Speaker Newt Gingrich has announced that the House of Representatives plans hearings on a flat income tax. His statement marks the beginning of the 105th Congress' move toward a tax reform which could affect private funding for the arts.
Arts advocates have expressed concern that any tax reform not eliminate the charitable deduction, which represents 30% of the income for nonprofit arts organizations, including theatres. A flat tax could endanger that deduction.
Current law provides five tax brackets from 15% to 39.6%. A commission chaired by Jack Kemp, the eventual Republican vice-presidential nominee, recommended last January that the federal graduated tax code be replaced with a single rate.
Gingrich said on Tues., Dec. 3, that the commission's report "will be resurrected in January, and we will have hearings on simplification (of taxation)."
While not recommending a specific tax rate or size of personal deductions, Kemp's commission called for further study on eliminating deductions.
But, according to the American Arts Alliance--a Washington, D.C.-based advocacy group--a couple of flat tax proposals are already before the House.
They include the Armey-Shelby proposal, introduced by House Majority Leader Richard Armey (R-Tex.) and Sen. Richard Shelby (R-Ala.), which would create a flat tax of 17% on both individuals and businesses. Individuals would receive an exemption of $13,100 on a single return or $26,200 on a joint return, and deductions for dependents. All other deductions and credits would be eliminated, including the charitable deduction.
Sen. Arlen Specter (R-Pa.) has proposed a flat tax similar to Armey-Shelby, except for two major points of interest to nonprofits: (1) It would impose a 20% tax on all earned income of individuals and business, 3% higher than Armey-Shelby; and (2) it would allow individual taxpayers to continue using the charitable deduction, limited to $2,500. Sen. Phil Gramm (R-Tex.) has offered a similar plan, with varying tax rates and