Videogame Tax Credits Hurt the Economy

[Greg Tito]

Videogame Tax Credits Hurt the Economy

The New York Times reports that making videogames is one of the most highly subsidized industries in America.

The Escapist has reported on all kinds of federal, state and municipal governments offering tax breaks - in the form of deductions, write-offs and credits - for videogame companies from Curt Schilling's 38 Studios [http://www.escapistmagazine.com/news/view/108537-Canadas-Videogame-Tax-Incentives-Bring-Square-Enix-to-the-Yard]. Such incentives for game developers are highly sought after by lawmakers in these territories because they create jobs in the private sector, which in this economy is what unemployed constituents want from its leaders. An article in the New York Times this week took aim at these tax cuts by pointing out that behemoths like Electronic Arts made about $1.2 billion in profits over the last five years, but still benefits from several Federal tax breaks in the United States and overseas. No company makes its tax returns completely public, but EA reported that it paid $98 million in taxes over those years, far less than the official 35 percent corporate tax rate. The author of the article David Kocieniewski argues that these tax breaks need to be reevaluated.

From EA's point of view, suing for more tax breaks only makes good business sense. Not doing so would be like, "insisting on paying full price during a store sale," according to EA spokesman Jeff Brown.

Kocieniewski points out that many of the tax policies that benefit the videogame industry were actually written in the middle of last century to foster software development - back when computers were huge mainframes. And the industry as a whole hasn't been content with just breaks that are in place. EA has hired tax lawyer Glen A. Kohl to lobby Washington for more incentives as well as use foreign subsidiaries to avoid paying licensing and U.S. Federal corporate tax altogether.

The situation is further obfuscated by the dubious benefit to society that videogames provide, according to Kocieniewski. Tax breaks and subsidies exist to make industries that support the public good such as green technology and agriculture more profitable so that companies can invest in them. It offends Kocieniewski that Electronic Arts gets tax breaks to make those dang videogames that his kids are always playing.

"The company with the defiant sales slogan, 'Your Mom Hates Dead Space 2,' in effect gets financial help from moms and other United States taxpayers to reduce its federal tax bill," he wrote.

While I don't share Kocieniewski's views on games, I'm not sure that he's wrong about big videogame publishers avoiding taxes so easily. The current tax law rewards the company with the best accounting department and not the companies that make the best games. I'd much rather see tax policy benefit instead the small independent startups which would probably drive innovation forward much more than, say, Electronic Arts.

Source: The New York Times [http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?pagewanted=1&_r=4]





Permalink

 

[The_root_of_all_evil]

Do you know what else hurts the American economy?

Many members of the Fortune 500 illegally avoiding paying tax. Allegedly.

Or Fannie Mae collapsing.

Or massive overspending on Presidential Elections.

Or scrapping the Space Program.

Or Hurricane Irene.

Or keeping other countries "safe".

Did you know that Exxon Mobile made more money than Fannie Mae/Freddie Mac and the Bank of America lost this year?

But as usual, it's games that take the blame. Where not even Acti-Bliz brought in enough to get them into the Fortune 500, falling below the 4 thousand million needed to get into the bottom of the best.

[HEADING=2]Games. Oooh, they're bad.[/HEADING]

 

[Scytail]

Not to mention all the massive subsidies that food corps like ConAgra get for serving us substandard food.

 

[yuval152]

Do you know what else hurts the American economy?

Many members of the Fortune 500 illegally avoiding paying tax. Allegedly.

Or Fannie Mae collapsing.

Or massive overspending on Presidential Elections.

Or scrapping the Space Program.

Or Hurricane Irene.

Or keeping other countries "safe".

Did you know that Exxon Mobile made more money than Fannie Mae/Freddie Mac and the Bank of America lost this year?

But as usual, it's games that take the blame. Where not even Acti-Bliz brought in enough to get them into the Fortune 500, falling below the 4 thousand million needed to get into the bottom of the best.

