Your contribution is deductible fo r tax purposes.
— A slogan for fund raising.^*
It is generally perceived that American art museums are "private enterprises" or in a more modified way, "private non-profit" institutions, while their British counterparts are "public" ones. Such a presumed contrast has become so widely articulated, particularly since the 1980s, that it is invariably presented as an established truth about art museums
in the two countries. For instance, Perry T. Rathbone, Director Emeritus of the Boston Museum of Fine Arts, lamented: "That art museums have been almost exclusively built and maintained by the private sector is not sufficiently understood [italic added]. In a similar manner, the millionaire developer and ex-chairman of the British Arts Council, Peter Palumbo, commented: "Our tax laws do not favour individual donations as much as they do in the United States, where the arts are funded 90 per cent by individuals
[italic a d d e d ] . T h e s e differences between art museums are also assumed to reflect a larger truth about the respective character of arts provision more broadly in Britain and the United States.
Without doubt the public-private dichotomy is not as neat as these propositions uncritically assume. For one thing, "public" and "private" are constructed categories rather than simple facts. Central to the conundrum of public and private is the fact that the boundary between the two is by no means a fixed one, but subject to on-going political, social, and ideological forces that help shape the discourse. For those advocates of enterprise culture, the "public," as far as arts funding is concerned, came to refer to one narrowly defined mechanism, namely the annual grants from the Treasury. The rise to prominence of this particular ideological construction was largely the product of the conservatives’ efforts to privatise culture in the 1980s, in particular in Britain, as we shall discuss in detail in Chapter 3.
In Ideology and Modem Culture, Thompson argues that there are at least two basic meanings to this dichotomy in modern Western democracies.^^ Rooted in liberal political theory, "the public" refers to the domain of institutionalized political power, which is increasingly vested in the authority of a sovereign state. "Public" in this sense is synonymous with "state" or "state-related." In contrast to this, the private domain includes private economic activities and the domestic realm.
But "public" can also be negatively defined by its conventional opposition, "private. " As Raymond Williams suggested, the primary sense of "private" in many different uses is one of privilege, "the limited access or participation. In this second sense, "public" means "open" or "available to the public. " It is this sense of "publicness" that constitutes
one of the key criteria of Jürgen Habermas’s utopian concept of the public sphere/^ In principle the bourgeois public sphere is open to all private autonomous individuals for their rational discourse; to quote Habermas: "Access is guaranteed to all citizens."'^ In reality, however, entry to the public sphere is restricted to propertied and educated
men. Although Habermas’s ideal remains historically unattainable, his arguments concerning the public sphere have been very influential in discussions of the category of the "public" in various disciplines.
These two sets of meanings of public and private, while distinct in themselves, are by no means mutually exclusive. With the development of the constitutional state in the twentieth century, in tandem with the expanded mechanism of state intervention, especially in the post-World War II era, the public sector, as representing the collectivity of citizenship in a state, has come to assume a relatively greater degree o f public accountability within contemporary democracies. By contrast, the private sector, as represented by business in a capitalist system, has the power and "right" to make hundreds of "private" vital decisions, without even a pretence at democracy.
Between this public/private divide, however, there exists another sector, the so-called third or non-profit sector in America, and the charity or the voluntary sector in Britain. A substantial element of collective policies and functions, which otherwise would have been vested in the authority of the state, have been carried out by those institutions, whose existence is closely bound up with the ambiguous nature of their being public and private at one and the same time.
Institutionally speaking, the majority of the so-called "private" art museums in America are located within this sector, while their British counterparts are organised by means of its extreme variant, the quangos (quasi autonomous non-governmental organisations). While most of their funds come from the taxpayer, and their staff are hired and paid according to civil service assessment criteria, these quangos, whether the Arts Council or the trustees of art galleries, claim that their operations are conducted on the "arm’s- length principle," that is, they claim to be somehow outside politics because they do not have to answer directly to Parliament.^^ Be it in America or in Britain, these
institutions are generally run by a board of unpaid trustees, who thereby enter the social space of the public institutions. It goes without saying that these people are politically and socially privileged, but they are presumed and expected to act only in their private capacity for the public interest. The Establishment bias of this arrangement is self- evident. This institutional system has added a whole level of complexity to the vexed question of the public and the private. It is against this background that we now turn to a review of art museums in America and Britain.
