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Research Themes
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Cultural Policy 101: Demystifying the US EcosystemDecember 2006
Demystifying the US Ecosystem: Myth 4
Private and foundation investments in arts and culture are the prime source of income for the arts and cultural sector and provide more than a sufficient source of support.
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Table of Contents
Myth 4: Private and foundation investments in arts and culture are the prime source of income for the arts and cultural sector and provide more than a sufficient source of support. The US is known for its policy of exempting charitable contributions (up to 50% of income for individuals; 10% for corporations) from taxation as established through the 1917 Tax Revenue Act, a privilege extended to corporations through the Gift Tax Act of 1932. As the building blocks of US charitable giving, these laws provide incentives and an indirect subsidization of personal investment in nonprofit activities in which 67% of Americans participate. Historically, many individuals and private foundations have taken advantage of these policies and have contributed greatly to the arts and culture. However, philanthropy is just one source of support for cultural organizations. It is estimated that in recent years, 50% of nonprofit arts and cultural sector income has been raised not from contributions but from earned income (publication and ticket sales, membership fees and fundraising events) making it the prime source of support. In comparison, private sector philanthropy [individuals (35.5%), corporations (2.5%), foundations (5.0%)] while still a major source of support represents less than half (43%) of nonprofits arts organizations' current revenue. Governmental support from federal, state, and local sources (7%) makes up the difference. Total private sector philanthropy contributions to the arts, culture and humanities continue to be significant and have risen steadily (in 2005 they were $2.6 billion,) but the percentage of these contributions to overall foundation giving has declined and currently represents about 5% ($13.5 billion in 2005) of all foundation giving. Individual cultural contributions have taken a parallel downward spiral from 8.1% to 5.2%. of total philanthropic contributions. Since 1992, philanthropic giving to the arts has dropped from 8.4 to 5.2 % of total giving reflecting a theoretical loss of $8 billion annually to the field. Although trends do show that support for the field comes from more diverse sources than in the 1990’s, many new foundations built on the profits of innovation like the Bill & Melinda Gates Foundation do not fund arts and culture, instead preferring to invest in health-related programs. In particular, 2002 was a watershed year: the stock market crashed taking with it a large proportion of many foundations’ assets; a new Executive Order was introduced requiring foundations to vouch that all grant recipients were not affiliated with terrorist organizations or funds; and the Sarbanes-Oxley Act instituted stricter ethical and management practices for corporations that were adopted by many private charitable foundations. All of these factors contributed to a growing reluctance to invest in culture on a broad and national level, and many foundations reprioritized and decided to refocus their efforts more locally. This trend is reflected in figures indicating that community and family foundations contribute larger portions to the arts than do larger corporations or household contributions. While philanthropy remains a significant force in supporting the nonprofit arts and cultural sector, its role as the primary contributor is changing. As a result of these changing trends in philanthropy, the nonprofit arts and cultural sector must not only educate a new generation of donors but each organization will have to continue to diversify income, be creative in finding revenue streams to support their work and find effective indicators and evaluation tools to benchmark impact. Previous Section Next Section All Resources |
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