Lights, Camera, Tax Break
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Offer ends March 31st. See if your company qualifies for this special offer at oracle.com/strategic. That's oracle.com/strategic. Hi, I'm Su Lin Wong. A couple of years ago, I made a podcast about China's leader, Xi Jinping, called The Prince. Over the past year, I've been reporting a story that started in Asia but took me about as far away from my usual beat as I could imagine.

to a small town in rural Kansas where $47 million went missing from the local bank. The bank's CEO had been duped. Who was behind it? It turns out this wasn't the work of one mastermind fraudster or a gang. It was a global industry. And it's much bigger, more powerful and darker than I ever imagined. And now it's coming for you and me. My new series is called Scam Inc.,

To listen and subscribe, just search Economist Podcasts Plus. You might have noticed that things are a little different on Cautionary Tales this year. In 2024, we brought you a new episode every fortnight. But this year, we are doubling our output. New stories of heart-thumping peril, mind-blowing mistakes, and jaw-dropping scandal will now be delivered straight to your ears every week.

Here's one for you right now.

Ernest Borgnine was getting tired of playing heavies. Nearing 40, thickening around the middle and thinning on top, the actor was running out of time to become a Hollywood-leading man. Ernest had joined the US Navy right out of high school, but on leaving in 1945, had struggled to find work amidst the mass of men returning home from war.

He'd pack a lunch and stand outside factories in his hometown, just in case they were hiring. They weren't. But life on the production line didn't much appeal anyway. After navigating the high seas, to Ernest, the factories of Connecticut looked like jails. It was Ernest's mother, Italian-born Anna Bognino, who suggested he enter show business.

It didn't seem an obvious career choice to Ernest. Why should he become an actor, of all things? You always like to make a damn fool of yourself, making people laugh. Why don't you give it a try? So try he did. His veteran benefits financed some acting classes, but Ernest, burly and gap-toothed, felt self-conscious amongst his young and fresh-faced classmates. He'd never even read aloud before.

And it showed. All the stars were shining like demons. No, Mr. Borgnine, the word is diamonds. Said his acting teacher. Oh, shit. The class erupted into laughter. But Ernest would need to get used to humiliations. Auditions for budding actors are brutal.

It wasn't unusual for Ernest to wait two or three hours to read for a part, only to be dismissed a few lines in. At one casting, he hadn't even opened his mouth before the director bellowed, When he finally began to land minor roles, his round face and stocky build saw him typecast as rowdies, hoodlums and bullies.

Playing a cowpoke or gangster, Ernest's brief appearances on film would invariably end with him being knocked flat by the movie's hero. In the 1953 blockbuster From Here to Eternity, Ernest played a sadistic military policeman, Fatso Judson. It was a solid supporting role with pages of dialogue and the chance to off Frank Sinatra's character.

But Ernest still ended up dead himself, killed by the handsome leading man, Montgomery Clift. Ernest had drawn heavily on his Navy experience to bring the menacing Fatso Judson to life.

So much so that James Jones, author of From Here to Eternity, stopped by the set to congratulate the actor. You're absolutely the son of a bitch I wrote about. Keep it up. But the quality of Ernest's performance was painting him further into a corner.

Hollywood's hottest new production company was seeking a lead to carry a new project. It was the story of a humble Bronx bachelor searching for love. Ernest's name came up. "Oh, come on! He does nothing but kill people in pictures. This is about a lonely butcher." "This guy can act," the producer was told. So, Ernest got the call. "We've heard nice things about you. We're considering you for the lead."

The actor was flabbergasted. No one had ever given him a shot at stardom like this. Were the producers sure he was right for the role? Of course. Otherwise, I wouldn't ask you. The film's writer and director flew out for a formal audition. Ernest was on location, playing yet another heavy. This time, the script had him being knocked unconscious by Spencer Tracy.

Ernest came to the reading fresh from the set. His cowboy costume was dusty and his chin had a growth of stubble. His first words came out with a western twang. What was he thinking? He was blowing his big chance. Kicking off his cowboy boots and throwing his ten-gallon hat aside, Ernest began again. The scene had lovelorn butcher Marty Pelletti

Parrying his mother's pleas that he go out on the town and meet a nice girl, the Pelletti family home wasn't so very different from the Borgnino one. So, Ernest played the role, imagining his mother, Anna, was reading his cues. Marry.

