Should Tax Laws Be Changed To Benefit Art Collectors?
Is collecting art a luxury or an investment? This simple question has some complex repercussions. The Wall Street Journal reports on the legislation sponsored by two senators, Pete Domenici (R., N.M.) and Charles Schumer (D., N.Y.) to change the tax treatment of sales of art and other collectibles. The capital-gains tax rate of 28% for the sale of art is quite steep compared with only 15% for the sale of real estate and securities (the rate for real estate and securities was also 28% until two measures reduced the rate). The senators argue that the tax rate is unfair to the art industry and punish those who invest and deal in art. Their legislation is endorsed by both Christie's and Sotheby's auction houses and the Art Dealers Association of America.
Another long-standing issue in the art community is the fact that when artists donate their work to museums, libraries and other nonprofit institutions they are only able to deduct the cost of materials rather than the full fair-market-value deduction on their taxes for their gifts. Talk about a disincentive to donate.
Is the problem that the government does not see art as serious business? The WSJ article quotes Joseph Cordes, professor of economics, public policy and public administration at George Washington University who says that the government is interested in encouraging people to invest in business that stimulate job growth and tax revenue and art doesn't really do that. He also says that reducing the capital gains on art sales might discourage certain collectors from donating to museums.
Those opposing changes to the law say that lowering the capital-gains tax rate would just benefit the wealthy without adding anything to the overall economy. The question may come down to the perception of the art world. Is it simply a luxury for the wealthy or is it an industry that impacts people at a variety of income levels? Part of the resistance to these tax bills may be that in supporting them those in Washington could be seen to be creating another way to help the rich get richer.