THE IMPACT OF NEW TAX LEGISLATION ON ACTORS AND THE ARTS : Washington Lobbyist Figures Arts Organizations Come Away Losers

At the end of last week, when it appeared likely that tax reform would be stuck in congressional conference through the summer recess, Anne G. Murphy, executive director of the American Arts Alliance and chief lobbyist for the arts in Washington, said with a measure of humor: “I hope it breaks up. I hope it (tax reform) goes down the sewer. They’re trading two lollipops for a piece of mayonnaise.”

Later, after negotiations between the two chairmen--Rep. Dan Rostenkowski (D-Ill.) and Sen. Bob Packwood (R-Ore.) were concluded, and the varying House and Senate versions were merged into one bill, Murphy figured arts organizations came away losers. (The entire tax package, which is not amendable this year, will be voted on by Congress after Labor Day).

On two key issues--gifts of appreciated property and charitable contributions for non-itemizers--the arts, as institutions, lost. Such donations involve the very largest of donors, and the smallest. “There are habits of giving, heritages of giving that will absolutely be affected by this bill,” Murphy said. “What we also seem to be doing is encouraging wealth to remain in the hands of the wealthy.”

Others agreed. “This Administration has taken away, on the one hand, from government funding of the arts,” asserted Ernest Fleischmann, executive director of the Los Angeles Philharmonic, “and, on the other hand, it (tax reform) has made it more difficult, provided less incentive for those who might be inclined to contribute.”

Gifts of appreciated property--stocks, improved property, paintings or a piece of land--play a key role in the fund-raising efforts of nonprofit performing and exhibiting arts institutions, Murphy maintains. Such items are often the lead gifts, setting the pace for capital and endowment campaigns. The Metropolitan Opera, for example, last year received a $200,000 gift of appreciated property for the production of a single opera.

And, as Earl A. Powell III, director of the County Museum of Art, explains, gifts of art “form a substantial portion of our (museum) collections. The American museum is created on gifts of works of art.”

Current law permits full deductability for gifts of appreciated property. That also had been the Senate’s version. The only deduction limit on such contributions has been up to 30% of adjusted gross income.

However, when the full bill was written by Rostenkowski and Packwood, Rostenkowski’s House version prevailed. According to that, those who donate gifts of appreciated property become subject to the more stringent requirements of the alternative minimum tax.

Murphy and the alliance believe that including gifts of appreciated property may encourage taxpayers to keep their assets or pass them on their heirs, because they’ve lost their tax incentive.

However, Murphy cautioned Monday that it was “too early” to pass final judgment on the bill, because there are “a lot of changes, all of which have interlocking relationships.”

At the same time, she was pleased that performing artists are being allowed, under certain conditions, to take deductions for business expenses. If they itemize, they can deduct in excess of 2% of adjusted gross income. If they are non-itemizers, they can deduct if they have two or more employers; if 10% of their earnings comes from their profession, and if their total taxable income is $16,000 or less.

On two other issues, Murphy said the arts fared “a little worse” than current law, but “came out better” than they might have. These issues involve tax-exempt 501(c)3 municipal bonds, which could be used for building performing arts institutions, and 403b pension plans for artists and arts organizations.

On the issue of non-itemizers losing their charitable deductions, Murphy worries that tax reform will boost the numbers of non-itemizers. About 70% of taxpayers do not now itemize, but some economists predict that tax reform could send that figure up to 87%

Powell is concerned about the “potential impact on the important smaller-giver. (This non-deductability) certainly might dampen the enthusiasm of the $50 and $100 giver.”

Meanwhile, Fleischmann scoffed at the prediction that having more disposable income, through lowered tax rates, would in turn spur people to give. “That’s highly naive,” he said.

Bernard Jackson, executive director of the Inner-City Cultural Center in the Pico-Vermont area, said most of the center’s contributions are $100 or less. “This is horrible, awful,” he said. “We will have to find an alternative approach, and I don’t know what that will be.”

Hugh Saddington, executive vice president of the board in charge of finance for the $70-million Orange County Performing Arts Center, noted that while they have concentrated thus far on the “select group of wealthy donors,” the importance of the public campaign cannot be dismissed. “We have just really begun (that) this year. Whether people give $10 or $100, the center becomes theirs. They’re the users, the ticket-buyers. If we lose a $10 donation, we have lost much more than the $10. It’s one fewer person in the community who believes in the center.”

As for gifts of appreciated property, Saddington said “that often makes the difference between success and failure in a capital budget. We received one major gift of land, and many gifts of stock. This is the first center ever built with totally private money. Yet the government indirectly subsidized that, through gifts of appreciated property.”

Murphy said that losing in tax reform on the appreciated property issue was the one that “really hurt.” She said she knew non-deductability for non-itemizers was out of the bill more than a week ago. According to the current law on the matter instituted in 1981, non-itemizer deductability on gifts to charity had been scheduled to die anyway in 1987. However all issues were on the table when the tax conferees met.

“We had appreciated property until the last gun was fired,” Murphy said. “It was in Friday night and up to 7 p.m. (EST) Saturday. It’s the only time I ever had a real majority and lost. I know I had 17 votes (out of the 22 conferees) for sure, and perhaps 18 votes. But Rostenkowski won. Packwood’s No. 1 priority was reduced rates and getting a bill through.”

For more than a year, the Arts Alliance had marshaled appreciated property statistics, concentrating on arts institutions in districts and states where tax conferees lived. They found that over a five-year period, the Tampa (Fla.) Center for the Performing Arts received $3.6 million of $20.5 million in the form of gifts of appreciated property; that the majority of the Minneapolis Institute of Art’s $10-million private collection is a result of donated appreciated property and assets, and that the St. Louis Symphony in 1985 received $857,000 in stock to endow a principal bassoon chair, a chamber music trust fund and fund two principal guest conductors.

They also pointed out that in the past six years the San Antonio Art Museum received 35,000 appreciated gifts as well as $200,000 in stock last year to maintain its folk art collection, and that the Oregon Shakespeare Festival got an apartment building to house actors and set designers as well as $450,000 in stock from a single donor.

The alliance also discussed the Art Institute of Chicago, in Rostenkowski’s hometown. It found that the institute estimated that for their endowment fund, 65% of the holdings were donated in the form of appreciated property. Moreover, the alliance noted that the institute’s board chairman had written Rostenkowski a letter, pointing out that four of the six reproductions he had asked to hang in his House office were the results of gifts of appreciated property.

“We made every conceivable effort,” Murphy said on a note of sadness. “We feel we did our job.”

And on a note of hope, Powell said: “Next year will be more difficult for fund-raisers. This (1986) could be a great giving year.”