Arts community takes stock of finances after US tax cut

While Congress takes its summer recess, the US arts community is trying to figure out what the latest wave of budget and tax cuts means. It is a mixed bag.

Six months ago, there was considerable concern by arts supporters for the future of the arts under the new administration. These people did not find much solace in the observation by Budget Director David Stockman that the arts were of "low priority" to the new regime. In fact, Mr. Stockman recommended cuts of 50 percent in the endowments for both the arts and humanities -- down to $85 million each -- and elimination of the Institute for Museum Services, an energy that provides administrative aid to museums.

What Congress actually ended up doing was somewhat different.

Senate and House conferees did approve large-scale cuts in the budgets of the two endowments, but not as much as the administration originally requested. The arts endowment will receive $119.3 million and the humanities will get $113.7 million for each of the next two fiscal years, representing a reduction of about 33 percent. The Institute for Museum Services has been salvaged, though also cut 33 percent, $9.6 million.

On the tax side, the arts may fare a little better in that more money will stay with individuals which may find its way toward donations to museums and nonprofit foundations or simply purchases of works of art.

The reduction in the maximum capital- gains tax, from 28 to 20 percent, and reducing the minimum amount of time a piece of art must be held to qualify for tax benefits from 12 to 6 months, may spur greater art investment by making it easier to buy and sell artwork at a profit and with less penalty.

The reduction will permit collectors and dealers to turn over what they have more rapidly, trading up and expanding their purchases. The full-year requirement has served as something of a damper on this. It is not clear that reducing the capital-gains tax and the holding period will result in more collectors, but it might increase the activity of regular collectors and speculators.

Congress also opened the way for more individual contributions to charitable nonprofit institutions by permitting people who use the 1040 short form -- and do not itemize deductions -- to claim a separate deduction for cash donations to charities. To be phased in over the next five years and increase from $100 to $ 500, this deduction can be itemized and will be in addition to the standard deduction, or zero bracket amount.

Individuals now make contributions of over $40 billion annually to nonprofit charitable institutions. Amost 90 percent of the wage earners in the country use the short form, and Congress's action may open the doors to a flood of donations, some of which may go to museums and arts organizations. The Treasury Department estimates that it will lose $2.7 billion in revenues. If the museums can get their usual share of this, it could help many of them.

Museums and colleges are not so happy about Congress's cuts in estate taxes, which, many claim, remove an important incentive to give.

Congress adopted the President's plan to raise the exemption from estate taxes from $175,000 to $600,000 over the next five years, lower the maximum tax from 70 to 50 percent, eliminate the tax on the estate which is transferred to the surviving spouse, and raise the gift tax exclusion from $3,000 to $10,000.

It would be easier, therefore, to keep an inheritance in the family, and there would be much less need to make contributions to charities and colleges to reduce the tax. Many museums and arts groups became quite savvy over the years concerning the desire by individuals to give to charities rather than to the government, and they had oriented their pitch toward helping people reduce their estate taxes. Cutting these taxes is expected to make fund raising more difficult for many arts and educational institutions.