Put on the blue suit. Blue suit, grey suit. I'm just a fat little man. Fat ugly man. You're not ugly. I'm ugly. I'm ugly. I'm ugly. Leave me alone. Ernest looked up from the script. Across from him, the director and the writer were in tears. The part was his.

Ernest Borgnine would play the eponymous lead in Marty, a film backed by Hecht Lancaster, the production company founded by Burt Lancaster that was pumping out box office smashes. This was it. Once Marty hit cinema screens, Ernest Borgnine would be a star. No more bit parts for him. Only problem was, the people making Marty...

didn't want it reaching cinema screens. They didn't even want to finish filming it. I'm Tim Harford, and you're listening to Cautionary Tales, live from the Bristol Festival of Economics. In the 1940s and 50s, the super-rich were the entertainers.

The head of US Steel could expect to be paid $300,000 a year, but Frank Sinatra grossed closer to $4 million. But with great riches come great taxes. At about the time Ernest Borgnine was mooching around factories desperate for work, any megastar's income over $200,000 could be taxed at a whopping 94%.

Some in Hollywood didn't mind, of course. Patriotic bombshell Anne Sheridan was amongst the most sanguine. "I regret that I only have one salary to give for my country." But others weren't quite so sure. B-movie star and future president Ronald Reagan worked only part of the year, completing a couple of features, and then loafed until the end of the tax year rolled around.

Why should I have done a third picture even if it was Gone With The Wind? What good would it have done me? But plenty of other Hollywood stars churned out more than two films a year. So were they working for mere cents on the dollar? Of course not. They looked for tax loopholes. Investing in oil exploration was particularly popular. Financing a drilling operation attracted generous tax breaks and allowances.

It became so prevalent that one insider joked: "When you see a group of movie people talking on a set, you don't know whether they're discussing a film. Oil well!" But stars didn't have to go wildcatting in the wilderness. They could exploit corporate tax breaks without venturing beyond Beverly Hills.

If a Bing Crosby or a Gary Cooper agreed to star in a movie, they'd set up a company to take the fee or sell that company's shares to the studio making the film. They could continue to take dividends from these firms at a much lower rate than income tax until the money ran out. Then the firm would simply disappear.

When the film Marty was entering production, almost half of all Hollywood films were made using these collapsible corporations to dodge sky-high taxes. Independent production companies, these vehicles for tax evasion, did offer actors other benefits, though.

Many had felt constrained by the studio system, where capricious movie moguls like Louis B. Mayer, Jack Warner or William Fox called all the shots. Stars wanted more of the profits, true, but some also yearned for more creative control over their careers. In this, Burt Lancaster was a pioneer.

The charismatic and acrobatic star had initially run away to join the circus during the Great Depression, but his physicality soon found its true home on the silver screen. He was an adonis, and audiences lapped him up, whether he played a prizefighter or a pirate. Burt's name on the cinema marquee was estimated to bring in an extra million dollars in ticket sales.

An obsessive autodidact, Burt Lancaster wasn't just going to loaf around like Ronald Reagan. If he was going to be in hit movies, damn it, he was going to learn how they were made. Teaming up with his diminutive agent, Harold Hecht, Lancaster began to produce his own films. Doubling up as a hustling film exec and the swashbuckling leading man was exhausting, but rewarding. His films made millions.

These profits were a highlight at an otherwise gloomy time for Hollywood. TV was taking off. Televisions were monochrome. The picture quality was poor and the scenery was wobbly, but many Americans would rather stay in to watch television rather than traipse out to a cinema. The movie makers fought back by releasing lavish, colourful epics with stories and characters far too big to ever fit on the small screen.

Burt Lancaster's pirate picks and westerns fell firmly into this category. So when Hecht Lancaster announced their next project, Marty, it was met with bafflement. Even the scriptwriter was mystified. I don't know why they put up the money. The venture had a hopelessly uncommercial smell.

Marty had been a well-received TV play, praised for its naturalistic dialogue and a strong main performance from Rod Steiger. But the sentimental script seemed far too experimental for a Hollywood hit, and it was too short to boot. Could the downbeat storyline be given a Hollywood polish then? Well, no. Hecht Lancaster had given the TV show's writer and director total creative control.

