As a newly married young lawyer in 1940, former U.S. Sen. Hugh Scott (R-Pa.) furnished his first home with Chinese art. He paid $60 for his initial "find," a tall, brightly glazed T'ang ceramic of a Chinese official which Scott jokingly called "The Congressman . . . he just stood there and did nothing." Scott sold it for $4,000 in 1979. It would bring $15,000 on today's market.
Scott went on to amass one of the finest Chinese art collections in private hands, concentrating on art of the T'ang Dynasty (618--906 A.D.). Though he collected for love, he was also right on the money. Chinese ceramics outplaced all other investments last year, according to Salomon Brothers' latest annual report that included commodities, collectibles and conventional financial assets.
Chinese ceramics have led the investment field for the past five years, the New York brokerage firm reports, climbing from a 30.7 percent appreciation in 1977 to 36.5 percent for the year ended last June 1. They were followed by stocks (25.3 percent), old master paintings (22.9 percent), U.S. stamps and rare books (18 percent) and oil (14.3 percent).
Economically, the 1980s have started out as yo-yo times--inflation speeding up one quarter, slowing down the next. Conventional investments also fluctuate, such as money market funds, certificates of deposit, Treasury bills and municipal bonds. As in uncertain economies in the past, investors are turning to some extent from currency to tangible goods such as land, oil, gold, silver, Oriental rugs, rare books and art.
It's customary in Europe to diversify one's investments and many Americans are now making art a part, often a major part, of their general investment portfolio. There are fewer and fewer investments that outpace inflation and provide security. Some feel art is one of them.
A New York bank recently reported that holdings in art by its clients over the past 10 years increased more than securities. New York's Citibank set up an investment plan in 1979 with the Sotheby Parke Bernet auction house for Citibank's wealthier clients to acquire art as part of their total investment portfolio. A cool $1 million is the minimum for art investment in this kind of portfolio.
The interest in art investment coincides with the current art boom. There has never been a better educated U.S. art public. More Americans go to museums annually than to sports events. The highly publicized blockbuster exhibitions, such as the Exhibition of Archeological Finds of the People's Republic of China (1974), Pablo Picasso: A Retrospective (1980) and Treasures of Tutankhamen (1977-79), have unquestionably added to the sophistication of American taste and American appetite for art, art not only to look at in museums and galleries but also to buy.
Sales at the three big New York auction houses surpassed last season's totals by 15 to 25 percent. At Christie's, sales totaled $130 million, up 15 percent over last year's $113 million. Sotheby's sales increased from $223.7 million to an estimated $265.5 million as of early July. Harry Lunn, director of International Graphics Ltd., a Washington gallery specializing in art photography and original prints, also reports a gain of $2.8 million in what Lunn regards "a tight money market that hurt private collectors but not public institutions such as museums and corporations."
But front-page newspaper headlines that translate art into bullion are deceptive. Blockbuster auctions bring the blue chip prices: Frederick Church's "Icebergs" for $2.5 million, Jasper Johns' "Three Flags" for $1 million, Picasso's "Yo Picasso" that sold for $5.3 million. They're the intensity barometers of today's art demand matched to a shrinking supply, especially for masterpieces.
Elsewhere, a lot of people are buying art, but they aren't buying a lot, and they don't make the newspapers. Yet, "They're our bread-and-butter," reports Elizabeth Shaw of Christie's New York. "Our biggest quantity of sales last season at Christie's East averaged $600 per item, and the buyers wear blue jeans," she added.
Art is bought for both love and money and any art priced over $50 can be considered an investment. Most Washington galleries report that buyers want their art to escalate in price. Jane Haslem, director of Jane Haslem Gallery, recommends that individuals "buy for love, not investment," but she says her clients are pleased when they buy and the value increases, whether it's a $350 Harold Altman print, a $5,000 John Winslow oil or a $19,500 Edward Hopper etching.
Haslem's Washington gallery has an art investment plan whereby investors purchase art recommended by Haslem and she resells it within two years with a guaranteed 20 percent profit minimum. The buyer can either take the profit or reinvest.
In buying art, Lunn recommends going for quality. "If you have $100 or $1,000 or $10,000 to spend, invest in one quality object . . . Good aesthetics are good investments . . . extraordinary items escalate much faster than ordinary ones," he asserted.
Lunn suggests investing in "a field that's taking off, like American art, original prints, quality photography, and finding underpriced artists within a particular field."
U.S. tax laws have long favored art buyers, though President Reagan's Economic Recovery Tax Act of 1981 somewhat reduces former advantages.
The Payne-Aldrich Tariff, passed by Congress in 1909, permits duty-free importing of original art more than 25 years old. Tax laws also encourage gifts to charitable institutions by authorizing tax deductions. These laws indirectly filled museums such as the Hirshhorn Museum and Sculpture Garden and many others.
Gifts of money, or of a tangible asset such as art valued up to $10,000 when owned individually, and $20,000 when owned by a married couple, may be given tax free to an individual or individuals in any single year (the ceiling was $3,000 until the new tax act). This practice avoids the gift tax and can help alleviate estate taxes at time of death.
However, the new law reduced the maximum tax on unearned (nonsalary) income from 70 to 50 percent, creating fewer incentives for collectors to give to nonprofit and charitable organizations. Concomitant with the tax rate reduction is the lowering of the maximum effective rate of taxation on capital gains from 28 to 20 percent.
Joshua J. Kaufman of Lowe, Bressler and Kaufman, a Washington law firm specializing in the business and tax aspects of art and entertainment law, said that although the new law was not meant to affect the arts directly, "it, together with the recent federal appropriations cuts, has dealt a double-barrelled blow to museums and other charitable organizations."
Harry Lowe, acting director of the Smithsonian's National Museum of American Art, said of the appropriation cuts and tax changes: "The museum world is concerned. This is a very worrisome thing for museums on tight budgets who are so dependent on contributors. There is still the appeal for donors--both practical and spiritual--for their art to go into public collections. But it's an uneasy world right now for museums, both with federal appropriations cuts and tax laws that are not as favorable for museum giving as they once were. How will this affect the long tradition of Americans helping museums?" orporations, whose managers usually buy art for pleasure or image and not as investments, can improve their collections by donating to museums and other nonprofit organizations and using the tax advantages to upgrade their art, according to Jill Elisofon, corporate consultant for Washington's Osuna Galleries Inc. However, the new tax laws may dilute these advantages.
Copyright laws also have been more clearly defined, especially regarding museum gifts. Before enactment of the new tax law, there was some confusion regarding the collector's right to exclusion from estate or gift tax if he retained reproduction rights. The new law clearly states the donor can give a work of art and retain reproduction rights in the property.
Despite these tax changes, elimination of most taxes from estates and relaxation of death duties (formerly an impetus for museum giving), U.S. tax laws still largely favor museums, non-profit institutions and collectors.
Art will always be bought for love and money. As Kaufamn writes in the Lawyers Committee for the Arts' informative booklet, "The Art of Investing in Art: A Guide to the Basics of Art Investment:"
"Art has traditionally been an excellent investment, if made in a careful business-like manner. There are no shortcuts to fortune in art investment. If an individual is willing to take the time and care required, art investment can be extremely financially rewarding."