[HEADING=2]Games. Oooh, they're bad.[/HEADING]

QFT,looks like again they don't have anyone to blame it on so they throw on video games,well you know what i'm happy that it hurts your(Tax) economy because your blaming other objects for stuff that you're responsible of.

 

[Staskala]

Do you know what else hurts the American economy?

Many members of the Fortune 500 illegally avoiding paying tax. Allegedly.

Or Fannie Mae collapsing.

Or massive overspending on Presidential Elections.

Or scrapping the Space Program.

Or Hurricane Irene.

Or keeping other countries "safe".

Did you know that Exxon Mobile made more money than Fannie Mae/Freddie Mac and the Bank of America lost this year?

But as usual, it's games that take the blame. Where not even Acti-Bliz brought in enough to get them into the Fortune 500, falling below the 4 thousand million needed to get into the bottom of the best.

Games. Oooh, they're bad.

Because every article in the NYT has to cover every single way to "save" money so that gamers won't get offended, right?
Kocieniewski writes about one hole that could be filled, never does he imply that this alone would magically safe the entire economy, nor does he state that this is the biggest issue the US is dealing with. No need for the knee-jerk and I hope that you at least read the original article and not just the escapist rewrite.
I agree that the issue is overblown, but come on, don't pull the victim card at every drop of a hat.

 

[Therumancer]

I don't see video games as being the only problem here, but it is one issue among many with the way taxes are collected. With the country in the shape it's in now, where we are having all these problems with social security and so on, I don't think video game developers should be getting tax breaks like this. I do think that companies like EA should be paying the full 35% corperate tax.

Now granted, there are companies that are bigger problems than EA, but that doesn't mean that EA and it's ilk should be ignored simply because you can point fingers at other groups.

Tax breaks for things like video game companies are fine, when the country is not wallowing in massive debt. Sure, it is the goverment's fault we're in this position, but in the end the bills do need to be paid, and the money to pay them comes from American citizens and businesses.

Of course at the same time I'm quick to argue that the first thing the US should be doing is dropping it's foreign aid entirely. It's nice to be generous when we have the money to spread around, but for a long time we've been borrowing money in order to give it away. The first thing that needs to go are the gifts we're giving. Yes this means that safety, medicine, construction, education, etc... throughout the world that depends on US dollars is going to collapse. Those projects are fine, but we need to keep our own house in order first, after all if the US collapses entirely those things go with us.

I'll also admit ending foreign aid gives me a somewhat devilish sense of glee, the globe as a whole demonizes the US, insults us for getting involved, and gloats when our credit rating suffers. While the world will get by without us, I think everyone will find it a far less pleasant and comfortable place without us being as involved as we are now. Have a problem with the second and third world, and how the plight of the people there spills over into your back yard? Call France.

 

[d43dr34m3r]

I'd say the most reasonable way to think about this issue would be comparing the good that these tax breaks do (keeping decent jobs in the US and keeping game developers and publishers in the US to pay taxes, even at a reduced rate) to the money lost in tax revenue.

The issue of larger game companies getting the breaks is irrelevant - the main point of policies such as these is to incentivize keeping large companies in the US so they pay our taxes and pay our citizens salaries so that they can pay taxes, not to encourage creativity or innovation. Indeed, prioritizing independent and unproven start-ups that employee fewer people and could easily fail on their first game seems to be foolhardy in comparison.

 

[scotth266]

The United States one of the highest corporate tax rates in the world: the tax breaks for businesses are built in to counteract how high the rate is.

This leads to the bizarre situation that everyone complains about how corporations are dodging taxes when they're effectively being encouraged to dodge them. Hence why I'm happy to hear people FINALLY talking about reforming corporate tax code to get rid of the loopholes and lower the tax rate. It ought to make things a lot smoother overall.

 

[The_root_of_all_evil]

Because every article in the NYT has to cover every single way to "save" money so that gamers won't get offended, right?

No, but if we're looking at people who get tax breaks, you could start with the top 500.

Or some of the tragedies.

Kocieniewski writes about one hole that could be filled, never does he imply that this alone would magically safe the entire economy, nor does he state that this is the biggest issue the US is dealing with.