And they wanted Marty to remain true to its roots. Burt wouldn't feature on screen either, and nor would Steiger, who'd passed on the chance to reprise his role. And in the absence of star power, the dowdy central part had gone to Ernest Borgnine, a bit part fatso. What was Burt Lancaster doing, thought Hollywood.

Some observers, though, had their theories. Location shooting began in the Bronx. The director had never made a feature film before and didn't know you could record multiple takes of each scene. You only ever got one try on live TV. Once this and other details of film craft were explained to him, all went smoothly. And it had to, for the crew had been set an impossibly horrid schedule.

Ernest delivered his dialogue against the rumble of L trains, the honking of taxis, and the babble of real Bronx natives going about their business. Some local toughs, though, took exception to this invasion of film folk in general and to Ernest Borg-9 in particular. Battiamo l'inferno da lui, shouted one Italian-American youth. Let's beat him up.

The gang, it turns out, believed that Ernest really had it in for Frank Sinatra in From Here to Eternity. Ernest was happy to trade punches with the boys, but he thought he'd first explain that the animosity was merely play-acting.

and that he and Frank were in fact good friends, bonded by their shared Italian-American heritage. Why didn't you tell us that? From then on, the man born Hermes Bonino was lavished with gifts of pizza and gallons of red wine. His money was no good in any of the local trattoria. Ernest felt confident as he flew to Hollywood for the interior shots.

They'd all been meticulously worked out in New York. These TV guys certainly knew how to shoot on a small studio set. Only, there weren't any sets. They hadn't been built. There was no need for them, for the film wasn't going to be completed. Turns out, said the crushed leading man, there were some financial shenanigans attached to the picture. Cautionary Tales will be back in a moment.

Hi, I'm Su Lin Wong. A couple of years ago, I made a podcast about China's leader, Xi Jinping, called The Prince. Over the past year, I've been reporting a story that started in Asia, but took me about as far away from my usual beat as I could imagine, to a small town in rural Kansas, where $47 million went missing from the local bank. The bank's CEO had been duped. Who was behind it?

It turns out this wasn't the work of one mastermind fraudster or a gang. It was a global industry. And it's much bigger, more powerful and darker than I ever imagined. And now it's coming for you and me. My new series is called Scam Inc. To listen and subscribe, just search Economist Podcasts Plus.

Those who'd thought it odd that Burt Lancaster was making a starless, low-key, black-and-white melodrama seemed to have been proved right. Burt Lancaster wasn't going to make Marty. At least, not all of it.

Heck, Lancaster wanted to lose money because they were making so much money from their other pictures, said a disappointed Ernest Borgnine. They wanted to shoot half of it and then put it on the shelf and take a tax loss. That way the producers could pay themselves a salary and yet not have to show a corporate profit. Tax structures of the type that encourage filmmakers not to make films are

create what economists call an excess burden. When people distort their behaviour to avoid a tax in this way, nobody wins. The tax avoider is worse off because the avoidance is costly. The tax authorities are worse off because the tax isn't paid. Badly designed taxes can make life uglier and gloomier too. In the late 1690s,

England's finances were in disarray. The kingdom's sterling silver coinage had been fatally compromised, with people clipping bits off old coins to keep the valuable slivers of silver. Newer coins, with engravings and milled edges to defeat the clippers, instead attracted forgers.

On top of denuded coins and fake coins, the rising value of silver meant there was a healthy export trade in small change. A silver sixpence was worth far more melted down in Paris than it was as a coin in London. To shore up the royal finances, King William III sought to introduce fair and progressive taxes to raise revenue.

He alighted on a window tax. Those with grand houses boasting many windows paid the highest rate per glazed opening, while more modest buildings paid less duty for each window. It was an easy levy to administer too. A tax inspector could simply count each window from the street. Over time, the tax rates rose and then rocketed rapidly.

So property owners bricked up existing windows and planned new buildings to reduce their taxable apertures. The poorest, unsurprisingly, suffered most. Unscrupulous landlords blocked off windows, leaving tenants in dark, unventilated rooms. The window tax finally died 150 years after its introduction.