In general terms, the origin of the oldest established art museums in America and Britain lies in private initiatives rather than being the result of a clearly articulated public arts policy. The Boston Museum of Fine Art, the Metropolitan Museum o f Art in New York, and Chicago’s Arts Institute in the United States, or the British Museum, the National Gallery and the Tate Gallery in Britain, to name but a few, all owe their existence, to a large extent, to private funds or donations from the rich. The Boston Museum, for instance, was founded in 1870 by the Brahmin élite, while both the collection and the building of the Tate Gallery were given to the nation by Henry Tate towards the end of the last century.*^®
What distinguishes art museums in America from their British cousins, however, is their institutional arrangements. In the charters drawn up to establish art museums as charitable trusts, for which a board was legally accountable, American museums had followed English precedents of common law."*^ But unlike their English counterparts, whose boards of trustees have been appointed by higher state officials (earlier by the monarch and then by the Prime Minister), American museum boards are autonomous and self-perpetuating, regardless how much public support they receive. For instance, although the New York City government contributed $500,000 toward its construction and was responsible for its maintenance expenses, the Metropolitan Museum was, and still is, governed by a board of private citizens, over which the City has no real power.^* This pattern of governing authority in American art museums was to become the norm in the years to come, except for those specifically funded by government.
museums across the Atlantic. While the American museums were heavily reliant on "private" contributions, the British equivalents were explicitly funded from the public purse, once Government overcame the initial reluctance to accept the private gift of art collections and/or funds. This historical difference has shaped ever since the way in which art museums operate in the two countries. It is also on this ground that the contrast between the American "private" and the British "public" systems of arts funding is generally assumed to rest.
However, some social scientists have looked at public funding in a very different light. With the creation of the notion of "tax expenditure" in the United States in the 1960s, the concept and all its ramifications have been applied to the study of public arts funding. What this theory helped to highlight is the heretofore unaddressed issue of indirect public art subsidies through tax provisions, that is, tax foregone which otherwise would have had to be paid to the relevant tax authorities in the country concerned. More specifically, various tax rules affect museum funding directly and dramatically, although for the coherence of the study, 1 will not be able to discuss each of them in detail.
The major indirect subsidies for art museums in America are charitable contributions and gifts of property. The charitable contribution was first introduced for individuals in 1917^^^ and for corporations in 1935. This measure allows the donor to deduct contributions from their taxable income and thus reduces their tax liability. While the subject will be analysed in the next chapter in connection with tax changes under the Reagan and Thatcher governments, it is necessary here to look in some detail at the issue of art donations to museums, not least because donated artworks have been such an indispensable part of museum life. In fact, it is a perfect illustration of "the bias of the system," in which the privilege of a rich and powerful minority, to exhume an unfashionable phrase, is protected by law over the rights of the public. It is to bring this into focus that the inclusion in this section of the Tax Reform Act of 1986, which otherwise could have been discussed in Chapter 4, can be justified.
Before the 1986 Act, when a donor gave gifts of appreciated property, art works in this case, to museums, he or she had "double tax incentives." In addition to being able to
deduct its fair market value against personal ordinary income/® the donor paid no capital gains tax on the appreciation of the work, for which they would otherwise have been liable should they have chosen, instead, to sell it on the market and donate the cash/^ For instance, consider the case of a donor in the highest (50 percent) tax rate bracket in the early 1980s, who had a painting worth $10,000, which cost him $5,000 at the time of purchase. To donate the painting to a museum would give him $6,000 tax saving ($5,000 from a charitable deduction at a 50 percent rate and further $1,000 from the dispensation from of capital gains tax at a 20 percent rate).^^ Therefore in this transaction, the donor actually donated $4,000, with the government, or more precisely the unknowing taxpayers, footing the bill of $6,000. The ratio between the donor’s and public money became even more dramatic when between 1944 and 1963 the top federal income rate rose to more than 90 per cent (see Table 1.1).
The ramification of tax benefits is particularly telling, given the fact that gifts of property, and charitable contributions to arts/cultural institutions (a theme to which we shall return in Chapter 3), are highly concentrated within the higher tax bracket groups (see Table 2.1). It is primarily by taking advantage of such tax concessions that wealthy individuals, and later corporations, have channelled their art works to museums. It is thus not uncommon to think of art gifts to museums as a tax-avoidance strategy for the rich and for some corporations.^^ For instance, KPMG Peat Marwick, a New York- based accounting firm, recently donated 22 works of contemporary crafts to the Renwick Gallery of the National Museum of American Art in Washington D.C. The tax incentive was specifically mentioned as one of two reasons for the gift.^'^ The institutionalisation of the economic interests of either elites or corporations in the cultural sphere is, of course, part and parcel of "the bias of the system." Still, what concerns us here is the extent to which a substantial amount of government subsidy, which has always been much larger than direct grants, is so subtly disguised.
The Tax Reform Act of 1986 not only removed the allowance for the appreciated portion of gifts, but also eliminated for some taxpayers the extra tax incentive provided by the dispensation from capital gains tax.^^ This measure, among others, was intended as a way to combat the fiscal crisis, and had nothing to do with the Reagan regime’s
perception of any unfairness in the tax system. (This is evident insofar as other tax changes under this administration had substantially benefited the better off rather than the poor.)^® The ensuing "public" debate on the issue is of particular significance in this context. Not only does it exemplify particularly well the kind of power transaction that takes place between public agents and private interests, but it also demonstrates the way in which the hegemonic process operates, in which one particular discourse, framed by arts bureaucrats, resoundingly silences the other.
