Sunday, May 8, 2016

Expanding the Charitable Deduction Model

Good morning.
"And the beat goes on..................."

Tax Deductions for Arts Tickets:

I propose we urge the IRS to re-think the public benefit corporation (nonprofit) tax policies regarding deductions for the purchase of arts performances and exhibitions tickets - the cost of which are currently not tax deductible by the purchasers.

501 (c) (3) nonprofit organizations are defined as "public benefit corporations".  They are given tax breaks (no tax on their income and gifts to them are deductible by the donor) precisely because they provide the public with a benefit.

In the case of the arts - that benefit is the art itself - whether paintings and sculptures, theater, poetry, dance, film, music, crafts or otherwise.  In the aggregate, the benefit to the public is a living, vibrant, healthy arts ecosystem that both preserves extant art and encourages, nurtures and supports new creativity and innovation - theoretically for all citizens.

But there are limitations to the tax benefits accorded arts organizations as public benefit corporations. Thus, while donations are tax deductible to the donor, the cost of accessing the arts that are supported by the tax deductible donations, via tickets to performances and exhibitions, is not.

But that makes no sense.  If the public policy underlying the notion of public benefit defacto stipulates (which I think it does), that the arts provide a public benefit, then why is access to that benefit not also tax deductible.  Arguably, if society wants to encourage public benefits via subsidizing organizations on a host of levels, (which, in the case of the arts, is what the policy is doing with tax deductions for contributions and support), then shouldn't access to the benefit being created likewise be subsidized (and in our case, by extending the tax deduction to the price of the tickets) so the people can access the benefits that have been created?   It seems limiting to help create the benefit, but then not extend that support to accessing that benefit.  It's as though the benefit lives in a vacuum, and that its limbo status is logical.

Ticket revenue is a principal source of income for arts organizations - which income goes to support the organizations providing the public the benefit(s) of the arts.  If the policy is to support arts organizations via tax deductible donations, then the policy ought logically to extend to helping those organizations survive by allowing tax deductions for the tickets.  And, it ought to extend to the public so that the public might actually be able to access the benefit.

Currently, money spent on tickets to performances and exhibitions, is not tax deductible because the purchaser gets a benefit (the performance or exhibition itself).  But if the performances and exhibitions are the benefit, then extending the benefit to purchasers paying for admission so the they may enjoy those benefits  - is really the complementary part II of the logic of supporting the benefit in the first place.  Arguably that would benefit the whole community, including segments who cannot afford the high ticket prices.  In that sense, the current logic supports an inequity in the access to the benefit as wealthier segments of the populace can afford the cost of accessing the art, while others may not.

The arts are a benefit.  So too should be the ability to be able to enjoy that benefit.  Otherwise, what's the point?

So perhaps we ought to mount a legislative campaign that would change the IRS regulations to permit tax deductions for money spent on tickets to arts performances and exhibitions.

The practical question, of course, is whether or not tax deductions for the costs of tickets to arts events would result in more tickets been sold, and thus more income to arts organizations.  Certainly, that would be the hope.  And if it did, that additional income flow would help arts organizations achieve stability,  and increase their capacity to provide more of the public benefit (i.e., art).  It would arguably make the higher (and growing) cost of admissions more affordable by lesser income brackets (again promoting the policy of public benefit across strata within our society).  And it might even allow for ticket price increases.  Ticket money is earned income to arts organizations, but, remember it isn't profit - it goes to continue the work of the public benefit.  Does that give the arts a competitive advantage that is unfair in the marketplace for other types of entertainment - like sports, or movies?  I suppose one could argue that it might - though it may be comparing apples and oranges as the majority of people who go to either sporting events or movies are not likely to go to fewer sporting events or movies even if they went to more arts events (and that is likely problematic in itself).   If the arts are a public benefit, then enabling more people to enjoy them should be part of that benefit policy, no?

I don't know how such a notion impacts the whole of the nonprofit field.  I'm only concerned with the arts and what might be good for us and, through us, a benefit for the whole of the country.  I sincerely doubt the negative fiscal income impact on the government of less taxes being paid would be substantial, but it might have a big positive impact on the arts.  Then again, I admit, it might not.  I don't know.  I'm just playing with the idea.

Of course, the paperwork for individual, itemized deductions may make the effort too burdensome for the average tax payer to take advantage of, but there might be ways like standardized deductions to address that challenge.  If not, such a proposal might disproportionately benefit the wealthy who could, for example, take advantage of the deductions to purchase season tickets for arts offerings, but isn't it already the wealthier who benefit from the charitable deductions to the arts or any other 501 (c) (3) organization?

And if the cost of tickets were tax deductible, arts organizations would no longer have to deduct their value from dinner gala fund raisers, and, might also include tickets as part of the tiered rewards for different levels of donations - particularly at the higher levels.  And logically, one might assume that that would increase donations.  And then it might increase subscription and season ticket sales too and not just to the wealthy.  Every dollar helps.

A policy that supports the existence and operation of arts organizations because those organizations are a benefit to the public (the art that is being preserved and produced), ought to include access by the public to that art, which access ought also to be tax deductible.  The reasoning to exclude that part of the public benefit seems a circuitous route of denial of the underlying principles of the policy in the first place.

If not soon, then in the not too distant future, Congress and the country will get to re-examining the tax codes (it's been coming for a long time), and that will include evaluation of the charitable tax donation policies, and the whole reasoning behind 501 (c) (3) organizations.  I think we might get out front of that coming debate and societal change by promoting a more rational and coherent tax deduction policy for the arts that would include deductions for accessing the art being supported.

Have a good week.

Don't Quit