Why Governor Newsom’s Hollywood Tax Credit Plan is a Tough Sell—and What Investors Should Watch Instead

The California governor’s $7.5 billion federal tax credit proposal to “save Hollywood” from fleeing to Canada and the U.K. sounds like a classic Cramer-style “buy the dip” moment. But let me tell you why this plan is a long shot—and where the real money is in entertainment right now.

The Political Gauntlet: Hollywood’s “Wealthy Liberal” Problem

Newsom’s plan aims to counter foreign tax incentives that have lured 25% of LA productions to cheaper locales since 2018. On paper, it has bipartisan allies like Senators Adam Schiff and Laura Friedman, who argue it’s a jobs lifeline. But here’s the rub: in a Congress obsessed with inflation and fiscal restraint, subsidizing an industry perceived as “wealthy and liberal” is a hard sell.

A USC professor gave the plan a 50/50 chance, citing “political optics” as a major hurdle. “Taxpayers won’t stomach $7.5 billion for a sector that made $15.3 billion in trade surplus last year,” said UCLA’s George Huang. Even if it passes, the funds might get diverted to infrastructure or healthcare—two areas with stronger public demand.

(Note: Netflix and Disney have underperformed the S&P 500 by 24% and 18%, respectively, as production cuts and strikes bite.)

The Industry’s Own Struggles

Hollywood’s decline isn’t just about taxes. The sector is teetering: pandemic shutdowns, dual 2023 writers’ and actors’ strikes, and studio cost-cutting have slashed budgets. Even if the tax credit passes, there’s no guarantee studios will reshore productions.

The numbers? California’s existing film tax credit generated $26 billion in economic activity since 2009—but at a cost. A USC study found each job created cost taxpayers over $100,000. With foreign nations offering up to 40% tax rebates, the U.S. would need to match them to compete.

Trump’s Tariff Threat: A Worse Option?

President Trump’s 100% tariff idea on foreign films is so politically toxic even his allies laugh. “How do you tariff a film?” quipped Rep. Ted Lieu. But here’s the catch: tariffs could backfire. They’d raise consumer costs, hurt U.S. exports (60% of Hollywood revenue is foreign), and invite retaliation.

Investors, though, should watch this closely. A tariff fight could force studios to reshore faster—but at a higher cost.

What to Invest In Instead

If you’re betting on entertainment, avoid counting on Washington’s largesse. Focus on companies with diversified revenue streams and cost discipline:

1. Paramount Global: Its streaming pivot and lower content costs (down 15% in 2023) make it a safer play.
2. Tech-Driven Studios: Companies like Activision Blizzard (gaming) or Discovery (streaming) are less reliant on physical production.
3. Tax Credit Winners: Look at states like Georgia or Louisiana, which already offer 30%+ rebates. Their local suppliers (e.g., set builders, caterers) could boom if U.S. production shifts.

The Bottom Line: A Tax Credit Isn’t Enough

Governor Newsom’s plan is a noble effort, but it’s a political Hail Mary in a divided Congress. Even if it passes, global tax competition, fiscal constraints, and Hollywood’s own fragility mean investors shouldn’t bet the farm on it.

The real money is in companies that can thrive without federal handouts—those leveraging tech, cutting costs, or hedging against production risks. As they say on Wall Street: Follow the cash, not the headlines.

(Note: Despite $26 billion in CA tax credit spending, LA jobs still fell 25% since 2018—proving subsidies alone aren’t a cure-all.)

In the end, Hollywood’s survival hinges less on tax breaks and more on innovation—and investors would do well to remember that.