Fixing the Tax Code In Favor of Art

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The New York Sun

When one thinks of constituencies likely to support tax cuts, artists aren’t usually at the top of the list. But artists, dealers, and the major auction houses have rallied behind a bipartisan effort by Senator Schumer, a Democrat of New York, and Senator Domenici, a Republican of New Mexico, to reduce the capital gains tax on fine art and to allow artists to take greater deductions on works that they donate. The first measure, supporters say, would stimulate the art market, while the second would help museums build their contemporary collections.

But so far the bill has been blocked, to the frustration of New York’s art community. The top rate on art and other collectibles has remained at the pre-1997 rate of 28%, even though the top capital gains rate on most kinds of investments has been gradually reduced in the last few years, to 20% in 1997, and to 15% in 2003. The two major auction houses, Christie’s and Sotheby’s, both support the Schumer-Domenici bill.The general counsel of Christie’s, Jo Laird, said in a statement: “We were very disappointed that these provisions did not make it into the tax bill this year.We see both of them as matters of simple fairness.”

“To take a class of assets and discriminate against them just isn’t fair,” the former president of the Art Dealers Association of America, Richard Solomon, said. Reducing the capital gains rate on art wouldn’t necessarily reduce government revenue, he said: “Because of the escalation in values in the art world, the reduction of the capital gains rate would create more revenue. People would say, ‘It makes sense to get rid of this — the market is so high.'”

The bill introduced in the Senate in 2005 by Messrs. Schumer and Domenici proposed reducing the capital gains rate on art and collectibles to 15% from 28%. It also addressed an issue that has long been of concern to artists: deductions for artists’ charitable donations of their own work. Under current policy, although collectors or a deceased artist’s estate can deduct the fair market value of a work they donate, an artist can deduct only the cost of his materials. The Schumer-Domenici bill would allow artists to take the larger deduction.

Rep. Mike Thompson, a Democrat of California, and Rep. Tom Reynolds, a Republican of New York, introduced a companion bill, addressing both of these issues, in the House. In an emailed statement, Mr. Thompson said: “The ‘Art and Collectibles Capital Gain Tax Treatment Parity Act’ aims to fix the U.S. tax code so that valuable fine arts are taxed in the same manner as stocks or bonds.” He called the bill “an important step toward recognizing the important role fine arts play in our society and economy.”

But in the House, the bill languished in the Ways and Means Committee, which is chaired by Rep. Bill Thomas, a Republican of California. “The idea did not register favorably with Thomas,” Mr. Solomon said.

“I think Thomas was concerned about the abuses that have happened with coins and cars and other collectibles,” Gerald Peters, of the Gerald Peters Gallery in Santa Fe, N.M., and New York, said. “People will donate a car for a high appraisal, and it’s only worth ten cents. There are charities that have built a business out of that, and that taints everyone else.”

Mr. Thomas’s office referred requests for comment to the Ways and Means Committee. A spokesman for the committee said: “The committee’s been focused this year on keeping taxes on investments low and securing the pensions of Americans. We haven’t addressed this particular bill.We’ve had a lot of other priorities.”

The bill’s second provision, about artist deductions, garnered substantial support in the Senate.Messrs.Schumer and Domenici attached it to a bill that extended a broad array of tax cuts. But the amendment was dropped from the bill in conference because, according to Mr. Domenici’s spokesman, Matt Letourneau, the overall bill had a revenue cap.

Mr. Domenici plans to attach that provision to another tax bill during this session, Mr. Letourneau said. (Mr. Domenici tried but failed to attach it to the so-called trifecta bill, which combined an increase in the minimum wage, a decrease in the federal estate tax, and a raft of other tax breaks. That bill was blocked by Senate Democrats last week.)

Supporters of the second portion of the bill say it doesn’t make sense that artists can’t take fair market deductions on their own work, while collectors of their work can. “Artists have griped about this for years,” the sculptor Joel Shapiro said. Artists are constantly donating work, and being asked to donate work, to museums and other not-for-profit causes, he explained. “And I think they’re happy to do it, but why not get some compensation, some recognition that what you’re giving actually has real value?”

Mr. Shapiro and other supporters of the measure said allowing artists to take greater deductions would ultimately benefit American museums, particularly regional museums with the smallest budgets for acquisitions. The painter Chuck Close, who said he gives away “a couple hundred thousand dollars worth of work each year,” said that even museums like the Whitney Museum, where he is on the board, would benefit from the generosity the measure would unleash. But “this is not just an elitist thing,” he said. “There are museums in every congressman’s district that could benefit from this.”


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