A study commissioned by the vice chairman of the White House Task Force on the Arts and the Humanities states that President Reagan's tax cut proposal, which was passed by the House yesterday, could decrease incentives for both corporate and private donations to arts and humanities organizations.
The report, a copy of which was obtained by The Washington Post, was mailed to members of the task force two days ago. It says that one provision of the tax cut bill -- the accelerated cost recovery deduction -- "may so reduce corporate taxable income that many corporations would exceed their 5-percent deductibility limit without increasing the amount of money they give to charity." The study says further that this "could have serious repercussions for the arts and humanities."
"More importantly," the report adds, "an across-the-board reduction in marginal income tax rates seems likely to decrease individuals' incentitive to contribute to charity."
Administration officials have repeatedly said they are counting on corporations and others in the private sector to boost their contributions to the arts as the federal government cuts back on its funding of the National Endowments for the Arts and the Humanities. Charlton Heston, the co-chair of the task force, which is examining ways of increasing private support for the arts, has said he strongly believes that private money can be found. Heston has not yet received the report, according to his secretary, Carol Lanning.
"It's a potential problem," said Peter Wiedenbeck, a tax attorney with Patton, Boggs & Blow, who did the study at the request of Barnabas McHenry, vice chairman of the task force. "You don't want to create a disincentive to give," said Wiedenbeck. However, he added that he was not sure how many corporations that are big givers to the arts would be affected by the accelerated cost recovery deduction.
The tax bill speeds up the rate at which companies can write off capital investments such as machinery and new buildings. The result is that, at least in the short term, companies end up with less taxable income -- in some cases none, according to Wiedenbeck. This has adverse consequences for cultural organizations because, "at present, a corporation is allowed to deduct up to 5 percent of its taxable income for charitable contributions," Wiedenbeck says in his report.
Wiedenbeck notes that only 20 percent of corporations filing tax returns in 1970 made any charitable contributions. But, she adds, "of these contributors, almost 27 percent gave 5 percent or more of their net income."
To offset reductions in corporate giving, the report suggests either increasing the 5-percent deductibility limit for corporations, or changing the limit to a percentage of gross, rather than net income.
"I think it's speculative but persuasive," said task force member Lucien Wulsin of the report. Wulsin is chairman of the Colorado Council on the Arts and Humanities and chief executive officer of Baldwin United Corp. in Denver. "If you feel people are motivated in their giving by economic reasons, then you have to believe it 100 percent. I swing like a pendulum from believing it's for economic reasons to believing it's for other motivations. I guess the older I get, I think it's economic reasons." o
Task force member Leonard Silverstein, president of the board of the National Symphony Orchestra and a tax lawyer, said, "I'm reluctant to comment. I think [the task force] ought to comment on the report as a whole." He added that it is "too early to tell the effect on companies, much less charities."