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5 Ways the Proposed Tax Bill Affects the U.S. Art World

29 November 2017 - by ArtfixDaily Staff

The proposed tax overhaul could have big consequences on the U.S. art market and museums.

With details in flux even after the Senate votes, the tax plan is being pushed quickly in order to take effect on January 1, 2018. Experts say it heavily favors the richest 1 percent of Americans and corporations -- which obviously benefits top-tier art sales --- and it's paired with provisions that adversely affect many individual taxpayers, along with charities and nonprofit institutions. 

Five ways the proposed tax bill could hurt the art world in the U.S.:

The nonpartisan Tax Policy Center estimates that charities, including nonprofit arts organizations, could see a staggering loss of up to $20 billion annually under the GOP plan.

"The resulting loss in charitable giving will cause significant consequences for the health of America's nonprofit organizations and the communities we serve," stated the Americans for the Arts group.

"Weakening charitable giving incentives will have lasting, harmful consequences for nonprofit services and U.S. jobs," the American Alliance of Museums wrote in a brief. "With essential support from charitable donations, the nonprofit sector boosts local economies, employing roughly 10 percent of America’s workforce."

Treasury Secretary Steve Mnuchin said the estate tax elimination, “obviously...disproportionately helps rich people.” 

Some market players see this as an immediate boost to the art industry: "A lot of people delay selling their art or transacting in the art market until some event happens, until the estate tax kicks in," Sotheby's CEO Tad Smith told CNBC. "So eliminating the estate tax is a reason to eliminate the delay. So I think it will provide more liquidity to the market."

Just a handful of wealthy art collectors might encounter a new issue, albeit minor. CNBC says: "A clause in the proposed tax plan...would end a loophole that allowed art collectors to enjoy hefty tax breaks by declaring the galleries holding their art collections to be private museums." The bill would require such museums (less than 50 in the U.S.) to be open to the public for 1,000 hours per year.

Here's a sampling of other provisions in the GOP's Tax Cuts and Jobs Act that could affect the U.S. art world:

The U.S. art market was near-40 percent of a $45 billion worldwide art market (in 2016), reports the TEFAF Art Market Report. About 33,000 high net worth Americans bought art of at least $1-million in the past two years and the GOP tax plan is outlined to benefit this segment of private collectors who are considered the market drivers.

Yet, economist Rachel Pownall, who now oversees the TEFAF report, has noted that there is a bigger picture to look at in the U.S. art market. Earlier this year, from FT: "...a handful of dealers and auction houses dominate, ...30 dealers account for around a third of gallery sales and 20 auction houses for 70 per cent of the public market. Meanwhile, [Pownall] finds that sole traders, who make up around 75 per cent of the US market...are struggling most to make a profit."