Would Donald Trump’s Tax Plan Be a Bonanza for the Art World? A Skeptical Analysis

It may look that way now, but listen to what these specialists say.

Joshua Lott, U.S. President Donald Trump addresses supporters as he speaks at the Indiana State Fairgrounds & Event Center September 27, 2017 in Indianapolis, Indiana. Trump spoke about his Republican tax plan. Courtesy of Joushua Lott and Getty Images.

After months of high expectations from the Republican elite and the financial sector, Donald Trump has finally released his proposed tax reform plan. So, if his pitch were to pass muster with Congress, how would it impact the art world?

With the finished package still a long way off, we asked an assortment of experts to weigh in on the (broadly stated) proposals of the framework and how they could shake out for both collectors and nonprofits.

To start with, whether people love or hate Trump, there is a general sense that his policies tend to favor high-net-worth individuals, many of whom—it’s no secret—figure in the ranks of top collectors in the US. The notion of a tax cut, which would put extra money to burn in the pockets of already wealthy buyers, would seem to be a bonanza for the art market, particularly if the cuts are combined with leaving the industry’s most cherished breaks and loopholes in place.

“The biggest driver of the art market at the ultra-high end—at least in the US—[are wealthy buyers who work in] private equity, hedge funds, and real estate,” says Evan Beard, the head of national art services at US Trust. “All three of those sectors may be affected if there’s more liquidity, higher wealth, and lower rates for those industries.”

Thomas Danziger, an attorney who specializes in art law, frames the upside a different way. “Although I believe that Trump is doing to America what Hurricane Irma did for Puerto Rico, his proposed tax rate cut—if passed—should provide a further boost to the U.S. stock market,” he says. “And what’s good for the stock market is definitely good for the art market in general, and the auction market in particular.”

Others, however, are less sanguine. “As tax reform, it’s not much different from what we heard when then-candidate Trump was running for president,” says Diana Wierbicki, partner and global head of art law practice at Withers Worldwide. “It’s not really robust, so it leaves a lot of ‘blanks’ for us to see what is going to happen further down the line.”

But certain passages contained in the “Unified Framework for Fixing Our Broken Tax Code” document that was circulated by the US Treasury yesterday suggests Trump’s tax goals—whether intentional or not—would be a boon for collectors.

The most notable of these relates to the estate tax—or, as Trump calls it, “death and generation-skipping transfer taxes.” The language is clear: “The framework repeals the death tax and the generation-skipping transfer tax.”

Eliminating the estate tax—an especially onerous burden where bequeathing art is concerned—would undoubtedly be cause for rejoicing among the wealthiest buyers.

“That would be very good for art collectors,” says Wierbicki, “because art is one of the most difficult assets to plan with for estate-planning purposes. It’s the asset that, in many estates, has appreciated very much in value.”

The estate tax is a big reason that the first of the oft-cited three D’s —death, debt, and divorce—regularly sends rare, major masterpieces to the auction block each season. Take, for example, the heirs of legendary art dealer Ileana Sonnabend, who passed away in 2007. Her family had to sell off works by Jeff Koons, Roy Lichtenstein, Andy Warhol, and Cy Twombly to pay estate taxes of $331 million to the federal government and $140 million to New York State. The artwork in the estate alone had been valued at upwards of $800 million.

Art, meanwhile, is the asset “that people want to continue to hold on their walls,” says Wierbicki. Generally, if a living person wants to transfer assets for estate-planning purposes and use their lifetime exemption to do that, they have to give up control and possession of those assets. “So if you wanted to transfer a Monet to one of your children during your life using your exemption, you’d have to take that off your wall and actually physically give it to your child,” Wierbicki explains. “A lot of parents want to ultimately get the value out of the estate, but they want to continue to have possession of the art, which makes it a difficult asset to plan with.”

artnet News reached out to the IRS, which maintains an Art Advisory Panel that helps review and properly evaluate property appraisals submitted by taxpayers, to see how the new proposals might affect the agency. A spokesperson declined to comment.

If history is any guide, says Ramsay Slugg, a wealth strategist at U.S Trust, any estate-tax repeal would likely be temporary. “The estate tax is kind of like a bad penny,” he says. “It always comes back. It’s been repealed three or four times before, and it’s come back every time.” He points out that even if it does get repealed, there are other so called “transfer” taxes that may still apply, such as the gift tax, which pertains to transfers during life.

Can Museums Breathe A Sigh of Relief?

One spot of clarity in the reform proposal? After toying with the notion of eliminating or capping charitable deductions, Trump seems to have backed off, specifically in a point about “itemized deductions” that says the code “retains tax incentives for home mortgage interest and charitable contributions… These tax benefits help accomplish important goals that strengthen civil society.”

In an earlier brief about proposed tax reform from the American Alliance of Museums, leaders said: “We oppose proposals that would restrict the deductibility of gifts of property, which are critical to museums’ ability to develop their collections. Charitable giving is the lifeblood of museums of all sizes and disciplines; it accounts for more than one-third of their operating funds.”

“We are pleased to see that the current administration acknowledges that art museums and other charitable organizations are a key to civil society,” Christine Anagnos, director of the Association of Art Museum Directors (AAMD), said in a statement to artnet News. “Along with the broader charitable community including Independent Sector and the Charitable Giving Coalition, we oppose any proposal that would hurt museums and other charities by limiting the scope or value of the tax deduction for charitable donations. We look forward to working with Congress on the details.”

However, the standard deduction that individuals are allowed to take would double to $12,000 for single filers, and to $24,000 for married couples, an increase one group finds troubling.

“After reviewing the Republican tax reform plan released today,” wrote Daniel J. Cardinali, the CEO of Independent Sector, an organization of nonprofits, foundations, and corporations, “our assessment is that it does not accomplish their stated goal of unlocking charitable giving or strengthening civil society.”

He points to a study Independent Sector commissioned (Tax Policy and Charitable Giving) that was prepared by the Indiana University Lilly Family School of Philanthropy Study and published this past May, which asserts that “doubling the standard deduction and keeping the charitable deduction in its current form would lead to a $13 billion reduction in giving each year.” That projected loss, it continues, “does not include the additional sharp decrease in giving that will result from the proposed repeal of the estate tax.”

It’s Too Early To Start Planning for the New Rules

“At this point it’s just so open-ended that it’s premature to do any type of planning related what we’re seeing here,” says Wierbicki. “I would expect the plan will be changed dramatically once there’s input from congress.”

Art advisor Todd Levin is even more emphatic about the wait-and-see approach—and suggests that collectors hoping to profit from the proposal might be waiting a long, long time. “The reality of how it’s going to affect the art world is like doing CPR on a dead person,” he says. “The health care plan was a long shot at best and clearly they couldn’t close on that. The tax plan is an even more remote and exponentially more difficult plan for them to get through all of Congress. It’s absolutely DOA.”

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