“Is Art an Industry or a Luxury”
The Wall Street Journal
by Daniel Grant

Sens. Pete Domenici (R., N.M.) and Charles Schumer (D., N.Y.) have co-sponsored legislation, endorsed by both Christie's and Sotheby's auction houses and the Art Dealers Association of America, to equalize the tax treatment of capital assets. This will be their third try. Why, so far, have they not persuaded their congressional colleagues, and why have two other bills affecting art collectors and museums run into similar resistance?

Grant says that that it is because it defies standard economic practice or public policy, or both. It makes sense only if one believes that art is just one more and equally important investment realm. The government wants people to invest in businesses or the housing market, entrepreneurship, places where the money is more productive.

Tyler Cowen at Marginal Revolution disagrees . . .

"Buying art shifts money from one set of hands to another and it doesn't discourage investment in factories or elsewhere. (And if it did, investing in houses would involve the same problem, I might add.) The recipient of the money, the art seller, can invest the money just as well as the spender might have. Or in other words, the transfer of the arts doesn't consume much in the way of real resources. Admittedly there is a second-order effect: higher prices diverts more labor energy into the arts, although for Old Masters this effect is very small. Or you might cite shipping and transfer costs for the art, noting that on that logic we should tax shopping carts at higher rates as well.

There is a good argument for the higher tax rate on art, namely that art yields otherwise non-taxable pleasures -- the pleasure of hanging it on your wall -- unlike say holding Chrysler stock. Or you might think taxing art is another way to hike the tax burden on the rich. But the cited argument just doesn't fly."