April 4 2019
The 2017 tax reform bill, formally known as the Tax Cuts and Jobs Act, will likely have a negative effect on charitable giving. With the standard deduction doubled, and other itemized deductions such as those for mortgage interest and state and local taxes, greatly reduced, the number of taxpayers who itemize deductions will drop dramatically. Thus, although TCJA preserved the charitable deduction, the ability of most people to use it was not. Backers of the bill claim that giving will not drop because a growing economy will allow people to give more, despite credible research that projects a different result.
As of spring 2019, the numbers show that giving in 2018 increased slightly over 2017, but for the first time in decades did not keep pace with economic growth. Additionally, it appears that an increase in giving by wealthier taxpayers compensated for a decline in giving by others. If we consider as well that many people probably did not alter their giving in 2018 because they did not yet realize that they would not be able to claim a deduction, the future looks rather bleak with respect to the future viability of retaining a deduction that can only be used by the rich. There is therefore broad support in the charitable sector for allowing non-itemizers to deduct their gifts, and there is bipartisan legislation to do so.
On the positive side, the TCJA allows itemizers to deduct up to 60 percent of their adjusted gross income for cash gifts to charity, as opposed to 50 percent under current law. Unfortunately, a drafting error in the bill means that donors who give property gifts will not be able to use the new higher limit for their cash gifts. It appears very likely that this will be fixed in a “technical corrections” bill.
TCJA contained two problematic provisions related to the Unrelated Business Income Tax. First, for organizations with more than one unrelated trade or business, it requires that unrelated business taxable income be computed separately with respect to each trade or business, and that a loss in one may not be used to offset income from another. Second, and rather astonishingly, it imposes UBIT on charities that provide their employees with fringe transportation benefits, such as parking or subsidized mass transit. The tax is imposed expenses incurred by the charity in providing the benefit. This has led to widespread outrage, as well as questions about how to figure these expenses. There is bipartisan legislation to revoke at least the transportation provision; we believe its prospects for passage are good.
A priority for art museums remains the restoration of artists’ ability to claim a tax deduction for the fair market value of work that they donate to collecting institutions. For decades, the tax code has discouraged artists from donating their work directly to museums and has forced museums with limited purchasing ability to rely solely on the generosity, and collecting preferences, of donors. With art increasingly treated as an asset class, many prospective donors collect narrowly, with a view toward the market. Under these circumstances, museums are missing out on collecting important works by a diverse population of artists, works that would help us tell a more complete and inclusive story of the history of global artmaking. Rep. John Lewis (D-GA) has introduced H.R. 1793, that Artist-Museum Partnership Act, to remedy this situation.
For more information, contact Andy Finch in AAMD’s Washington office.