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New U.S. tax bill singles out video game studios for tax hike
New U.S. tax bill singles out video game studios for tax hike
February 26, 2014 | By Christian Nutt

February 26, 2014 | By Christian Nutt
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In proposed legislation aimed at reforming the U.S. tax code, a research and development credit would continue... for anything but "violent video games."

The House Ways and Means Committee has completed and submitted its tax bill -- The Tax Reform Act of 2014 -- and the Washington Examiner has picked up on an extremely strange and troubling bit of policy: Were it to become law, the R&D credit will exclude companies that make violent video games.

Despite promising "an improved, permanent R&D tax credit, finally giving American manufacturers the certainty they need to compete against their foreign competition who have long had permanent R&D incentives," the bill aims to purposefully exclude the video game industry -- despite the fact that U.S. companies face just such competition, notably from Canada.

In the list of what the bill purports to accomplish in its executive summary, "Preventing makers of violent video games from qualifying for the R&D tax credit" comes just after "Prohibiting tax deductions for costs incurred by illegal businesses."

The wording is vague, but that seems to suggest that companies that make any violent video games, regardless of what else they may make, would be excluded from the credit. This seems to fly in the face of the Supreme Court's decision that video games qualify for First Amendment protection in 2011.

Ironically, the summary states that the bill "stops the practice of using the tax code to pick winners and losers based on political power rather than economic merit" -- using the example of the politically controversial alternative energy industry.

The bipartisan committee that produced the bill was chaired by Michigan Republican Representative Dave Camp, pictured above. The bill is still under discussion in the House, and will not go to a vote immediately.


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Comments


MTim Jones
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This points out that it's GOP sponsored, but just remember Obama saying you need to "pay your fair share", and then it's all okay, isn't it? Enjoy.

Christian Nutt
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It also points out that the committee is bipartisan.

Michael Joseph
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@MTim Jones

I think if you actually read the executive summary you would love it. It reads like a political brochure.

It lowers the income tax rate for the rich and well off by 5 - 10%. It lowers corporate tax rates by 10%. Does not raise the capital gains tax rate. It's not directly mentioned in the executive summary but there were a few hints in there (by my reading) that suggests the actual bill will include some form of wealth repatriation incentives that would allow offshore wealth to be brought into the US with little or no penalty.

In short, the bill sounds like a Republican wet dream.

Brad Borne
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@Michael Joseph

No criticism of his actual point, basically just calling him a gross Republican?

Michael Joseph
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I didn't see much of a point there. Sounded to me like he was saying the editors around here are biased hypocritical Obama lovers who will call out Republicans and give Democrats a pass.

Albert Jones
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"In short, the bill sounds like a Republican wet dream."

Yep. Those bipartisan Republicans. Those Democrat Republicans.

I really do wonder about the modern way of approaching political news. If it's bad, it must be traced to a Republican source. Invent a whole narrative if necessary. If that's too implausible (like with the Benghazi fiasco, the Obamacare fiasco, etc) just ignore it. It's not real news. We have Hillary to elect in 2016!

As to your points: the executive summary is 32 pages long. That might provide context to the figures you're citing:
- America's corporate tax rate is hurting the job market. This is a data point, not an ideological one. So reducing it helps workers.
- It's extremely strange to criticize a bill for what it does NOT do (not raising the capital gains rate)
- Complaining about reducing tax on 'the rich' without pointing out that 'the rich' pay ALL THE TAXES CURRENTLY is just a bit specious. You also ignore the new surtax
- The executive summary contains a long description of 'how we got here', which includes numerous bipartisan conversations and meetings.

And here's the summary from the Washington Post:

"But it does show that the legislation would achieve some of the most important goals of its author, House Ways and Means Committee Chairman Dave Camp (R-Mich.): a simpler code that lowers rates and collects roughly the same amount of money for the government all without burdening the poor or unduly benefiting the rich."

But ... Republicans EEEEEVIIILLLL!!!!

Josh Neff
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Picking on the game industry is neither fair, nor does it account for the lack of proportional share of many other industries.

Joel Lamotte
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Did they define "violent"? Of course not.
Is Civilization V considered "violent video game"? There is army killing, spy killing, civilization killing and mockery.
Does UT2004 enter the "violent" criteria? People explode in it.

Looks like tyranny by blurry moving lines.

Christian Nutt
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The statute would necessarily have to define some criteria, but the executive summary doesn't.

Michael Joseph
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And what about violent films and tv? But Hollywood pays a lot in political taxes (aka campaign contributions.) Time to start digging a bit deeper into the greasy palm fund gamedev if you want protection. Just remember, why buy 1 when you can get both for twice the price.

Jakub Majewski
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Well, what about violent films and TV, Michael? Do you seriously think Hollywood is getting tax breaks by qualifying for R&D credit? I'm sure there's all kinds of tax credits out there, and I'm sure Hollywood has real experts in exploiting the tax system to the fullest extent. But your average Hollywood film will not get a cent of tax credit through R&D, regardless of whether it's an action bloodfest or a romantic comedy.

I do understand why people are upset over violent games being singled out in such a peculiar way, but let's keep things in perspective here. This is not a case of legal discrimination, where the government forbids people from producing video games, violent or otherwise. It's not a First Amendment issue in any shape or form. This bill does not discriminate against violent video games at all - rather, it merely declares that it's not going to apply positive discrimination (affirmative action? :) ) in the form of tax credits.