And only once campaigners had convinced the Treasury of the obvious: that a lack of light and fresh air was taking an appalling toll on people's health. It was a classic excess burden. When a tax system consigns people to a wretched life in dark, airless dwellings, and doesn't even raise revenue, then that tax system has gone wrong.

And it went wrong when singers like Bing Crosby turned down paying gigs to become oil prospectors. When Ronald Reagan loafed for most of the financial year. And of course, when gap-toothed and hefty Ernest Borgnine was denied his shot at a starring role. But lucky for Ernest, the Internal Revenue Service, to its credit, knew something was up too.

In 1954, it introduced a new code, cracking down on many of the most egregious abuses by the Hollywood elite. So could Hecht Lancaster just shelve Marty halfway through and draw their producer salaries and write the rest of the budget off?

The answer pleased Ernest. The taxman said no. They had to finish the picture, show it once, and then take a loss. So the interior sets were built and cameras rolled once again on Marty. I'm not sure that was good news, said Ernest of his partial reprieve. But it was better news.

Burt Lancaster hadn't been around much for the making of Marty. He'd been directing himself in the adventure flick The Kentuckian. He'd left Marty to his business partner, Harold Hecht, who in turn had surrendered most of the creative control to the writer and director. If you're not planning to finish a film, why sweat over it? Burt did turn up for Marty's first screening, though. Ernest brought along his wife and mother-in-law.

After all, it might be their only chance to see him carry a motion picture. Ninety minutes later, as the end credits rolled, Ernest watched Burt Lancaster beckon to Harold Hecht.

More than a head shorter than the star, he trotted after Burt into a corner. Whereupon, Burt grasped his co-producer by the lapels and hoisted him into the air. "This is the movie you weren't gonna finish? Why the hell didn't you shoot more?"

Burt clearly loved Marty and from that moment on became very invested in it. The distributors suggested releasing Marty as a B-movie, a shortish hors d'oeuvre served up in cinemas before a more commercial main offering. But Lancaster had other plans. Marty was going to be an A-movie, albeit with a limited release. They'd screen it.

at a single New York cinema. From that tiny base, word of mouth would sell their film. Special screenings were arranged for an invited audience of barbers, manicurists and shoeshines. Ordinary workers who might identify with the characters on the screen and recommend Marty to their clients. The New York Yankees were treated to a viewing, anything to create buzz.

And it worked, to an extent. Audiences lined up around the block, night after night, week after week, to see Marty. But still, only at a single cinema, seating fewer than 600 patrons. Eventually, someone had the bright idea to enter Marty for the main prize at the Cannes Film Festival, the Palme d'Or.

It wasn't so unlike the neo-realist European films that usually picked up gongs at Cannes, and any praise from the judges could be flammed up in press releases as international acclaim. Hollywood films rarely triumphed at the Festival International du Film, so expectations were low.

Betsy Blair, who played Marty's demure love interest, was coincidentally going to be in Cannes with her husband Gene Kelly. But no one else from the cast or crew bothered to book a ticket. It was a scrabble then, when Marty swept the board. Their presence was required urgently at the awards ceremony.

Marty had cost just a few hundred thousand dollars to make. A minuscule budget, made worse by Burt Lancaster's habit of dipping into it to pay bills for the other films he had in production. But after the palm door, the cash began to flow. Hecht Lancaster spent $150,000 on ads alone. 30 times the $5,000 they'd paid their leading man.

And as Oscar season approached, Hecht Lancaster sent a print of the film to the homes of the voting academy members, along with a projectionist and food. At the British BAFTAs, the New York Film Critics Circle, the Writers Guild, Marty was picking up awards. But an Academy Award would seal Marty's success.

At a rehearsal for the Oscars ceremony, Ernest Borgnine decided the wisest course of action would be to enjoy his Best Actor nomination as much as possible. He was up against friends and former co-stars Frank Sinatra and Spencer Tracy. James Cagney was in the running. And so too was James Dean, who'd died the previous year in a car wreck. Ernest was resigned. He didn't stand a chance.

But Oscar host Jerry Lewis was more encouraging. You're gonna win! You're gonna win! Ernest thought the comedian was just being polite. You wanna bet I'll win? I'll bet you a buck ninety-eight you're gonna win. Back home, Ernest counted out 198 pennies, just in case, and took a nap. How can you fall asleep? The shrieks of Ernest's wife Rhoda awakened him.

