Congress, leaving Washington in the dog days of August, barely completed the grueling budget bill – a painstakingly achieved piece of legislation that contains several provisions of interest to the nonprofit arts community, for whom the bill’s passage is seen as a success.
One of the most important victories in the bill is the permanent and full charitable deduction for all gifts of appreciated property (stocks, bonds, real estate, art works and other appreciated assets). The provision – retroactive to July 1992 for tangible property such as art works and to January 1993 for intangible property such as stocks and bonds – reverses action taken in the 1986 Tax Reform Act that subjected gifts of appreciated property to the alternative minimum tax, allowing the donor a tax deduction only on the purchase price – not its market value – which brought gifts of art to museums to a virtual halt.
To ensure that the appreciated property provision would not add to the federal deficits, Congress created a financial offset in the budget bill with the adoption of new substantiation and disclosure requirements. When the bill becomes law on Oct. 1, taxpayers will need written confirmation from the recipient organization in order to claim a charitable tax deduction for a donation of $250 or more. Additionally, nonprofits that receive quid pro quo contributions – contributions that are in part payment for goods and services, such as a ticket to a special benefit evening – with a value of $75 or more are required to provide an acknowledgement to the donor noting the deductible and nondeductible portions.
Another successful campaign mounted by nonprofits removed proposed language from the bill that would have disallowed, in part, a charitable deduction of $2,000 or more where the lobbying activities of the nonprofit organization were of “direct financial interest” to the contributor. The organization would have been required to determine which of its contributors of $2,000 or more had a direct financial interest in any of the group’s lobbying activities, and the portion of the donation that was determined to have been spent on those lobbying activities would not have been tax deductible. Opponents of the measure argued that it would have been impossible for nonprofit groups to accurately determine which of its donors had a direct financial interest in its lobbying activities or what actually constituted this interest.
Special burden on
On the negative side of the nonprofit scorecard, the budget bill makes permanent a three percent floor on itemized tax deductions, including charitable deductions, which was due to expire in 1994. Taxpayers with incomes of $108,000 or more are currently subject to the floor, and nonprofit lobbyists argued that the floor places a special burden on charitable contributions; since individuals are less likely to adjust their deductions for state and local taxes and mortgage interest, the law may encourage them to reduce their charitable contributions to compensate for the increased tax.
Another loss for arts groups – commercial as well as nonprofits – is the reduction in deductibility of business entertainment expenses, including tickets to cultural events, from 80 percent to 50 percent. While several attempts were made by members of Congress to maintain or increase the deduction level, it was lowered to 50 percent during the final moments of the budget conference, as negotiators scrambled for additional revenue.
But the fact that the House and Senate conferees who determined the final outcome of the budget bill increased tax rates on higher income individuals from 31 percent to 36 percent, and the highest income group will be taxed at a rate of nearly 40 percent, is likely to have a favorable impact on the nonprofit sector. Research conducted by Independent Sector and other groups indicates clearly that charitable contributions do increase over time when tax rates go up. Independent Sector estimates that national giving to all philanthropic causes will increase by $1.6 billion annually under the new law.
Although the budget work was completed before the August recess, Congress left town before finalizing either the annual appropriation or reauthorization for the National Endowment for the Arts, National Endowment for the Humanities and the Institute of Museum Services. After an amendment to reduce the NEA’s 1994 budget by 5 percent to $165.9 million passed in the House in mid-July, the Senate Appropriations Committee restored half of the loss, appropriating $170.2 million. While the full Senate was expected to consider the appropriations bill before the August recess, last-minute scheduling difficulties and overriding concern over passage of President Clinton’s deficit-reduction plan delayed the Senate floor vote.
The House of Representatives also recessed before voting on the two-year reauthorization for the Endowment. In the Senate, Claiborne Pell (D-R.I.) and James Jeffords (R-Vt.) introduced the companion legislation in mid-July and the relevant committees planned to consider the bill when Congress reconvened after Labor Day.
Manageable postage rates
The Senate passed legislation in late July that includes a provision to preserve and stabilize nonprofit postal rates. The bill was scheduled to go to conference to iron out differences with a similar House measure in September. The provision represents a major victory for the American Arts Alliance and other nonprofit lobbyists. Without it, nonprofit groups would be hit with a devastating 45 percent increase in third-class nonprofit rates and would face further rate increases during each annual appropriations process. Both versions of the pending legislation eliminate dependence on an annual appropriation in exchange for manageable rate increases of 3.87 percent per year over the next six years.
President Clinton’s national service plan has survived House and Senate votes, although in somewhat scaled-back versions, and its reconciled conference report, passed by the House just prior to the August recess, awaits Senate approval as the last step before enactment.
