TAX REFORM

ENCOURAGING GIFTS TO SUPPORT THE ARTS & HUMANITIES IN OUR COMMUNITIES ACTION NEEDED
We urge Congress to: • Preserve incentives for charitable giving, including tax deductibility and the IRA Rollover; and • Reject attempts to create a hierarchy of deductions to nonprofits that discriminates against arts and culture by reducing tax deductibility of charitable gifts.

BACKGROUND ON THE COMMUNITY VALUE OF THE NONPROFIT ARTS
There are approximately 1.4 million 501(c)(3) organizations, including arts organizations, hospitals, private schools, religious congregations, public television and radio stations, soup kitchens, and foundations. These types of nonprofit organizations must benefit the broad public interest. In recognition of this service, Congress has provided that contributions made to 501(c)(3) nonprofits are tax-deductible. As the momentum for tax reform increases and the federal deficit mounts, there have been proposals to curtail or eliminate the income tax deduction for gifts to 501(c)(3) organizations, including the nonprofit arts. Such proposals are short-sighted and are often made on the basis of false assumptions. Congress should fully understand the impact of proposed tax reform on incentives for charitable giving and should protect giving incentives that support the valuable community services provided by the nonprofit arts sector. The arts contribute to communities in myriad ways, including: • Communicating across religious, ethnic, and political divides, both at home and abroad; • Attracting businesses, investment, and entrepreneurs; • Creating a skilled, creative, and innovative workforce; • Exploring civic issues, both current and past; • Creating human and social services programs focusing on healthcare, addiction, senior services, and many other areas; • Providing in-school and afterschool programs for children and teachers, as well as lifelong learning for all; • Preserving our heritage and making it accessible to all who wish to participate; and • Adding immeasurably to the quality of life in our communities through vibrant artistry.

MYTHS ABOUT CHARITABLE GIVING
MYTH: Donors will not reduce giving if charitable tax deduction laws are changed. REALITY: History has shown that donors do respond to tax law changes by altering what, when, and how much they give. To cite one example, in 1986, the Tax Reform Act restricted the deductibility of gifts of property. In succeeding years, gifts of securities, real estate, and art plummeted, in some cases by 90 percent. Congress gradually restored deductibility as the evidence mounted that it had unintentionally harmed the ability of land trusts, universities, hospitals, schools, and museums to fulfill their missions of service to communities. Congress fully restored the deduction in 1993. MYTH: Donors with higher incomes “benefit” more from tax deductions and therefore it is a matter of equity to reduce this “benefit.” REALITY: When people give, they are reducing their own wealth in order to make a nonprofit service available to the public. Whether the money in question goes to the government in the form of taxes or a nonprofit in the form of a donation, it is helping to benefit the public. The American public has proven time and again that a vital nonprofit sector is worthy of support. MYTH: The arts do not serve communities broadly, or worse, that they mainly serve “the rich.” REALITY: Nonprofit arts organizations attract donations from people across the economic spectrum, including underserved populations. More important, they serve people and organizations across their communities.
Arts Advocacy Day 2011

BACKGROUND
CURRENT PROPOSALS TO REDUCE TAX DEDUCTIBILITY OF CHARITABLE GIFTS: • The administration’s FY 2012 budget proposal would decouple the value of tax deductions from income tax rates. Since 1917, when the charitable deduction was instituted, it has always been tied to the tax rates. For example, if a donor pays tax at the 35 percent rate and gives away $1,000, s/he would reduce income tax liability by $350. Under the administration’s proposal, even though the donor remains in the same tax bracket, the deduction would be lowered to 28 percent, meaning that a gift of $1,000 would reduce tax liability by $280. Obviously, donors could preserve their after-tax income by simply reducing their gifts. Congress rejected identical proposals from the administration in the past two years. • The co-chairs of the presidential advisory commission on the deficit suggested either eliminating the charitable deduction or imposing a floor of two percent of adjusted gross income (AGI). In other words, if AGI was $100,000, the first $2,000 of charitable giving would be non-deductible. Both of these changes to the charitable deduction would lead to decreased giving. • Some people have suggested that gifts to education, research, cause-related organizations (e.g., the environment, animal welfare, etc.), and the arts ought to be less deductible than gifts to human services. Setting a hierarchy of charitable causes is detrimental and discriminatory to the arts and many other in the nonprofit sector. IRA CHARITABLE ROLLOVER PROVISION: The IRA Charitable Rollover provision, enacted as part of the Pension Reform Act of 2006 and extended through the Emergency Economic Stabilization Act of 2008, permits donors age 70 ½ and older to make tax-free charitable gifts directly from their IRAs, up to an annual ceiling of $100,000. Since its enactment, the IRA Rollover has spurred millions of dollars in new charitable gifts, but it expired in December of 2009. The provision was reinstated in December 2010 through the end of 2011, but without further action, it will again expire and both donors and charities will suffer adverse consequences. Without the IRA Rollover provision, individuals who make charitable gifts from their retirement accounts must withdraw funds and treat them as taxable income, reducing the amount available for donation to charity. In the relatively short amount of time that the IRA Rollover has been in place, it has resulted in new and increased giving to nonprofit arts organizations.

The United States has a nonprofit cultural sector that is the envy of much of the world. Almost uniquely among developed nations, our cultural sector is mainly privately managed and supported by private rather than government funding. As a result, it is entrepreneurial, vital, and perhaps most important of all, uniquely free of government interference. Indeed, in country after country that is now facing severe budgetary problems, proposals are being made to institute a U.S.-style system of tax incentives for private charity. We urge Congress to recognize that charitable tax incentives have proven to be effective, efficient, and vital to our communities.

Arts Advocacy Day 2011

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