Drawing a Blank: Why Is Congress Going to Reward Wealthy Artists?

Right now, while everyone in social media is arguing over other things, a horrible little law is making its way through Congress which you ought to be aware of – if you happen to love art and care about capitalism, as I do.

The Art Newspaper reports today that a bill known as “The American Royalties Too Act” or “A.R.T.”, has gained six co-sponsors over the last three weeks.  The bill would impose a resale royalty on works of art meeting certain sales criteria, and is modeled after a European concept known as “droit de suite”.  Since my time at Sotheby’s Institute back in graduate school, the concept of droit de suite has struck me as both nonsensical and typical of those who, in order to solve a perceived problem, decide to create another one.  I’ve warned about it on the blog before, as you can read here.

The wincingly awful use of the word, “Too”, aside, here’s what I promise you will happen over the next decade, if this “A.R.T.” bill passes:

1. The law will do little or nothing to aid most artists – and may actually hurt them.

In theory, this law is designed to protect struggling, up-and-coming artists.  As Christopher Rauschenberg, son of the late artist Robert Rauschenberg wrote on HuffPo yesterday, those pushing this legislation believe we “should foster and support young artists if we want them to continue to create. Implementing legislation that equitably distributes the proceeds of creative output will cost taxpayers absolutely nothing, yet would mean a great deal to the artistic community.”  [Helpful hint: any time you read the words, “equitable distribution” as a justification for anything, raise an eyebrow.]

In reality, if passed this law will largely operate for the benefit of already wealthy artists, their foundations, or their estates, such as that of Mr. Rauschenberg, by pouring additional thousands of dollars into their coffers every time a work of theirs is sold for up to 70 years after their death.  At the same time, with a resale payment tacked onto every sale, those artists who are not already household names will find that prices for their work will remain artificially depressed, keeping sales turnovers of their work low.  Most artists, in fact, never see their work come up for auction at any of the big auction houses, and this law will do nothing to encourage that to change.

2.  The law will turn out to be a great tax-raising scheme.

While the law appears on the surface to be designed to help the poor and struggling artist, what is lost in the emotional component of the argument being made largely by those on the left – natch – is the fact that this is not free money, nor an act of beneficence on the part of Congress.

For royalty payments, you see, whether from sales or licensing of intellectual property, constitute taxable income.  What Congress is proposing is really a way of imposing an additional income tax, without actually calling it that.  The royalty payment will be taken by the auction house at the time of sale, and then the artist or his estate will be sent these payments, quarterly.  Once that royalty payment makes it to the end point – the artist or his estate – the government can tax that income.  So in truth, this is a way of squeezing art buyers out of just that little bit more of their money, even though the collection of said money will take place at a different end of the revenue stream.

3. The law will cause the market for Modern and Contemporary Art sales to shift away from the U.S.

Decades ago, Paris lost its primacy in both art gallery and art auction sales to London, in part because of the passage of draconian French laws regarding droit de suite and other forms of taxation.  Over the past fifteen years however, and particularly after Britain adopted EU regulations, the center of the international art market has shifted from London to New York.   With the implementation of this proposed A.R.T. Act, sellers are going to be faced with paying royalties – up to a cap of $35,000, depending on the resale price – on every piece of art falling under the protection of the law that is sold: a cost which they will pass along to the buyers.

Now yes, plenty of high-value auctions still take place in London today, and if this law passes they will still take place in New York, as well.  However over time, markets tend to seek environments where they experience the fewest restrictions on their ability to engage in commerce, which is why sales at Sotheby’s in New York eclipsed those of the home office in London years ago, and also why the socks you are wearing right now were probably not made in America.  If Europe suddenly became a (comparatively) cheaper place than the U.S. to engage in the art trade, the bulk of the buying and selling in the Modern and Contemporary art market could easily shift back to London.  Rather than making things better for everyone, Congress could actually be making everything worse.

4.  Is this bill really about achieving fairness? For whom?

In defense of this bill, co-sponsor Congressman Jerrold Nadler (D-NY) recently told The New York Times that, “To me, the bill is a question of fundamental fairness.”  However under scrutiny, this moral argument falls to pieces in the face of reality.  Under the European version of this law one of the wealthiest artists in the world, Pablo Picasso, is still collecting droit de suite payments – or rather, his already very wealthy children are, because he’s been dead since 1973.  Does that seem, on a common-sense basis, to be “fair”?

What about a living, wealthy American artist, such as Jeff Koons, who will directly benefit from the American version of this law?  Koons makes millions of dollars in commissions for creating things such as giant topiary puppies.  Is he so disadvantaged that getting a check for $35,000 every time some subsequent purchaser buys one of his sculptures, such as his metallic balloon animals, will “fundamentally” address a wrong done to him in some way?

