Tax (and political) trouble, U.S. style
Happy, happy, the holidays are here!

Money for nothing and more tax breaks for me

OK, maybe that's not exactly the lyric to the Dire Straits ("I want my MTV") song, but it's what Mark Knopfler and his colleagues could soon be singing.

Tucked into S. 2020, the voluminous tax bill approved by the Senate on Nov. 18, is a provision that would let songwriters count their royalty payments as capital gains instead of ordinary income. The benefit: up to 20 percent less in taxes owed. The tax can be as much as 35 percent on ordinary income, the category into which songwriters now must put their lyric sales. But the tax is just 15 percent on properties held for more than a year and then sold for profit, the tax classification the musicians will get if the legislation makes it into law.

The Wall Street Journal reports that the country music industry was the big engine on this tax-break train, but the advantages will apply to all songs and songwriters. That's, pardon the cliche, music to the ears of folks here in Austin the self-proclaimed Live Music Capital of the World. The moniker might be a tad inflated, but I must admit that it's a real treat to be able to choose from dozens of performances a night and, even better, find a restaurant that offers a live band to serenade you while you chow down. Yep, we've enjoyed chicken-fried steak, mashed potatoes, cream gravy and Texas swing at the Boat House Grill. It sure beats the heck out of the old dinner theater approach. And the tragedy of Katrina has turned into, at least for the time being, a blessing for music and down home cooking hungry Austinites, as the city now is home to many displaced New Orleans musicians. As the Washington Post reports, it's added a nice new musical joie de vivre to the already eclectic Lone Star State capital.

But musicians aren't the only creative types who could see some tax relief. The Senate legislation would also give living writers, musicians, artists and scholars who donate work to a museum or other charitable organization a full fair-market-value tax deduction. Currently, only estates of artists get that more generous tax break, while the munificent living creator can only deduct the cost of material used to produce the work. That means a painting worth $5,000 might translate into only a $100 tax deduction to account for the painter's canvas, paint and brushes.

Who knows why Congress, or the Senate anyway, has become such a collective supporter of artistic endeavors. But it's not a bad trend from a group that too often seems to think all cultural efforts, from music to theater to art to film, are elitist and therefore automatically suspect in the ostensible grassroots political world.

And the tax breaks aren't a done deal. Right now, the musician one is also in the House bill, but not the break for artist donations. We have to wait to see what the House includes in its final tax measure (debate on the bill, H.R. 4297, begins next week), and then wait some more to learn what the two sides can agree to send to the White House to be signed into law (and whether the president will sign or veto it). The music and art provisions could bite the dust in this process since they both are costly. Joint Committee on Taxation estimates of the revenue effects of the two provisions come to a federal treasury hit of $2 million to help out songwriters and another $7 million for artists, and that's just in 2006 alone. We'll be watching as to whether a House-Senate conference committee will accept such a treasury hit and add to the deficit or come up with other ways (i.e., taxes) to replace the lost money.

Addendum Dec. 3: For a slightly different version of these thoughts, check out my version posted on Blogcritics.org, "a sinister cabal of superior bloggers on music, books, film, popular culture, technology, and politics."

Addendum Dec. 14: They still like me! My Blogcritics version was selected as one of this week's Editors' Picks (Culture): "Kay opens her article by saying, 'Government and the arts. Sounds like an oxymoron, doesn't it? But the two are inextricably intertwined...' After reading this, you might think so too." Thanks again Blogcritics!

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