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Are Tax Breaks For Game Developers Economically Sound?

Originally published on Game Politics

Throughout the US and around the world, game developers are fighting for tax incentives and breaks similar to those offered to other creative industries such as the movie industry. Many groups such as TIGA in the UK make the claim that such tax breaks are needed in order to compete with other nations for game development talent, competition created in part by the tax breaks and incentives offered in those competing nations.

While these fights for increased tax breaks rage on, one question seems to remain unasked. Are these tax incentives worth the trouble?

In its Video Game Nation coverage, Reason asks that very question.

Under the Texas Moving Image Industry Incentive Program, the Lone Star state has set aside $95 million in funds over the next two years toward grants for both filmmakers and developers—making it the largest incentive program in the nation. And so far it seems to be working. Texas is now only second to California when it comes to video game employment.

But are these subsidies creating enough economic growth to justify their cost? [Calvin H. Johnson, professor of law at the University of Texas at Austin], who specializes in tax law, thinks that video game makers are enjoying a tax deal that’s too good to be true.

“If you’re going to double the rate of return for federal subsidies then you really ought to have a good justification that the public is getting a benefit equal to that incredibly intense incentive,” Johnson states. “And I must admit, I’m not convinced that the unemployed son spending 17 hours in the basement of his mother’s house working on his Doom 3 is making a grand contribution.”

While Johnson’s example of one potential recipient of these tax incentives seems a bit… ignorant, his main point does make some sense. Is the public getting a valid and worthwhile return on their investments in these programs? This is a very interesting question to ask, especially at a time when the Federal government and many state governments are operating under deficits in their budgets.


Game Politics Contributor: E. Zachary Knight

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