Daniel Grant had a piece in the Weekly Standard a week or two ago arguing, generally, that "philanthropy is not a tax proposition" and, more specifically, against proposals for restoring the income tax deduction for donations by artists (as opposed to collectors). In general I disagree with Grant's take on this -- I think any time you make something more expensive (which is what happens to donations of art when you reduce the accompanying tax deduction), you get less of it. But there are two, more narrow points I want to make here:
1. The piece is critical of Ralph Lerner for telling the New York Times right after the Pension Protection Act was passed in 2006 that it would be "the death of fractional gifts." As Grant points out, fractional gifts "didn't die and continue to be a normal way that donors" structure their giving. But -- and I realize this is a long time ago and little bit inside baseball -- the initial version of the Pension Protection Act would have been the death of fractional gifts -- as a result of what I called at the time the "mismatch problem." When that problem was later fixed through technical corrections, it brought the practice back from the dead.
2. Grant says: "As a practical matter, if artists want to have the same tax deductions as non-artist donors to museums, they simply can sell their work and contribute the earnings to these public institutions." That's not the case. Here's why.
If a collector donates a work to a museum, he reduces his taxable income by the fair market value of the work – a net positive. Say he has a million dollars in income and the work is worth $100,000. He now pays tax on only $900,000.
But if an artist in the same situation sells the work and contributes the earnings, he now has $1.1 million in income and a $100,000 tax deduction – so he pays tax on a million dollars. The same as he would have had he not made the donation. It’s a wash. He’s given up the work but it’s done nothing for him tax-wise.
The two situations are not the same.