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Video Games One of the Most Highly Subsidized Industries

The New York Times reports that the American video games industry receives more subsidy from the government than many other sectors. This is due to the fact that video games developers and publishers in the U.S. are able to take advantage of tax breaks for software development, entertainment and online retailing industries to create a very attractive package of incentives.

Tax breaks are often used as a means to subsidize a new or growing industry. Critics believe that the games industry, currently enjoying domestic U.S. sales of approximately $15 billion per year and outstripping the music industry by a considerable margin, should not be subsidized to such a degree when the sector is both mature and proven to be profitable. Advocates, however, argue that without these tax incentives, the U.S. would lose its edge in the technology race, losing out to even more generous countries such as Canada.

Among the many benefits on offer are tax savings for research and development. EA, for example, has claimed tens of millions in savings while other non-gaming technology companies, some of which could be argued to have a greater benefit on society at large, have been denied due to failing to meet experimental requirements.

"The research credit benefits the wrong companies and encourages the wrong kind of research," says Michael D. Rashkin, tax expert and author of the Practical Guide to Research and Development Tax Incentives. "By diverting funding and attention from where it could be most useful, the credit is hobbling American innovation."

Games industry advocates argue that by improving gaming technology, they are indirectly helping society at large, pointing to examples such as the military using video game technology to train soldiers and pilots. Critics, however, believe that the research and development credits favor big companies who would have undertaken the research whether they were already subsidized or not -- and that small startups, who really need these incentives to get up and running, are often left out.

In the UK, games industry trade association TIGA has been campaigning for the introduction of tax breaks for developers and publishers for several years now. TIGA CEO Dr Richard Wilson argues that the UK industry is suffering a "brain drain" to the U.S. and Canada thanks to an altogether more attractive package of incentives.

"Our industry is export focused, R&D intensive, provides high skilled employment and is environmentally friendly," says Wilson. "With the right fiscal environment in place, the UK games industry could provide more high skilled jobs and investment."

If the situation in the U.S. according to The New York Times is anything to go by, however, great care will have to be taken to ensure that the benefits for which Wilson and TIGA are campaigning go to the right companies, not those with executive boards already swimming in Scrooge McDuck-style money bins.

This article originally appeared on GamePro.com as Video Games One of the Most Highly Subsidized Industries in the U.S. Thanks to Tax Breaks


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