New Federal Tax Legislation Impacts the Creative Community

Despite opposition from the arts and broader nonprofit community, the new federal tax code approved this week will likely have a negative impact on arts and cultural institutions across the country.

MASSCreative closely followed the Tax Cuts and Jobs Act that makes sweeping changes to the U.S. tax code. Of concern was the doubling of the standard deduction, which will result in far fewer people itemizing their deductions. This is a long-time incentive for individuals to make charitable tax contributions. The Tax Policy Center of the Urban Institute and Brookings Institution estimates 90% of taxpayers will not have access to itemizing their deductions, resulting in a loss of up to $20 billion annually to nonprofit organizations across the country.

The bill also doubles the exemption for the estate tax, potentially negatively impacting the arts and cultural community. Currently, estates exceeding $5.45 million are required to file a federal estate tax return and pay estate taxes at a rate of 40%. The new bill will raise that requirement to estates $11.2 million and above. The estate tax is historically a generator of major charitable gifts. The changes are expected to decrease the number and amount of planned giving gifts to arts and cultural nonprofits.

In November, nearly 40 Massachusetts Arts and Cultural Leaders co-signed a letter to the Massachusetts Congressional Delegation in support of a universal charitable deduction and protecting the Johnson Amendment. Additionally, last week MASSCreative released a statement in opposition to the bills and urged Congressman Richard Neal of Springfield, a member of the bill’s conference committee, to protect the Johnson Amendment. The Johnson Amendment provides nonpartisan protections to charitable, religious and philanthropic organizations. By prohibiting nonprofits from endorsing political candidates or making financial contributions to them, nonprofits, such as arts organizations, are better able to collaborate in creative ways and work together to solve community problems. While the universal charitable deduction was not included, through the work of non-profits from across the county and Massachusetts, the repeal of the Johnson Amendment was dropped from the final version.

Thanks to the advocacy of arts and cultural partners across the country other proposals that would have adversely impacted the arts community were taken out of the bill:

• Business Expenses: artists will continue to be allowed to deduct business related expenses.
• Classroom Materials: teachers will be able to deduct classroom supplies and material expenses.
• Private Activity Bonds Interest: Used by museums, public broadcasters and universities, interest from private activity bonds will continue to be exempt.
• Housing Eligibility: artists will continue to be a qualified group for federally subsided low-income housing.

The bill, which both the House and Senate voted to pass on Wednesday, received no votes from the Massachusetts Congressional Delegation. President Trump is expected to sign it in the two weeks.

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