Framing is of course a conscious selection, a process which is both inclusive and exclusive. What is inclusive, in this case, is the decrease of arts donations, while what is exclusive is the lion’s share of public expense in these gifts. Between 1986 and 1993, the year when the "double tax incentives" for art donors were restored, the tax changes had become so "politically hot" that even a cursory inspection of the entries in the Art Index reveals it: their repeal was the top legislative goal of museums and arts professionals a l i k e . D u r i n g the period concerned, 18 articles out of a total 49 entries on the topic of American museum gifts and legacies were devoted to this i s s u e . A l l but one were in favour of restoring the pre-1986 tax benefits to donors because, it was reported, art museums across the country were as a result experiencing a dramatic decrease in art d o n a t i o n s . No wh e r e is the issue of the effective subsidies from public money in the so-called "donations" ever raised.
The 1986 law was, to quote Edward Able, director of the American Association of Museums, "causing a haemorrhage of our cultural and artistic wealth. Certainly the situation is not straightforward. As far as tax benefits are concerned, if the donor wished to do so, he or she could have sold the artworks and donated the cash to museums instead, a process which was, and still is, tax deductible. But in that case, the donor could lose some part of those "double tax incentives" given by the pre-1986 tax laws.^^ However, to maximise the benefits for the donor, the representative o f the Association testified before Congress: "Rather than seeking a benefit fo r the rich, we are seeking to induce them to part with wealth" because "[m]useums serve public purposes, not private ones [italic added]. By identifying the private agenda as identical to the public interest, these arts managers could then set about protecting what they deemed to be the
treasures of the nation. For whose interests ultimately these people speak is curiously a question that remains to be answered.
The Mathematics o f Indirect Public Subsidies
This necessitates some indication of how much public money has actually gone to the "private" art museums. But money, in the arts, is never an easy calculation. The relevant data available from other research are not a perfect measure, not least because they are not collected in terms of the particular focus and ambit of our present study.®^ I thus approach the matter on two levels. On the macro level, I attempt to show how much and/or what percentage of public money, both direct and indirect, constitutes the budgets of art museums in general. On a micro level, I aim to illustrate, through the case of the Metropolitan Museum of Art in New York (hereafter "the Met"), the range of indirect subsidies that have been effectively obscured or hidden from public view. By virtue of its high visibility, this museum, perhaps more than any other museum in America, is subject to rigorous public scrutiny, and information on its operations is therefore comparatively more readily available.
According to the Association of Art Museum Directors survey in 1989, which covered the operation of 155 art museums across the country in the previous year, Don Fullerton, Professor of Economics at the University of Virginia, reached an approximate figure of tax expenditure for art museums.^
$ (million)
Operating revenue (earned income) 122.4 14.0% Private support (contributed income) 235.0 27.0%
Value of art donated 77.3 8.9%
Total federal support 95.7 11.0%
Total state and local support 168.7 19.3%
Endowment income 173.0 19.8%
Total 872.1 100.0
One third of the 35.9 percent deductible contributions to art museums (27.0 % private support and 8.9 % value of art donated combined), in other words, about 12 percent is
tax expenditure. Another one third of the 19.8 per cent non-taxable endowment income (6.6 percent) is also part of taxpayers’ money. Fullerton also mentioned another form of tax expenditure, namely the non-taxation of net operating revenues; this unfortunately could not be estimated because the costs related to the store, restaurant, parking or special events were not available. This part of the calculation aside, the two tax subsidies already mentioned alone constitute 18.6 percent of museum income (12 percent plus 6.6 percent). If we add this amount to other direct federal, state and local support, it brings the public subsidies to almost half of the museums’ income.
This estimate is, however, very conservative, but unfortunately no other comparable data are available.®^ The main problem arises from the fact that the 33 percent top income tax rate in 1988 was almost at its lowest in this century (see Table 1.1). In contrast to a few decades ago, when the top rate was more than 90 percent (i.e. from 1944 to 1963), art gifts, or indeed any charitable contributions, represented a 90 percent tax benefit. When the tax rate dropped to 70 percent in the 1970s, the tax benefit for donors correspondingly decreased to 70 percent. When the tax rate further reduced to 33 percent in 1988, for any gifts the U.S. government contributed only 33 percent of the value. What this meant was, to quote the title of an article by Walker: "Generosity will cost more, 1RS [Internal Revenue Service] tells donors.
These figures take on added significance if we look at the decade of the establishment of art museums (see Table 2.2). More than half of them, or indeed of museums in general, were set up over the decades of the 1960s and 1970s, when the tax rates were comparatively higher. Certainly other factors might have contributed to this