Tax Policy Breeds Bad Blood Between Songwriters and Poets
This article originally appeared in Tax Notes.
Taylor Swift’s hard-earned reputation for being a savvy music mogul inspires other creative spirits to be fearless in their artistic endeavors. However, unless these artists are songwriters or musicians, they should keep their eyes open when selling their works, as they may see red when they discover their tax rates.
Provoked by Swift’s February proclamation, “All’s fair in love and poetry,” this article highlights and amplifies a curious dysfunction in U.S. tax law that distinguishes between songwriters and poets.
Specifically, why does the code tax the sale of poems set to a beat more favorably than poems without a beat? In particular, songwriters may be eligible for preferential capital gains treatment, while poets will be subject to ordinary income rates.
Because she has not sold her catalog of works, Swift presumably pays ordinary tax rates on any royalty and performance income she earns from her new and rerecorded music compositions from all her eras.
As an illustration of this bad tax karma, consider contemporary poets Ada Limón and Amanda Gorman, who are taxed at ordinary income rates when they sell a collection of their poems, prose, and copyrights (10-37 percent). By contrast, when singer and songwriter Bob Dylan sold his collection of songs and copyrights for $300 million, he was eligible for lower capital gains rates (0-20 percent) under a special tax provision for selling “musical compositions.” Since their artistic genre does not include a musical beat, poets Limón and Gorman do not have the opportunity to convert ordinary assets into capital assets and thereby lower their tax bill.
The article's author, Hilary G. Escajeda, aims to point out how the current tax laws breed bad blood between musicians, other artists, and regular wage earners.
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