A Taxing Matter : Museum Leaders Blame Tax Reform Act for Ongoing Drop in Art Gifts and Predict Cloudy Future

“It’s like a door shutting,” said Kevin Consey, director of the Newport Harbor Art Museum.

“It’s absolutely disastrous. I can’t believe that Congress and the Reagan Administration thought through the long-term implications of this,” echoed Hugh Davies, director of the La Jolla Museum of Contemporary Art.

“It’s a bad situation, and it’s getting worse,” agreed Ashton Hawkins, senior vice president and counsel to the board of trustees at the Metropolitan Museum of Art in New York.

As museum administrators across the country close the books on 1988, they say that the second year of the Tax Reform Act of 1986 has been as grim as 1987, the first year during which high-income donors could deduct only the purchase price of gifts to charitable institutions and not the appreciated value.

The 1986 act lowered ordinary tax rates to a maximum of 33% but raised the alternative minimum tax (AMT) rate to 21%. Many prospective donors found that taking a large deduction would throw them into the AMT structure, which does not allow the deduction.

The government’s reform idea was to close loopholes and make sure that everyone pays a reasonable amount of tax. But the immediate effect on art museums was a drop of about 50% in gifts of art valued at more than $25,000. Museum officials say that lower-priced gifts have been much less seriously affected.

Gift totals for 1988 are not in yet, but a survey of museums across the country revealed a gloomy outlook. At the same time as escalating auction prices have cut museums out of the big-ticket art market, administrators say they have lost much of their power to attract valuable donations.

“Our gifts this year are down almost 50% from two years ago, 25% from last year. If this continues, by 1991 we will be at zero,” Consey said, casting the worst-case scenario at Newport.

Few administrators addressed the subject with much optimism. Evan H. Turner, director of the Cleveland Museum of Art, for example, reported a 40% to 50% drop in 1987, and predicted a similar figure for this year. Peter Marzio, director of the Houston Museum of Fine Arts, also estimated that gifts had been cut in half in 1987 and that the 1988 picture would be the same in Houston.

At the Art Institute of Chicago, the total of donated art plummeted from 3,000 gifts during fiscal 1987 to 755 in fiscal 1988, according to Larry Ter Molen, vice president for development. Among the donated artworks are Belgian surrealist Rene Magritte’s 1937 painting “On the Threshold of Liberty” and Picasso’s “Villa on Vallauris,” both gifts from Mary and Leigh Block.

Some East Coast establishments seem to have fared better, but their administrators are far from hopeful. “We haven’t seen a big drop yet, but it’s going to be hard in the long haul,” said Jennifer Russell, associate director of the Whitney Museum of American Art.

Another indicator of the plunge in donations is a 50% drop in the number of appraisals done by members of the Art Dealers Assn. of America. The dealers provide reliable appraisals for the Internal Revenue Service and their service is typically used by donors before giving a painting, sculpture, print or drawing to a museum. According to Gilbert S. Edelson, administrative vice president-counsel of the national association, appraisals for donations have been cut in half throughout the country. “The hardest hit are the younger museums,” in the Southern and the Western states, he said.

“Giving is definitely way down” at the La Jolla Museum of Contemporary Art, according to Davies. He noted only a couple of significant 1988 additions to La Jolla’a collection, works by Edward Kienholz and Allen Ruppersberg.

The Los Angeles County Museum of Art, on the other hand, has seen an upturn--but only after a decrease of nearly 80%. According to director Earl A. Powell, the museum received 4,773 gifts of art in 1986, but only 985 in 1987. At press time, 1,017 gifts had been processed for 1988, and Powell said that “an enormous amount of paper work” remained to be done on year-end gifts before he would have a final figure.

“I’m not crying in my beer,” said Powell, who cheerfully pointed out “some fine things” donated this year, including Varya and Hans Cohn’s gifts of ancient Near Eastern glass, the Mary Stansbury Ruiz bequest of mannerist prints and Dr. and Mrs. Jacob Y. Terner’s gift of 19th-Century American Robert Weir’s historical painting, “The Duke of Bourbon’s Halt at La Riccia, on his March to the Assault on Rome. May 3, 1527.”

