In a surprise plot twist, President Donald Trump’s new tax law is delivering many of its juiciest benefits to his most vocal critics in Hollywood.
The tax overhaul doles out windfalls to the producers and film financiers who control the entertainment industry. It slashes tax rates, especially on overseas profits that are the lifeblood of Hollywood, and changes accounting rules in a way that could attract more investment dollars to show business. With clever tax planning, A-list celebrities and directors could also benefit, especially by using a special break intended for business owners.
“It is going to be very encouraging for people who risk money making movies,” said Michael R. Morris, a tax lawyer at Valensi Rose PLC in Los Angeles, and a former Internal Revenue Service trial attorney.
Trump has said middle-class Americans will be the biggest beneficiaries under the GOP’s $1.5 trillion tax cut. But in Hollywood, the opposite is playing out. It’s the struggling performers and behind-the-scenes workers who could get squeezed by the tax law.
Sandra Karas, an actor and tax attorney, has been touring the country for the Actors’ Equity union to warn members about one very expensive change for working- and middle-class performers—the elimination of deductions for work-related expenses such as union dues, lessons, publicity, travel to auditions and payments to agents who line up jobs.
Those write-offs have been crucial for actors who are often considered employees for their gigs, even if they’re temporary. Top earners in Hollywood are almost always independent contractors or owners of pass-through entities; both will still be able to deduct those expenses.
“The money is moving up to the top, and it’s not going to go back down to the little guy anytime soon,” Karas said.
Hollywood’s hostility to Trump was apparent during the 2016 election, when the entertainment industry made $85 million in political donations and sent 84 percent of individual candidate donations to Democrats—the highest level since at least 1990—according to the Center for Responsive Politics. This year, some of the industry’s biggest names, including Steven Spielberg, George Lucas and Jeffrey Katzenberg, are bankrolling Democrats in competitive Senate campaigns.
Still, those donations don’t mean the industry’s lobbying groups were absent in Washington as GOP lawmakers were crafting the bill, which passed in December without a single Democratic vote. The big studios such as Walt Disney Co., Viacom Inc., Warner Bros. Entertainment Inc. and NBCUniversal Inc. will benefit from the new corporate tax rate of 21 percent. Most of the studios’ owners, including Disney and Comcast Corp., previously paid effective tax rates above 30 percent.
But beyond that, one of their main lobbyists, the Motion Picture Association of America, successfully pushed for the entertainment industry to immediately write off the costs of large U.S.-made film and TV projects. An earlier iteration of the House tax bill wouldn’t have allowed entertainment projects to be included in the new expanded write-off provision.