As legislative leaders try to decide whether to stick with their plan to further delay a 21-year-old voter law, leaders from the state’s non-profit sector are making the case for a “timely and important” implementation of the state’s charitable contributions tax deduction.
In a letter to legislative leaders obtained by the News Service, Massachusetts Nonprofit Network CEO Jim Klocke said that over 80 percent of nonprofits rely on individual donations, a higher percentage than any other type of funding. The letter went out last week after Gov. Charlie Baker surprised Beacon Hill by vetoing another delay in the tax law’s implementation, saying a $4.2 billion “tax reforecast” makes the deduction, and other measures, affordable.
“The combination of strong state revenues and serious needs facing non-profits and charitable organizations necessitates this tax deduction’s going into place,” Baker wrote in his veto message.
House budget chief Rep. Aaron Michlewitz last week didn’t say whether an override bid would be launched, but said the tax deduction issue has the attention of legislative leaders. “We’re looking at it,” he said. “And if we’re going to do that there’s an idea that we would probably do it earlier rather than later because it’s something that goes into effect right away.”
Klocke wrote that the deduction, which voters approved by a 72-28 percent margin in 2000, should move forward because Massachusetts is in a “much better fiscal place” now compared to a year ago. Most residents who will utilize the deduction are low- and middle-income residents, he added, addressing critics who say the deduction’s benefits will accrue to wealthier residents who can more easily afford to donate to nonprofits.
“Nonprofits across the state are still struggling to recover from the pandemic,” he wrote. “Many saw significant revenue drops last year, and many are operating with limited cash on hand. In our most recent survey 60% of respondents reported revenue loss with an average drop of 34% over the past year.”
During this last week of formal sessions prior to a summer recess, lawmakers are weighing which of Baker’s budget vetoes and amendments to address. House leaders plan to convene a formal session on Wednesday, when veto overrides, which require a two thirds vote, could emerge for consideration.
The deduction’s implementation would pull about $300 million out of the state’s annual tax stream, according to the Department of Revenue, with an impact over the second half of fiscal 2022 that is estimated at $64 million. The deduction was in effect for tax year 2001 but the Legislature suspended it in 2002 as a recession cut into tax collections and created a state budget crisis. Current law requires the charitable giving tax deduction to take effect in the tax year after the one in which the personal income tax rate falls to 5 percent. The income tax rate fell to 5 percent on Jan. 1, 2020.