He's just targetting an area that has been very recently freed of being decimated by the Californian Governor. You've got to admit the timing is suspicious.

No need for the knee-jerk and I hope that you at least read the original article and not just the escapist rewrite.I agree that the issue is overblown, but come on, don't pull the victim card at every drop of a hat.

"pull the victim card" "every drop" "knee-jerk" "at least" "rewrite"?

Sir, you imply much that is distasteful. But not as distasteful as condemning an industry that brings in seven billion dollars a year, but requires long periods of time to produce a finished product. Does the movie industry get tax breaks? Because I believe they get far more advertising, for far less, while bringing in far less money.

Yes, you can cure a hangover by amputation. It's not implied that this would magically cure it, or is it the biggest issue you'd have at that point, but it's not really a reliable or responsible cure to trot out to the masses, is it?

 

[The_root_of_all_evil]

I'm always amazed at the incredible gap of intelligence and maturity that exist in the Escapist News and their comment section.

Don't be so hard on them, I'm sure the Newsies do their best.

 

[Jonci]

I'd remind that New York Times writer that the video game industry and gamers have been a big reason for the drive in better CPU, RAM, and GPU technology. Video games push the tech sector.
Besides, how many AAA titles are coming up in the next two months? That's a lot of business, and gamers will spend spend spend!

 

[Staskala]

No, but if we're looking at people who get tax breaks, you could start with the top 500.

Or some of the tragedies.

I'm not really a fan of the NYT, but I'm fairly certain that the claim that it never criticizes the F500 and the many issues with corporate tax breaks holds much water. If anything this is more likely to be just another article in a long line of criticism, it just happened to be the video games industry this time.

He's just targetting an area that has been very recently freed of being decimated by the Californian Governor. You've got to admit the timing is suspicious.

Again, I'm not nearly invested enough to know how the NYT reported on this non-issue, so I'll give you the benefit of doubt that it did not very stellar in that regard. But was it Kocieniewski back then too? If yes, you might be on to something, granted.

"pull the victim card" "every drop" "knee-jerk" "at least" "rewrite"?

Sir, you imply much that is distasteful. But not as distasteful as condemning an industry that brings in seven billion dollars a year, but requires long periods of time to produce a finished product. Does the movie industry get tax breaks? Because I believe they get far more advertising, for far less, while bringing in far less money.

Yes, you can cure a hangover by amputation. It's not implied that this would magically cure it, or is it the biggest issue you'd have at that point, but it's not really a reliable or responsible cure to trot out to the masses, is it?

Now this is just a peeve of mine (thanks to certain sites I used to frequent), but I never implied anything - I outright stated so.
Anyway, yes, the article surely is to be criticized; he never mentions the benefits of a strong American entertainment industry, doesn't put things into perspective when compared to other industries, tries to quantify the social benefits of entertainment, etc..
That is criticism I can get behind - stating that this is just an attempt to discredit gamers and the video games industry is not.

 

[mattttherman3]

I'd say that political bullshit and mass media fear mongering hurts america more.

 

[Baresark]

Any business that can't survive without subsidies is not competitive and should be eaten up. This is why solar is such a waste, economically. If they weren't subsidized, the technology would have been further researched and it's possible for the price per kilowatt hour to come down below what fossil fuels provide. But as long as government subsidizes it with incentive programs like SRACs, then the technology will not progress because there is no incentive for research or perfection of the technology. They shouldn't be allowed to survive. But, tax breaks for companies in a country that has a corporate taxation rate of 35% is ok. Any company that produces jobs for an increasing amount of people due to success should not have to pay more taxes, but less. Less taxes is more prosperous for the people, while more taxes are simply more prosperous for governments at the cost of the people. That being said, lobbying as a special interest group in Washington shouldn't be allowed either (yay 17th Amendment!). There should be no intervention on behalf or against a successful industry, this includes taxes and subsidies. They certainly shouldn't get more tax breaks than other industries, but the problem is that the governments of the world are constantly picking and choosing favorites when this should not be allowed.

