I read a story yesterday about the attempts to make a local arts tax in Portland, Oregon slightly less bad, and since I used to teach about this sort of thing I thought it might be worth giving my personal quick-and-dirty checklist on local earmarked taxes for the arts.
Here are questions anyone wanting to propose such a tax ought to ask themselves:
What are we trying to achieve? The answer cannot just be “yay arts!” because you are going to be asking locals to pay more in taxes and they rightly will want to know what it is for, how it will make life better in the community such that the additional taxes are worth it. Even answering “the arts are a nice thing for communities” isn’t enough: how so, specifically? When I worked in government, my boss would always ask people with proposals for a new thing “what problem are you trying to solve?” There should be a clear answer.
How will we distribute the funds? This question can only be asked after you have a solid answer to the first question: how you distribute money depends on what you are trying to achieve. Grants for young artists, or other subsidies to individual artists? A wide distribution across various nonprofit arts organizations? A focus on your very big institutions, so they have more secure financing? It depends on what you think is lacking in your community. Do your biggest institutions really need more money, that cannot be raised through philanthropy? Why?
Should it just be for the arts? Probably not – the nonprofit arts alone don’t have enough of a base that actually cares. But if you add in history and science museums, botanical gardens, aquariums and zoos, bike paths, and so on, you start to build a bigger coalition of interests. Think about residents with little kids who can’t get to the symphony, but want things to do with their family.
Why an earmarked tax? An earmarked tax is where the revenues do not go into a general fund, but are set aside for a specific purpose (as with the federal government’s gasoline tax, for example). The good thing about earmarked taxes for the arts is that they give a generally (though not perfectly) predictable amount of money year to year, not subject to shifting needs from the rest of the local government budget. But that’s also the bad thing: if you ask a treasury official about earmarked taxes, they don’t like them, since it reduces government flexibility to address long-term shifts in where money is needed. Arts funding doesn’t amount to a lot of money, so maybe not such a big deal, but you wouldn’t want a local system full of earmarked taxes. An alternative is always just to have an arts council that is financed out of the general fund, remember.
What’s your geographic scale? You can do a tax for a large and sprawling metro area, but only if people at the edge of the sprawl will get at least some benefit from it. I once did a study on voting in a failed referendum in metro Detroit for an arts tax (it’s paywalled, but I think there’s a free pdf out there if you google for it, or just ask me in a note), and people in the far northwest of Oakland County were being asked to have an increase in their property taxes to fund organizations predominantly on Woodward Avenue, 58 miles away. If you use a big area, the distribution of funds has to be wide. (metro Denver’s seven-county arts district ensures funding is spread out – it seems to be pretty popular there).
Should big arts organizations get a guaranteed proportion of the funds, or should they write grant proposals every few years like everyone else? This always proves to be a sticking point, and you can easily imagine how local arts bosses divide on this. I don’t like guaranteed allocations. It allows for a certain complacency in those with a guarantee, they are typically the ones with actual staff to handle applying for grants to the local fund, and it deters new ventures. Suppose I have an idea for a big new arts thing in Shelbyville, and I am told, “well, yes, there is a local arts tax, but you’ll be fighting over a share of the twenty percent left over after eighty percent has gone to the legacy institutions that got here before you did.” I’ll look elsewhere.
What tax base? State laws might restrict your options here, and whatever you choose will typically need approval through a referendum. My advice is to keep it simple. Metro Denver and Salt Lake County add a tenth of a percentage point to the retail sales tax, which is easy, and evenly distributed. Some places use a tax on hotel stays: this is also fairly simple. Do not think that this means “great, we’ll just get people who live somewhere else to fund our arts!” The incidence of a hotel tax is to an extent borne locally. Otherwise, why not fund your entire local government this way? Property taxes are also used in some places (St. Louis does this for a small group of big institutions). But people hate property tax increases. And you can hit a ceiling, where increased tax rates simply lower assessed values of properties. You don’t need to get fancy about this. In the Portland story linked above they talk about a possible levy on streaming services, but … why? “We are going to tax you for watching a movie at home when you could have been at a gala performance at our opera” doesn’t add up to me. Don’t choose a base that is clearly regressive, ie where the poor will pay a larger share of their income than the rich – this was a real problem with Portland’s head tax. In some countries and states they use lottery profits to fund the arts, and that is very, very bad, about the most regressive tax base there is (maybe with the exception of funding the arts through taxing cigarettes – I’m looking at you Cleveland – but at least there you can cite a public health benefit from the tax).
Cross-posted at https://michaelrushton.substack.com/
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