How can you sleep when you're up for an Academy Award? Ernest looked up sleepily at his apoplectic partner. Well, I'm not going to win. Cautionary Tales will return after the break. Hi, I'm Su Lin Wong. A couple of years ago, I made a podcast about China's leader, Xi Jinping, called The Prince.

Over the past year, I've been reporting a story that started in Asia, but took me about as far away from my usual beat as I could imagine. To a small town in rural Kansas, where $47 million went missing from the local bank. The bank's CEO had been duped. Who was behind it? It turns out this wasn't the work of one mastermind fraudster or a gang. It was a global industry.

And it's much bigger, more powerful and darker than I ever imagined. And now it's coming for you and me. My new series is called Scam Inc. To listen and subscribe, just search Economist Podcasts Plus.

The Borg Nines drove to the Oscars in their new Cadillac. New to them, at any rate. It was secondhand. Ernest fidgeted in his coat tails. It was the last formal suit at the rental store and the coat was too small and a little threadbare. The get-up was constrictive and hot and sweat beaded on Ernest's expanse of forehead.

as the couple awkwardly settled in their places. Bert Lancaster, a few seats away, smiled over and exchanged pleasantries. Ernest thought the greeting was warm enough, but something in it suggested that Bert was none too sure of a win either. Hecht Lancaster was setting up a lavish post-awards party, but Harold Hecht was already fretting about the expensive food they'd waste if Marty flopped.

He'd have roast beef to feed his family for years. The thought prompted him to start knocking back the drinks. And now, Best Cinematography in Black and White. The Oscar for Best Scoring of a Dramatic or Comedy Picture. Best Song Oscar goes to... Oscar ceremonies can be interminably long. Next, Best Live Action Short Subject to Reel.

The nominations for Best Art Direction in Colour. They called your name! Rhoda Borgnine was punching her husband in the side. Get up, Ernie! Ernest's attention had drifted during the ceremony. They called your name! You won! On stage, Jerry Lewis folded with laughter as Ernest pressed $1.98 into his hand.

Afterwards, Ernest couldn't recall what he said as he clutched the Oscar statue to his chest. The speech was short. He thanked Rhoda and his dad, but spoke most movingly about his mother. Anna Borgnine, the one who'd inspired him to act in the first place, had sickened and died before Ernest's star had risen. She barely got to see any of it. It wasn't fair, but fair just isn't on life's menu.

The cast and crew of Marty cut a swathe up and down the carpet at those 28th Academy Awards. Best screenplay, best director, best picture. Variety said the former circus acrobat Burt Lancaster nearly did a full flip each time a Marty winner was announced.

And Harold Hecht wouldn't have to eat all that roast beef after all. The after-party was a raging success. If there'd been an Oscar for best bash, said the trade papers, it would have won hands down. Not only could Ernest act, they reported, he could dance a mean rumba too. Marty, the film its makers supposedly saw only as a tax loss, turned an outrageous profit into

It didn't gross as much as a Burt Lancaster Western, but given its minuscule budget, its returns on investment were remarkable. Its clutch of Oscars was estimated to have added many zeros to its box office receipts. Hollywood watched on, drooling, as Marty filled cinema seats everywhere.

Perhaps they didn't need expensive herds of cavalry horses, armadas of pirate ships, or armies of extras to compete with TV. Smaller films might be the answer. They could even cherry-pick scripts that had already been hits on the small screen. Studio executives now vied for the rights to film popular teleplays, like the claustrophobic jury room drama, Twelve Angry Men.

And if the sets could be smaller, so could the characters. A love story needn't chronicle Antony and Cleopatra floating down the Nile.

Butcher Marty Pelletti, wooing a spinster schoolmistress in the Bronx, played just fine too. The success of Marty proved that moviegoers are interested in people like themselves, said no less an expert than Elia Kazan, director of Brando's On the Waterfront and A Streetcar Named Desire. But for Oscar-winning Ernest, things wouldn't be as smooth as he might have expected.

