Tax Breaks for Games Makers are So Rich, Even Oil Companies Question Their Fairness

Illustration for article titled Tax Breaks for Games Makers are So Rich, Even Oil Companies Question Their Fairness

The New York Times this morning published an extensive look at the system of tax incentives and breaks exploited by games makers, concluding that their write-offs to research and development costs satisfy the letter, but not the spirit, of 50-year-old tax policies that by now defy common sense.

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Focusing almost exclusively on Electronic Arts, the Times details how the company's R&D for its own games qualifies for tens of millions of dollars in savings under tax breaks created in eras when America was concerned about the Soviet threat and Japan's rise in automobile manufacturing. By contrast, a pollution-reducing smokestack project begun by Union Carbide in 2009 did not qualify for such R&D savings.

It's an eye-opening, outsider's look at something we've reported on here and which the conventional wisdom among game enthusiasts holds to be a good thing—the government, rather than pillorying video games or regulating their content, acknowledging the industry's merit with tax benefits.

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Outside our bubble, video games are not viewed as some underdog sector, but a mature industry taking advantage of breaks that, in spirit, are meant for startup operations and risky ventures that deliver some public good. Oil companies, the Times notes, question why the government effectively subsidizes video games development. Further, in a crossover industry touching software development, entertainment and online retailing, game makers can take advantage of more tax breaks than companies like Netflix or Adobe. And the research and development deduction means costs for production of games are subsidized in ways the production of films are not.

That said, the Times notes that even EA's competitors feel that the company is not as aggressive as other publishers in pursuing. EA's top spokesman, Jeff Brown, said that not taking advantage of all tax breaks available is akin to "insisting on paying full price during a store sale."

He has a point, but EA is not a passive participant in this. It has a personal shopper, if you will, finding these values in the former Clinton administration tax official who now directs the company's tax strategy. And timely lobbying on EA's part in 2004 helped qualify video games for a tax break on companies that export, a tax deduction that last year amounted to 9 percent of the publisher's production costs.

We are not tax analysts here, and have generally reported and reacted to government incentives for the industry as a good thing without questioning their fairness at large.

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The absence of these benefits may not stagnate development because those most often claiming them have enormous capital in reserve. And if they did, how can one argue that an entertainment product supplies a public good on the level of cleaner energy or pharmaceutical research.

Ultimately, I buy EA's rationale that, hey, it holds memberships in clubs that all offer a nice buffet, and the prudent thing to do is to take advantage of all of them. There's no morality here, this is what any publicly traded company worth a damn does, and those who write the tax code know this. So if there's any blame to assign, it's to lawmakers, and the fear of losing jobs makes closing off existing tax breaks difficult.

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Unless, however, shrewd politicians sieze on popular conception of video games as trivial entertainment products not worthy of taxpayer subsidies, and use them as an argumentative fulcrum to reform corporate tax code and make American industry pay a more fair share. Ironically, video games might then provide more public good as a political punching bag, rather than as an industry treated with the respect implied by government tax incentives.

Rich Tax Breaks Bolster Makers of Video Games [The New York Times]

(Associated Press photo)


You can contact Owen Good, the author of this post, at owen@kotaku.com. You can also find him on Twitter, Facebook, and lurking around our #tips page.

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DISCUSSION

To me it seems that thanks to years and years of a fucked up tax code we have companies waaaay larger than they should be that threaten to just up and leave if they actually have to start paying their fair share.

To use a video game analogy, it's like if you get your high score entirely off of an exploit that lets you rack up lots of extra bonus points but the amount of points you gain are not proportionate to the actual quality of your game play. Then, every sequel to that game keeps that exploit creating the accepted notion that the only way to be competitive is to exploit that loop hole to the point that the "best" at playing that game really start to suck at actual game play. Then when the 5th or so squeal comes out and threatens to remove that exploit suddenly the "best" gamers can't figure out what's going on so they all jump ship to a different game.

Lets face it. America's media empire is based on 3 simple principles: a massively dominating mainstream, safe bland and easy to understand lyrics or plots and a health dose of patriotism to remind you who runs this fucking planet.

I mean there has to be something wrong with the system when an ultra large, ultra rich company can't afford to take small risks in game design but the smaller up starts basically have to just so people will notice them. Really? The uber RICH companies can't AFFORD to pander to smaller demographics and they have to leave it to to smaller, poorer upstart companies to take the fall for them?

If you're a smaller demographic you can be sure that an American media giant either doesn't care much about you or want to take your genre and repackage it as an action movie or romantic comedy in order to make it more "mainstream". Everything is safe and simple for the sake of sameness and mainstream domination. We live in a country where a movie like Inception is a head fuck and where a 12 year old girl in spandex saying "cunt" is the end of civilized society as we know it. We REALLY need to get out more.

And what's the price of all this sameness and mainstreamism? The most dominating media empires in the world. The entire world watches are TV and movies and plays our games. And EVEN STILL these ultra massive companies with all that money are seemingly so fragile that by suddenly having to pay their own shares they would crumble to dust! To me that soulds like maybe that company isn't flexible enough. to me it sounds like maybe that company should of never been at the top to begin with.