Space Zombies Rake It In: Huge Tax Breaks for Video Game Makers, One of the Most Highly Subsidized Businesses in US
Posted By Vicki McClure Davidson on September 11, 2011
Video game makers, like Electronic Arts that makes the video game Dead Space 2, have a sweet deal with current subsidized tax breaks and write-offs
When Pres. Obama and other liberals have slammed successful business owners and millionaires for not “paying their fair share,” examples of corporation fat cats buzzing about in private jets haven’t ever included video game makers.
But if you’re going to decry and make an example of businesses that have prospered because of faulty tax laws and loopholes, you really should, Mr. President.
Video game production is now one of the most highly subsidized businesses in the country. Reportedly, because video game companies receive such a vast amount of incentives, write-offs, and deductions from the federal government, many are questioning why, during the worst recession our nation has seen in more than three decades, the federal government is subsidizing an industry that primarily produces mindless entertainment.
Subsidizing the killing of space zombies — quite apropos for this brain-dead administration and its $14 trillion debt.
Reported by New York Times, Rich Tax Breaks Bolster Makers of Video Games:
Dead Space 2 shipped more than two million copies in its first week.
It also provides tax breaks for a company whose hit video game this year was the gory Dead Space 2, which challenges players to advance through an apocalyptic battlefield by killing space zombies.
Those tax incentives — a collection of deductions, write-offs and credits mostly devised for other industries in other eras — now make video game production one of the most highly subsidized businesses in the United States, says Calvin H. Johnson, who has worked at the Treasury Department and is now a tax professor at the University of Texas at Austin.
Because video game makers straddle the lines between software development, the entertainment industry and online retailing, they can combine tax breaks in ways that companies like Netflix and Adobe cannot. Video game developers receive such a rich assortment of incentives that even oil companies have questioned why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment.
For example, Electronic Arts of Redwood City, Calif., shipped more than two million copies of Dead Space 2 in the game’s first week on the market this year. It shows a total of $1.2 billion in global profits the last five years using an accounting method that management says captures its operating profits.
From Newser, Video Games Score Vast Subsidies – Cold War-era tax breaks go to the likes of zombie shoot-’em-ups:
By combining tax breaks, deductions, and subsidies designed for the Cold War, video game production is now one of the most highly subsidized businesses in the United States, reports the New York Times. Leading software developer Electronic Arts, for example, has made $1.2 billion in profits worldwide over the past five years, but was able to report a loss thanks to creative accounting, and paid only $98 million in taxes in that time.
“Software and high-tech industries are the brain trust of the US,” said the chief operating officer of a software consulting group. “We can’t afford to lose that knowledge and those high-paying jobs to India or anywhere else.” Many states are ramping up tax breaks, hoping to encourage software jobs, but many studies cast doubt on the effectiveness of this strategy. “The research credit benefits the wrong companies and encourages the wrong kind of research,” said a tax expert and technology executive. “By diverting funding and attention from where it could be most useful, the credit is hobbling American innovation.”
From San Francisco Chronicle, Video-game makers subsidized with big tax breaks:
All told, the federal government gave $123 billion in tax incentives to corporations in 2010, according to the Joint Committee on Taxation, with breaks for groups and people as diverse as NASCAR track owners, mohair producers, hedge fund managers, chicken farmers, automakers and oil companies.
Many tax policy analysts say the breaks for the video-game industry – whose domestic sales of $15 billion a year now exceed those of the music business – are a vivid example of a tax system that defies common sense. Most times, subsidies begin as a way to nurture a fledgling industry that will not be profitable for years or to encourage a business activity deemed to have a broad benefit to society, like reducing pollution or improving public health.
But it’s a lot easier to create a tax break than to eliminate it. That leaves a generous assortment of tax incentives available to all types of companies, like Electronic Arts, with skilled accounting departments.
The architect of the company’s strategies in recent years was Glen Kohl, a tax lawyer. Company officials say they have no qualms about taking all the tax breaks legally available to them. To do otherwise would be like a consumer “insisting on paying full price during a store sale,” wrote Jeff Brown, a company spokesman.
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Electronic Arts’ software development costs – including salaries for the designers – have totaled nearly $6 billion over the last five years, and the company says it deducted all but a small amount of those expenses immediately. Companies that produce movies or compact discs, by contrast, face tighter restrictions that often require them to spread out the deduction on most production costs over a number of years.
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