By way of conclusion, I would point out that readers are of course most welcome to disagree with anything I’ve written in the comment section of this post, as indeed you always are.  Yet it seems to me that, from a purely rational, analytical point of view, one cannot deny the fact that those who will benefit most from the passage of this law are wealthy artists, and the government.  Little or any benefit will be shown to accrue to the group of individuals which the A.R.T. Act was allegedly designed to help, but Congress will once again have found a clever way to tax American business while wrapping itself in a cloak of moral superiority.

Detail of "Elevation of the Dome of the U.S. Capitol" by Thomas Walter (1859) Library of Congress

Detail of “Elevation of the Dome of the U.S. Capitol” by Thomas Walter (1859)
Library of Congress, Washington D.C.

Congress and the Art World: Fattening the Fat Cats

Those of my readers who are not members of the legal or art communities may not be terribly interested in a recent about-face by the U.S. Copyright Office, which has now recommended the expansion of royalty rights for artists.  However if you are interested in politics, business, and society, I suspect you will find much to chew over in legislation headed to Congress next month. For when we look at the underlying arguments in favor of this change to our legal system, one has to wonder whether we are creating a law which will benefit those who may need protection, or whether we are fattening the bellies of some already rather fat cats.

Droit de suite, or what we might call a “royalty right” for artists, has been developing internationally for quite some time.  I studied and wrote about it long ago, during my M.A. program at Sotheby’s Institute in London, when debate over EU passage of a law giving such rights began to alarm the British art market; that law, with some modifications, has been in place since 2001.  Now America is poised to follow Europe into playing what is little more than a nonsensical con game, but unfortunately no one seems to be paying any attention.

The basic concept of droit de suite is that, subsequent to the initial sale of a work of art, the artist who created it is entitled to receive a fee every time that work is sold, for a fixed period of time.  Under European law, this term is the life of the artist plus 70 years.  Thus, any time that a work of art is re-sold during the artist’s lifetime, and up to 70 years after he has died, he or his heirs are entitled to receive a royalty, based on a sliding scale percentage of the work’s sale price, not subject to sales tax (known as the “VAT”.)  And of course legally an artist’s “heirs” could be almost anyone: the artist’s family, a foundation set up in his name, his dealer, his accountant, etc.

Like many well-intended ideas, the original intent of droit de suite was to do something good.  Some 19th century artists in Paris were quite literally starving, selling their work to dealers for very low prices and barely being able to survive on the proceeds.  The dealers would turn around and hugely inflate the sale pricec they charged for these works in their galleries, and would pass little or none of the resulting profits along to the artist.  This parasitic relationship often lead to problems such as substance abuse, violence, and suicide.  Laws creating royalty rights for artists were therefore supposed to help them get out of these situations.

Yet today while droit de suite would, in theory, guarantee the starving artist some level of income to protect him from starving, in reality the net effect of the law is not to help the unsung artist, but to make rich artists even richer.  We can assume that the majority of  unknown artists who are dependent upon selling their work in order to survive are not commanding particularly high prices, nor are people who buy their works going to be selling and re-selling them with any frequency.  Thus, we have the rather ludicrous result of the law not actually helping those whom it was originally intended to benefit.  This is thanks in part to a market situation created by the art world itself.

What the art dealers and auction houses have taught the public over the last couple of decades, particularly with respect to contemporary art, is that if you buy a work of art now, and hold onto it for twenty years or so, when you resell it you will probably make a profit.  Thus, that unknown sculptor whose piece you bought in a gallery for $5,000 today, might turn out to be the next Rodin.  To protect your investment then, naturally you put it on a high shelf or in a bank vault, and then forget about it for the next 20 years.

Yet you can perceive the resulting conundrum for the starving artist: it would be impossible for him to benefit from droit de suite at the time he could really use that royalty assistance, when the collector has no intention of selling his work on to someone else for quite awhile, thanks to the advice given by financial planners and the art dealers/auction houses.  In addition, one can foresee how the resale market for up-and-coming artists will suffer in this environment as well.  Collectors may not want to take a chance on paying both the auction price and a droit de suite royalty on work by an artist who has not yet been proven to be a standout.  Again, this hurts the artist trying to make it, not the well-established artist whose work routinely sells for millions of dollars.

As one might expect, forthcoming legislation to pass this so-called “Artists’ Rights Bill” is being co-sponsored by three rather leftist members of Congress in possession of little common sense, Congressman Jerrold Nadler of New York, Senator Tammy Baldwin of Wisconsin and Senator Edward Markey of Massachusetts.  I suspect it will pass, for the simple reason that everyone will be far more intent on budget matters, the debt ceiling, and so on come January.  The argument that all other civilized countries have similar laws will carry some degree of resonance with a body not particularly famed for its understanding of the art world, and which does not particularly care about what goes on there – well, apart from Congressman John Mica of Florida of course.  Fortunately the recommendations on the drafting of the legislation from the Copyright Office would exclude people like Paloma Picasso from continuing to profit from resale of her late father’s work in this country, but living multi-millionaire artists such as Jeff Koons would benefit from this law immediately, and indeed throughout their lifetimes.

