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 Square Enix to Curt Schilling’s 38 Studios. 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