And that, of course, is fair enough. Time and again, congressmen will draft bills that declare the need to give tax credits to this or that industry for more or less spurious economic reasons. It's understandable that the games industry will want to lobby for themselves to be included amongst the industries getting breaks - but failure to achieve this does not actually imply any discrimination.

Alan Barton
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@Joel Lamotte

Also what about retro alien pixel killing?! Its not realistic at all, but some could define a little glowing sprite exploding as "violent" even if it was like a geometric shape like Geometry Wars. It could even extend to any explosions at all, as they are "violent". Also what about racing games?! If there is any potential to crash, then that is "violent". Also what about cartoony violence?

Its complete political BS to try to make this about "violent". If they really wanted to do something about violence, then its not hard to see a country with 250M+ guns should do something about them, but they never have, so they are not really interested in stopping real violence, only virtual violence!. The politicians show this isn't really about violence, its about lying manipulative politicians using their "violent" buzz word to appear to be doing something about violence when they are not and our industry suffers as a result.

Michael Joseph
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@Jakub

I'm only asking why producers of violent film/tv aren't specifically being named for exclusion in the bill? And I think it's because their industries have a lot more friends in high places. There is still plenty of money being spent on R&D in the film & television industries.

Brian Buchner
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@Alan Barton And what percentage of those guns have actually committed a violent act against another person Alan? Should we ban paper too, because, you know, paper cuts...

Jakub Majewski
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Michael,

I genuinely believe that it's not because film is somehow exempt from pressure, but because it's simply considered irrelevant to this particular bill. R&D implies high-tech industries, and film is no longer considered a high-tech industry in the way that video games are. I'm sure that R&D still happens, especially amongst the studios that create CG special effects, but that's just not Hollywood's core business, or at the very least - that's not the perception any more.

Think about what else could potentially have been singled out. Let's suppose for a moment that Hollywood really does have this kind of special protection that you suggest (and for the record, I don't deny that Hollywood has strong lobbyists - I'm simply arguing they're not the issue here). Well, what about the porn film industry? Given that it's been pretty much collapsing in recent years anyway, surely Hollywood would consider that to be a nice, safe bone to throw to the politicians - and surely porn would be something the politicians would be just as keen to attack as violent games? Well, sure, but it would have been hard to write with a straight face a sentence combining the words "R&D" and "pornography".

John Trauger
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How about Unity, which doesn't do games at all, just middleware for making them?

Brad Borne
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Hm, that's a great question, actually. Would they be treated like cigarette companies and gun manufacturers?

Jakub Majewski
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Well, presumably the US wouldn't actually care to give any assistance to Unity, what with it being a Danish company and all :).

SD Marlow
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I'm actually shocked there was a tax credit for making video games under the guise of "research and development."

Shay Pierce
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I'm shocked that they think video game companies ever do "research and development".

Josh Neff
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The R&D tax credit was mostly for "educational videogames". And I don't mean Oregon Trail. Numerous companies had someone throw together a flash-based training program, or something similar, and called it a "videogame"... this was especially prevalent with DoD contractors.

Christian Nutt
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@Josh Neff, If that's true then this is stupid for even different reasons -- if commercial entertainment game devs aren't using it (or aren't even eligible for other reasons!) then this is just grandstanding.

E Zachary Knight
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The Research and Development tax credit is a credit given to companies that produce new technologies in whatever field they are in. If you spend a considerable amount of time creating new game tech from scratch, that would typically qualify, except under these new rules if the games you make are violent.

Mark DeLoura
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Most AAA game publishers I'm aware of paid close attention to the R&D tax credit.

Jonathan Murphy
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People with free thought making money, without robbing people blind?! Oh we can't have that! All hail Canada.

Kaitlyn Kaid
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a lot of Canadian game development happens in Quebec which has its own special slew of political issues.

Leszek Szczepanski
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It'll just make more companies will move to Canada, China and Europe. Not that I mind though :P

Katy Smith
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Weird. I wonder how they plan on breaking this up. I think it shows a misunderstanding on how games are made. R&D credits would be used for something that would be flexible and and be reused. So, let's say Naughty Dog decides to do a bunch of R&D and create "Aweseomesauce Engine X". This engine is used to create a new Crash Bandicoot game, which is not a "violent video game", and they get the tax credit. However! They also decide to make "The Last of Us: Ish's Story" (btw, Naughty Dog, please make this ;)), which is a "violent video game". it's using the Awesome Engine X which previously qualified for the tax credit, but now is being used for a violent game, so it does not. Do they lose the ability to get the credit just because they made a violent game at one point in their history?

Kaitlyn Kaid
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or if they licence "Awesome Engine X" to another company to make "Carmashooter of Duty V" or something that is extremely violent... what then?

Christian Nutt
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@Katy Smith, Really depends, I suppose, on how the credit CAN be used. Suggested above that commercial entertainment game studios either don't (or can't) use it, though I am unsure why based on the comment.

Albert Jones
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While I realize it's par for the course for Gamasutra and most of its readers to go into "evil Republican" mode, there's actually more reason to believe that "violent games" clause came from Democrats ... since Democrats like Yee are the ones always trying to ban violent games, and Democrats like Biden and Obama want to 'study' them.

Jonathan Murphy
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Stop trying to divide the issue. As long as lobbyists exist this crap is the norm on both sides.


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