Tax breaks are not subsidies. A subsidy is an amount of money paid out to a company to aid in it's business dealings. That is like saying a company didn't have enough money stolen from it for the public good. Like, the US government actually pays money to oil companies to help them offset the costs of finding new oil wells (complete bullshit if you ask me, but what do I know).

 

[Dastardly]

Videogame Tax Credits Hurt the Economy

HYPOTHESIS:
If we give large companies tax breaks, they will use those savings to innovate and create new jobs.

PROCEDURES:
1. Establish tax breaks for these large companies.
2. Hope.
3. Whoops.

RESULTS:
As it turns out, if no one makes them spend this money on creating new jobs, they tend to just keep it for their own damned selves. Also, they'll employ other ways of dodging taxes and move more jobs overseas to cut costs even more. In the end, the only people that end up with more money are the folks running the corporation. Oh, and those jobs this plan "created?" Yeah, they all get laid off when the project is done.

 

[JakobBloch]

I'd say the most reasonable way to think about this issue would be comparing the good that these tax breaks do (keeping decent jobs in the US and keeping game developers and publishers in the US to pay taxes, even at a reduced rate) to the money lost in tax revenue.

The issue of larger game companies getting the breaks is irrelevant - the main point of policies such as these is to incentivize keeping large companies in the US so they pay our taxes and pay our citizens salaries so that they can pay taxes, not to encourage creativity or innovation. Indeed, prioritizing independent and unproven start-ups that employee fewer people and could easily fail on their first game seems to be foolhardy in comparison.

I agree here. When it comes to tax policy we are not talking about the next new thing or the new but untested avenues of income. We are talking cold hard cash and security of that cash. By those meters it is better to bet on large companies. I am all for innovation and new ideas being explored, but we must recognize that these things are risky and the government cannot afford to take risks at this point.

 

[jmarquiso]

What is wrong with this? I'm usually against Tax breaks, but take a real look at the economy.

Top U.S. Exports
1) Defense.
2) Hollywood
3) Technology and Software
4) Biotech

Hollywood is actually eventually going to fade, giving way to the new entertainment entrepreneurs - Microsoft, Apple, Sony, Nintendo and the like. You know how much American industry is involved there? Microsoft, Valve, EA, Activision, and Bethesda. And they're in tight competition with a growing European market (which give heavy tax incentives themselves) - Rockstar, Crytek, etc. In Asia, the Japanese are trying to regain their prominence, while Indian and Chinese devs are coming into the market.

We need to hire and develop local US talent, and foster the industry - we need to remain competitive. If anything it's helping the economy for a corporation to receive tax breaks in order to hire software developers, programmers, and artists, and designers, and everything going into a game. These people need jobs.

Now, perhaps some tighter scrutiny should be paid to make sure the money actually goes into the US economy, but for the most part this is a good thing.

 

[Baresark]

Videogame Tax Credits Hurt the Economy

HYPOTHESIS:
If we give large companies tax breaks, they will use those savings to innovate and create new jobs.

PROCEDURES:
1. Establish tax breaks for these large companies.
2. Hope.
3. Whoops.

RESULTS:
As it turns out, if no one makes them spend this money on creating new jobs, they tend to just keep it for their own damned selves. Also, they'll employ other ways of dodging taxes and move more jobs overseas to cut costs even more. In the end, the only people that end up with more money are the folks running the corporation. Oh, and those jobs this plan "created?" Yeah, they all get laid off when the project is done.

Only, EA (and other successful companies) routinely reinvest that money back into the company. They are not "keeping it for themselves" as you say. They have used lots and lots of the that phat videogame cash to purchase studios, strengthening their position in the industry. They have overall, as a single stand alone company, come to employ an ever increasing number of people, which is better for the industry and better for the the US, economically speaking. And if jobs transfer overseas, it's because the US isn't competitive in a world market. That is also the governments fault, not EA's. The only way a company such as EA produces anything affordable for the US consumer is by keeping costs down by going to countries where labor is cheaper.

I hate EA, I don't like how they think they can get away with bullying their customers, so I don't buy their games, but defending their position is the right thing to do, even if they are a bunch of douche bags.

