at the expense of higher taxes for other taxpayers or lower spending on state services and investments,” the report’s authors note. The Albany Times-Union puts it in human terms, observing that “the Late Show break alone is more than enough to close the entire budget gap of a struggling small city … or save more than 100 teaching jobs.”

Hollywood and its cheerleaders in the Cuomo administration insist that this diversion of resources is worth it because the credit supposedly “pays for itself” by attracting increased investment to the state. They’ve trotted out a 2009 study prepared for the governor’s office and the Motion Picture Association of America (MPAA) concluding that the credit generated $1.13 in tax revenue for every dollar spent. But as the authors of Cuomo’s tax commission report point out, the 2009 study assumes that essentially no film-related activity would have taken place without the credit.

In fact, “New York had a vibrant film production industry prior to enactment of the credit,” the commission report’s authors said. Surveying the economic literature, they found that “the only studies claiming that a state film subsidy pays for itself were financed by the [MPAA] and/or a state office of film and tourism.”

Indeed, there is every reason to believe that film and television production would continue to thrive in New York were the credit eliminated. News reports have emphasized that neither Fallon nor Colbert, both long based in Gotham, ever had any intention of leaving. “It simply never came up that we would move to L.A.,” said Tonight Show producer Lorne Michaels. Similarly, the New York Times reported that “there had been little doubt that the [Late Show] would stay because Mr. Colbert had privately expressed his strong desire to keep the show in New York, near his home in New Jersey. Like Jimmy Fallon, … Colbert has long been considered a ‘New York act.’”

So why did New York taxpayers give them $36 million to do something they were going to do anyway?

Dennis Saffran is an appellate attorney and was recently the GOP candidate for the city council seat representing the 19th district in Queens. This article originally appeared on the Manhattan Institute’s City Journal website.