Burt Lancaster wasn't so sure about making more art movies. He was obsessed with filming Trapeze, a garish, star-studded epic taking him back to his circus roots. It was being filmed abroad, partly to shield any profits from the US tax collectors. And perhaps Burt Lancaster wasn't so sure about Ernest Borgnine as a leading man either.

He'd signed a seven-picture deal with Hecht Lancaster, but all they offered him were bit parts. Roles not becoming a celebrated Oscar winner, counseled Ernest's agent. He should be playing the main roles. So Ernest turned each and every offer down flat.

Hecht Lancaster finally declared that these constant rejections were a breach of contract. Then Ernest was placed on suspension to kick his heels at home. Finally, the inactivity got to him and he snapped. "Christmas is around the corner. I want to go to the five and dime and get a job selling things." Rhoda Borgnine talked her husband out of working in a store.

And after sacking his agent, Ernest rebuilt his career by letting Hecht Lancaster loan him out to other filmmakers for $100,000 a time, a quarter of which Ernest could keep. Eventually, he'd saved enough to buy his freedom from the men who'd made him a star and for whom he'd made a fortune. It left him half a million dollars out of pocket.

Though the actor often laughed when revealing this figure to interviewers, some said Ernest's financial falling out with the producers prompted him to concoct, or at least inflate, the story that Marty was conceived solely as a tax dodge. But it's not easy to see why Ernest would lie.

And it makes sense that the producers wouldn't publicly admit to the scheme. What would they say? We wanted a tax loss, but won a clutch of Oscars by mistake. The 1967 Mel Brooks comedy The Producers plays a similar scenario for laughs. In it, a Broadway musical celebrating the rise of the Third Reich...

is staged as a surefire flop to allow for the embezzling of the production budget. Only audiences love numbers such as "Springtime for Hitler", making it a runaway success. "How could this happen?" wails one of the fraudsters. "I picked the wrong play, the wrong director, the wrong cast. Where did I go right?"

If we accept Ernest's version of events, then Marty is a rare positive twist on the many tales of taxes causing perverse outcomes. Instead of bricking up windows or prompting entertainers to stop entertaining, the tax rules here might unintentionally have created a movie masterpiece by encouraging Heck Lancaster to give the bold makers of Marty a free creative hand.

Harold Hecht himself said that such freedom was rare, because producers were usually under such pressure to play it safe, given that even modest films were still a big financial gamble. Seeking a tax dodge took that gamble away. Once he had ditched his agent, Ernest Borgnine's career spanned decades. He was in some of the biggest films of the 1960s, 70s and 80s.

but resigned himself to supporting roles and, yes, usually playing heavies. He was still working right up to his death in 2012 at the age of 95. In his final years, he took time to write a breezy autobiography explaining why he saw the funny side of his career ups and downs.

Ernest wrote that plots, plans and other such shenanigans were a waste of time. As an actor, his attempts to land more leading roles after the success of Marty had come to nothing. And that was okay. He adopted as his personal motto something he read on a sign above a hot chestnut stand as he walked home from another failed audition. "I don't want to set the world on fire.

read the sign. I just want to keep my nuts warm. The key sources for this episode of Portional Tales were Ernest Borgnine's memoir, My Autobiography, and Kate Burford's book, Burt Lancaster, An American Life.

Portion Tales is written by me, Tim Harford, with Andrew Wright. This live edition of the show is written with Ryan Dilley and produced by Alice Fiennes. Tonight, you heard the voice talents of Oliver Hembrough and Sarah Jupp. The sound design and original music is the work of Pascal Wise. Sarah Nick sent it to the script. Our recording engineer was Doug Fletcher. Thank you to Ashley Nate and the Bristol Festival of Economics.

Hi, I'm Su Lin Wong. A couple of years ago, I made a podcast about China's leader, Xi Jinping, called The Prince. Over the past year, I've been reporting a story that started in Asia, but took me about as far away from my usual beat as I could imagine.

to a small town in rural Kansas where $47 million went missing from the local bank. The bank's CEO had been duped. Who was behind it? It turns out this wasn't the work of one mastermind fraudster or a gang. It was a global industry. And it's much bigger, more powerful and darker than I ever imagined. And now it's coming for you and me. My new series is called Scam Inc.,

To listen and subscribe, just search Economist Podcasts+.