Neither the House or Senate made major changes to the Administration’s original proposal that would provide education or job-training benefits to young people who spend up to two years in community service work. The measure mandates that nonprofits, including arts groups, pay 15 percent of the minimum stipend (approximately $7,400 per year) and health insurance costs for program participants, with the balance paid by the federal government. However, the original funding request for the program was significantly reduced to ensure passage.
On the Alexander Appointment
The long-awaited nomination of Jane Alexander on Aug. 6 to chair the National Endowment for the Arts prompted a series of wide-ranging reactions. While the arts community is almost unanimously delighted in the choice of a working artist to head the arts agency – a novel approach in the United States – members of the religious Right have predictably questioned Alexander’s credentials. At press time, the confirmation hearing for Alexander before the Senate Labor and Human Resources Committee, chaired by Sen. Edward M. Kennedy (D.-Mass.), was scheduled for Sept. 21.
In announcing the nomination, President Clinton issued the following statement: “The Endowment’s mission of fostering and preserving our nation’s cultural heritage is too important to remain mired in the problems of the past. It is time to move forward, and Jane Alexander is superbly qualified to lead the Endowment into a new era of excellence. just as she has brought the power of performance to regional theatres throughout the country, she will be a tireless and articulate spokesperson for the value of bringing art into the lives of all Americans. More than 30 years ago, President John F. Kennedy said, ‘I see little of more importance to the future of our country and our civilization than full recognition of the place of the artist.’ With those words as her challenge, I am confident Jane Alexander will work tirelessly and courageously to make the arts a full and productive partner in our nation’s future.”
James Earl Jones, actor and former National Council on the Arts member: “She most assuredly has the heart, the integrity and the dedication required to meet the challenges that such a position would bring to bear. In Jane, we are certain that you will find not only a talented actress, but also a good friend to the arts.”
Sen. Edward M. Kennedy (D-Mass.): “I commend the President’s choice. Jane Alexander is a respected artist and effective advocate for the arts. Her nomination signals President Clinton’s determination to end the controversies that have politicized the agency in recent years and to emphasize the indispensable role of the arts in our national life. I am confident that, under Ms. Alexander’s leadership, excellence will be the standard and free expression the rule.”
Peter Zeisler, executive director, Theatre Communications Group: “The nomination is an inspired choice that joins the United States with those countries where professional artists have headed national cultural agencies over the years. This nomination, and that of Sheldon Hackney as chairman of the National Endowment for the Humanities, place distinguished professionals with extraordinary credentials in charge of two critical agencies.”
Zelda Fichandler, artistic director, The Acting Company, New York: “Ms. Alexander’s roots are in the nonprofit professional theatre, and she has consistently returned to the theatre while simultaneously enjoying great success in film and television. She knows and understands the importance of the nonprofit arts in this country. She is an activist in social causes and an effective and eloquent spokesperson for the arts. Her long experience interacting directly with audiences gives her a special understanding of how important the arts are to the American people.”
Tom Kilgannon, communications director, Christian Action Network: “We just don’t think someone from Hollywood should be running the NEA. We think she will tend to place the interests of the Hollywood elite or the advocates of the far Left higher than the interests of Middle America.”
Marshall Wittmann, legislative affairs director, Christian Coalition: “The cultural policy of the administration is one that is on the side of cultural radicalness. We are going to urge Congress to judge th nominee by a middle-class family standard.”
Judith Golub, executive director, American Arts Alliance: “The American Arts Alliance is excited to begin to work with Ms. Alexander. With her outstanding career in the arts, we are confident she understands and will convey the important roles the artist and the arts play in American society. We also have long admired her skills as a leader and her ability to bring people together in support of the creativity and diversity so deeply rooted in our American tradition.”
Washington Post editorial, Aug. 15, 1993: “The nomination of prize-winning actress Jane Alexander to head the NEA is a welcome message from the White House that the arts are not primarily about political cat-fighting …. To the frequent assertions by Hill NEA-baiters that the private sector can take care of quality art, can respond, as she did before an appropriations hearing in 1990, that every single play that has won the Pulitzer Prize since 1976 originated on a nonprofit stage …. Still, Ms. Alexander shouldn’t believe that straightforward good spokesmanship is all the Endowment needs to get out of its current jam. No matter how eloquently she makes the case for the Endowment, the laws of political gravity will ensure that most of the questions she fields will be about the Whitney Museum, chocolatesmeared performance artists and crucifixes in urine. This is a function not necessarily of the issues or of the answers she gives on them, but of the political interest of the questioners and the desire to test and even taunt some of the would-be grantees. To deal with the questions effectively, she will need not only poise but also a clear political strategy.”