 

[The_root_of_all_evil]

I'm not really a fan of the NYT, but I'm fairly certain that the claim that it never criticizes the F500 and the many issues with corporate tax breaks holds much water.

Which is why I didn't claim it. You yourself point out the difference between implication and stating, later. Give me the benefit of said doubt.

Having an article about If anything this is more likely to be just another article in a long line of criticism, it just happened to be the video games industry this time.

And next time, what? "The Films of Tarantino"?

When you've already exhausted, or looked through 500 companies - including Phillip Morris, McDonalds, Dick's Sporting Goods - then it's a pretty desperate report to bring up Electronic Arts - and then apply it to the whole gaming industry - when only the Triple A titles will be doing that.

Remember that that report would indite Zynga in the same area as Media Molecule.

Now this is just a peeve of mine (thanks to certain sites I used to frequent), but I never implied anything - I outright stated so.

But due to the forum guidelines, I can't directly accuse you of something, or I'm in breach. Equally, due to text being two-dimensional, I can't tell your emotional state when you wrote that. That's why the "dance of implication" exists.

Anyway, yes, the article surely is to be criticized; he never mentions the benefits of a strong American entertainment industry, doesn't put things into perspective when compared to other industries, tries to quantify the social benefits of entertainment, etc..
That is criticism I can get behind - stating that this is just an attempt to discredit gamers and the video games industry is not.

Implication and Statements again. I'm saying that blaming the gaming industry for EA, while stepping past far more obvious implications gives a very tarnished outlook on Mr. Kocieniewski's stance - and reason for reporting it.

Taking a quick look at Mr. Kocieniewski's stance - it does seem like he's on a blame mission at the moment: http://topics.nytimes.com/topics/reference/timestopics/people/k/david_kocieniewski/index.html

But General Electric? http://www.nytimes.com/2011/03/25/business/economy/25tax.html?ref=davidkocieniewski

They pay no tax whatsoever.

So, EA aren't really that bad, are they? Or at least, not in this respect.

 

[Dastardly]

Only, EA (and other successful companies) routinely reinvest that money back into the company. They are not "keeping it for themselves" as you say. They have used lots and lots of the that phat videogame cash to purchase studios, strengthening their position in the industry. They have overall, as a single stand alone company, come to employ an ever increasing number of people, which is better for the industry and better for the the US, economically speaking. And if jobs transfer overseas, it's because the US isn't competitive in a world market. That is also the governments fault, not EA's. The only way a company such as EA produces anything affordable for the US consumer is by keeping costs down by going to countries where labor is cheaper.

I hate EA, I don't like how they think they can get away with bullying their customers, so I don't buy their games, but defending their position is the right thing to do, even if they are a bunch of douche bags.

How would you make the US "competitive" in the world market?

No matter how "competitive" our workers may be, they can't survive on $1 a day. But some overseas folks can. So there are some jobs lost to us. (Obviously, I'm not confining this assessment to video game companies.) These aren't the kind of jobs we need right now in the US, considering a lot of our unemployed don't have the training they'd need to hold one of these jobs.

Amazingly, though, when a US company shuts down a plant to move it to El Salvador and save a mint on labor, we don't see the slightest change in price here. So that means folks here buying those products are no better equipped to live on $1 a day. They still have to pay top dollar, so they need to make more.

How would the government fix this? Well... the only real method is to stop feeding money and loopholes to these big companies. Give the money to the rich, and they'll hold onto as much of it as they can and spend just what they need to turn more profit. And they'll spend it in other countries because the Third World works cheap. Give the money to the middle class, and they'll spend it here, in our own businesses. "Trickle down" has always been a load of bullshit, but "trickle up" will work without fail if you want to get the economy moving.

More to the topic, EA employs a lot of people, but (as you mentioned) a lot of that is the result of buying up studios that already existed. In the majority of these purchases, do you think that studio gained or lost employees? If they lose even one employee during the transfer, the result is that fewer people are employed on the whole, even if EA's roster got bigger.