Sherri Geldin, administrator of the Museum of Contemporary Art, said that donations remained steady at MOCA in 1986 and ‘87--about 70 gifts of art were received each year--but there is a drop to 40 this year and the usual year-end flurry of gift processing is noticeably quieter. However, she thought the decline might be partly attributable to the fact that the museum made a major effort to make final payments on the $11-million Panza collection instead of working on other gifts.

Among MOCA’s 40 new possessions are James Turrell’s light-and-space installation, called “Tollyn,” from Maxine and Eugene Rosenfeld; Mike Kelley’s group of 43 banners, called “Pay for Your Pleasure,” from Timothy and Suzette Flood, and two works by sculptor John Chamberlain, “Rayvredd,” given by Robert Halff, and “Red Beatts,” donated by a group of museum supporters.

Officials caution that numbers of gifts can be misleading because they don’t reflect value, and a single donor’s gift of many related pieces may be counted as individual items. During the County Museum of Art’s low year, for example, the total of 985 gifts included a donation of 150 netsuke from Raymond Bushell.

But despite vagaries of accounting and differences from one institution to another, administrators voice a consistent concern. “When we all get together, we know it’s bad,” said Richard Oldenburg, director of the Museum of Modern Art in New York.

They also agree that escalating auction prices exacerbate the tax-deduction problem. The combination of soaring values and diminishing deductions “creates a climate of uncertainty, said Hawkins at the Met.

“At the very best, financial advisers are telling their clients, ‘Don’t make a decision to give this year.’ Donors who have been generous in the past and want to continue being generous now hesitate,” he said. Hawkins and others describe a “wait-and-see” attitude on the part of prospective donors who think the tax structure may eventually change in their favor.

No one is willing to cite examples of intended 1988 donations that went to market or stayed in private collections, but one museum director named a Seattle collector who had donated art to various museums for 22 years but stopped abruptly this year.

“People can have the best will in the world, but when they sit down with their tax accountants, they can be dissuaded,” Oldenburg said.

“Escalating prices emphasize the commercial value of art over its aesthetic value,” Consey said. This encourages people to treat art “as an investment property” and “colors their decision of whether to sell for money or give to a museum. It’s the rarer and rarer individual who will agree to expose himself to a higher level of taxation” or resist the temptation to sell, he said. “This all makes it harder for museums to build collections, especially those such as Newport and MOCA that are in a growth pattern.”

Oldenburg noted that the first blow against donations of artworks came in 1969, with a tax code prohibiting artists from deducting the market value of gifts of their own work to museums.

Davies worried that corporate support also seems to be drying up or changing in ways that may be detrimental to arts institutions. Noting that some corporations, such as AT&T;, now fund art exhibitions through their advertising departments, he said that they now consider arts support a form of advertising instead of community service. “As soon as art museums stop being sexy because they don’t have a (Anselm) Kiefer in every room, corporations will go somewhere else,” he warned.

Another issue looming ominously over art museums’ financial health is a recent reinterpretation of the 1950 Unrelated Business Income Tax, which threatens to tax the income on everything sold in museum gift shops except items bearing the museum’s logo that sell for under $15 and reproductions of objects in the museum’s collection priced at less than $50.

“We have the general feeling that everything is going against us,” said Hawkins, summing up sentiments heard from administrators across the country.

“When you put it all together”--the 1986 Tax Act, prohibition of artist’s deductions, escalating prices and the Unrelated Business Income Tax issue--”it seems that Congress has changed the ground rules for museums,” said Oldenburg.

“It is ironic because this is happening at a time when Europeans are coming to us to find out how to gain support from the private sector,” he added.

Museum directors generally don’t believe that legislators meant to undermine the social purpose of museums or that they changed the tax structure to discourage donations. But they say results may be devastating if the trend continues. The tax laws are “defeating a broader social goal” if they prevent museums from building important collections of cultural artifacts, said Consey.

Oldenburg spoke of the need for a “consciousness-raising effort” to persuade legislators of the detrimental effect of current tax laws and other impending changes. No organized movement is currently under way, he said, but “we are talking about it.”