January 2, 2013
From: Isaac Brown, Legislative Counsel
Vol. 13:01

The Fiscal Cliff Vote: Implications for Arts Funding

As you are no doubt aware, on January 1 and 2, a series of tax and policy changes was set to occur that was so potentially devastating to the economy that Federal Reserve Chairman Ben Bernanke dubbed it the “fiscal cliff.” Following a week of tense negotiations, the House of Representatives voted late last night to pass legislation that averts tax implications associated with the fiscal cliff while delaying other components for a few months, thereby allowing Congress more time to develop a compromise.

The legislation—which was initiated by the Senate a few days ago, passed by the House last night and signed into law today by President Obama—will permanently raise income tax rates to Clinton-era levels for families with income above $450,000 and for individuals who earn above $400,000. For all Americans who earn below those thresholds, the 2012 tax rates were extended permanently.

While the news was hailed as a significant achievement for the 112th Congress, which expires tomorrow and has been considered one of the least effective in our nation’s history, we as arts advocates must be aware that several critical issues that could pose a risk to arts funding remain unsettled.

First, it is important to note that the legislation did not eliminate the across-the-board cuts in discretionary domestic spending (including to the National Endowment for the Arts [NEA]), known as sequestration, that were required under the Budget Control Act of 2011. Instead, the legislation simply delays the implementation of the sequester until March 1, 2013. The decision to delay was made because, while members of both parties agree that federal spending must be reduced significantly, they felt that the sequester was not the appropriate means for creating such cuts. The two-month extension will grant Congress and the president more time to negotiate a new mechanism for deficit reduction. By delaying the implementation of the sequester by two months, Congress once again is gearing up for a battle over federal spending and deficit reduction. This means we once again will have to be prepared to advocate aggressively for the NEA. The arts endowment could be particularly vulnerable if targeted cuts to selected discretionary spending lines come under consideration in these negotiations.

Second, two limits on tax exemptions and deductions for higher-income Americans will be reimposed: the personal exemption phaseout will be set at $250,000 and the itemized deduction limitation will kick in at $300,000. Both changes may affect charitable deductions for contributions that support cultural organizations and other charitable activities.

The 113th Congress will be sworn into office on Thursday. We soon should get a sense of how House and Senate leadership plan to address the new time line. As always, NASAA will monitor closely developments in Washington and will let you know when outreach to Congress can be most effective.