Clearly this legislation is not going to help the struggling artist: it is going to help the rich one, which strikes this scrivener as being fundamentally unfair.  It may even be an unconstitutional restriction on property ownership in this country, although given our present Chief Justice I imagine he would find a way in any court challenge to declare that it is not.  How this impending new law will actually apply to the art market in the United States we shall see, but given the general lack of public interest in the arts, it will almost certainly become law without anyone taking much notice.

Detail of "Portrait of Manuel Osorio Manrique de Zuñiga" by Francisco de Goya (1787-1788) Metropolitan Museum, New York

Detail of “Portrait of Manuel Osorio Manrique de Zuñiga”
by Francisco de Goya (1787-1788)
Metropolitan Museum, New York

Before The Tide Comes In: Obamacare and the HHS Mandate

Everyone in the new and social media universe has been predicting that sites like Twitter will be crashing later this morning when the Supreme Court decision on whether to uphold Obamacare or not comes out at about 10:00 am Eastern Daylight Time.  So before the internet is broken, I wanted to share some of the thoughts I took away from last evening’s Conservatism On Tap discussion entitled “After Obamacare”.  It was sponsored by the Intercollegiate Studies Institute and featured Kyle Duncan, General Counsel of The Becket Fund for Religious Liberty, and Professor Peter Lawler of Berry College.

As Mr. Duncan pointed out, the ultimate question before the Supreme Court is whether it is within the power of Congress under the Commerce Clause to mandate that people purchase health insurance: in other words, can Congress create commerce by forcing people to engage in it?  The average legal expert tends to believe that one cannot do this, at least as far as the individual mandate is concerned, but then the question becomes whether the law is severable, i.e. can parts of the law still survive even if the individual mandate is removed.  For example, if the individual mandate alone is ruled unconstitutional, does the HHS mandate remain in place, since that specific issue is not presently before the Supreme Court?

One of the analogies Mr. Duncan made last evening was particularly striking, whether one agrees with it or not.  With respect to the HHS Mandate itself, one can make the argument that Obamacare is a mortgage on our Constitutional freedoms, and the HHS Mandate limiting religious freedom is the first installment payment which is coming due.  Thus, if the Supreme Court does not strike down Obamacare in its entirety, then the Becket Fund and others plan to continue their lawsuits against the HHS Mandate, and that will be the next wave of cases generated by this law to be making their way up to the Supreme Court.

Professor Lawler pointed out that the Congress which passed Obamacare in the first place no longer exists.  Thus, if for some reason it is overturned in whole or in part, this Administration – even if it survives in November – would not have the chance to try again, unless there was an entirely unanticipated Democratic electoral tidal wave that flooded into both the House and Senate.  He also commented that now that some on the left have taken up the banner of crying judicial activism anticipating the overturn of Obamacare, they are going to have a problem.  The only way to get the public on your side with a cry of judicial activism is when the public thinks that the courts have gone too far; since Obamacare is so widely unpopular, the strategy of attacking the Supreme Court probably will backfire in the face of anyone on the left who attempts it.

The reality that everyone has to face is that employer-based healthcare programs are not really sustainable, Professor Lawler believes.  Healthcare will eventually have to devolve either to the individual or the government, and policy wonks understand this but the general public does not.  Ask your average GOP voter for example what he thinks of losing his employer-funded healthcare, and he panics.

Policy wonks have been exploring the changes that need to happen mostly with other policy wonks, rather than with the general public, and this needs to change because employer-provided healthcare cannot survive our demographics.  When people are living longer, and having fewer children, the system falls apart.  Unless people start taking up smoking and bad eating habits again and dying in their 50’s and 60’s, and having three or more children each, we cannot continue to have the system drawn up 30 or 40 or more years ago.  When planning for the future, Americans are going to have to get used to the fact that there will be uncertainty, and Mitt Romney needs to be preparing people for this, rather than trying to cover up reality with an unworkable mess, which is what this Administration made, regardless of whether or not the law itself is unconstitutional.

With respect to the HHS Mandate, discussion centered around the notion that the religious employer exemption is an example of the government interfering and telling people how to arrange themselves so that they can qualify as religious “enough” to meet an arbitrary definition selected by this Administration.  In fact, when coming up with the definition of what is a religious employer they simply chose the most restrictive possible, so that for example EWTN, the Catholic television and radio network, would not qualify as a religious employer because they do not solely broadcast their programming to Catholics.  The same would hold true for Catholic hospitals, universities, and so on, unless their primary activities were proselytizing and the exclusive care of their members.

These are some interesting points, then, for us to consider as we await the Supreme Court’s decision today.

“The Great Wave off Kanagawa” by Katsushika Hokusai (c. 1826-1833)
Library of Congress, Washington