Tax Policy Toward Art Museums

57 Pages Posted: 29 Sep 2010 Last revised: 5 Oct 2010

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 1990

Abstract

Although art museums do not pay any substantial taxes, they are greatly affected by various U.S. tax rules. The individual receives a deduction for donations of art to museums, the estate gets a deduction for bequests, and the corporation gets a deduction for charitable gifts. Art museums also are not taxed on investment income or on some "related" business activities. This paper reviews the logic for these rules and discusses their economic effects. In combination, this set of tax provisions is found to have a tax expenditure that is larger than direct federal expenditures on art museums in the U.S. The amount of this tax expenditure or implicit subsidy has been falling in recent years because of reductions in the marginal personal income tax rates at which individuals deduct gifts. High income taxpayers are found to be the most responsive to marginal tax rates, and they also tend to give the largest amounts to the arts. Therefore the level of the top personal marginal tax rate is particularly important to art museums. Simulations here suggest that the personal marginal rate reduction in the Tax Reform Act of 1986 could reduce gifts to the arts by as much as 24 percent.

Suggested Citation

Fullerton, Don, Tax Policy Toward Art Museums (June 1990). NBER Working Paper No. w3379. Available at SSRN: https://ssrn.com/abstract=1684425

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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