Tax Policy Time: Take Two
If you saw my first post this week, Tax Policy Time: Who wants that?!, you’ll know that an entire bullet was saved for later discussion on tax treatment of donated artwork—perhaps another yawn-inducing subject to some, but wait until I tell you that it’s been said in Congress that there is nothing more permanent than a temporary pilot program, and nothing more temporary than permanent law. Despite the humor, a quick search of “permanent than a pilot program” turns up these truth-verifying headlines:
- “Redeploy Illinois, a pilot program to divert youths from incarceration in state facilities, will become a permanent state program”
- “Forage Seed Insurance Pilot Program to Become Permanent”
- “Arizona municipality to launch a permanent supportive housing pilot program”
Why is this relevant? Because in 1969 Congress permanently changed tax law to prohibit artists from being eligible to take a fair-market value deduction for their works donated to a museum, library, or archive. Many are now working to revert the law, including the Art Dealers Association of America and the American Alliance of Museums. Legislation is pending in Congress, and many have hope that “permanent” only means until Congress changes its mind—and are counting on that fickleness.
Why the policy change in 1969? Everyone has their stories, but largely to counter abuse and examples of people taking advantage of the law by inflating the market value of self-created works. For instance, there was much interest in the tax treatment of former-President Richard Nixon’s donation of his presidential papers. And so, the tax change was largely a reaction to the day’s news; yet, it came with some severe consequences, maybe unanticipated. For instance, the number of works donated by artists—and thus accessible to the public—swiftly and dramatically declined. As is oft-cited:
- The Museum of Modern Art in New York received 321 gifts from artists in the three years prior to 1969; in the three years after 1969 the museum received 28 works of art from artists—a decrease of more than 90 percent;
- The Library of Congress, which annually had received 15–20 large gifts of manuscripts from authors, in the four years after 1969, received one gift.
Ok, so what exactly are we talking about? The crux of the issue is that most museums, libraries, and archives acquire new works primarily through donations. Yet the creators of those works can only deduct the value of materials (such as paint) and not the fair-market value of the work in its entirety. As a result, works of local, regional, and national significance are more likely than not sold into private hands and never come into the public domain. And here’s the kicker—collectors already have the option to deduct the fair-market value of gifts that they may choose to donate! Legislation in Congress, the Artist-Museum Partnership Act, would allow creators of original works those same options to deduct the fair-market value of self-created works given to and retained by a nonprofit institution. What is the main obstacle for reinstating the policy for artistic creators? Cost. GovTrack scores the bill’s current chance of enactment at 0%; yet, past versions of the Artist Deduction bill have actually passed in the Senate and have attracted robust cosponsor support. The deduction is like many other tax incentives—our tax code is littered with these provisions.In an attempt boldly to take on the unnecessary complexity and rampant loopholes in our tax code, the U.S. House Ways and Means Committee Chair Rep. Dave Camp earlier this year released a comprehensive tax reform discussion draft—a feat that could comprehensively change our tax code, which hasn’t happened since 1986. So you can see why a window for waving the flag about the artist deduction is now and might not come again for another 25 years. Wave that flag and let your representatives know how tax policy affects you, public access to works of art, and charitable giving. Comment below and let’s all wave the flag together!