As Massachusetts taxpayers file their 2001 returns, a voter-approved law will allow them to deduct charitable donations from their state income taxes for the first time.
As the deduction makes its debut, some state House of Representatives leaders are already considering its demise as a way to ease budgetary woes.
Last month, Rep. John Rogers (D. Norfolk), chairman of the House Ways and Means Committee, proposed eliminating the charitable deduction. An aide said the proposal is still pending and declined further comment. In a statement, Rogers criticized the state deduction for not targeting Massachusetts charities and said it would force the state to cut spending on services because more budget money would be going back to taxpayers.
Massachusetts income tax rate is 5.6 percent, so when the state tax break is combined with the federal deduction, someone who made a $100 donation in 2001 will be eligible for a deduction ranging from about $20 to about $45.
“This Charitable Tax Deduction does not entice any new giving beyond what the federal tax break purports to entice already,” Rogers said. “The Charitable Tax Deduction is a $200 million corporate gift at a time we can least afford it. It’s backward tax policy in dire need of speedy repeal.”
According to Scot Keefe, research director for the House Committee on Taxation, Rogers never liked the tax break and questioned whether gifts motivated by lower taxes are true charity.
The state is faced with a budget shortfall of approximately $2 billion, and the deduction will cost the state an estimated $100 million – $200 million. Keefe said there is no consensus on how to raise revenues, and that only an extensive survey could determine whether the deduction encourages giving; none is planned.
“Are we giving away tax money for what people would do anyway?” Keefe said. “People are struggling with this.”
Keefe said Sept. 11 probably sparked more donations and caused the tax break to cost the state more than when it passed through the General Court last year.
“The sponsors felt that Massachusetts residents are basically stingy,” Keefe said. “They felt it was a good tool to encourage people to contribute more and be more charitable.”
Almost three out of four voters agreed in the November 2000 election by approving Question 7, a tax cut designed to encourage charitable giving. Because of this, acting Gov. Jane Swift supports the tax break.
“The governor has a strong record on upholding the will of the voters,” spokeswoman Sarah Magazine said.
Associated Grant Makers, the Boys ‘ Girls Clubs of Boston, the Massachusetts Catalog for Philanthropy and the Boston Foundation are among nonprofit organizations voicing support for the measure. Along with the state, nonprofits are also struggling to overcome financial problems, Boston Foundation President and CEO Paul Grogan said in a statement.
“We have world-class museums and universities, youth enrichment and job-training programs which have become national models, and environmental collaborations that have salvaged the harbor that gave birth to this city,” Grogan said. “If we are so shortsighted that we don’t see the value of investing in these resources, then we are not practicing enlightened self-interest.”
The deduction also continues to find support from the Massachusetts Taxpayers Foundation, an independent, nonprofit organization that researches taxes and the economy to advise politicians.
“It’s a positive change in the state tax code,” Foundation President Michael Widmer said. “With the deduction people feel they get something back for giving.”
He said that the recession reduced giving, but Sept. 11 caused a “major spike,” leaving donations for 2001 still unknown, much like the impact of the measure.
“There are so many variables, especially in this particular year, that’s it’s going to be hard to make a judgment and assess the particular impact,” Widmer said. “It’s not fair to assume it will cause a large amount of donations that wouldn’t be given otherwise, since it’s small compared with the federal deduction. But it’s important symbolically to encourage and reward that in Massachusetts.”
The state needs that encouragement because it tends to give less than other states, he said. The Massachusetts Catalogue for Philanthropy’s so-called Generosity Index ranks Massachusetts 48th, which is an improvement considering it ranked dead last from 1991 to 1996.
Rather than eliminate deductions, Widmer recommended legislators wait until the economy improves and then implement the overall tax cut aimed at reducing the state income tax to 5 percent.
“If they need additional revenue, we think that the first place to look is the [overall] tax cut because it will have a much larger impact,” Widmer said.
If Rogers succeeds in eliminating the state charitable deduction, Widmer said they could decide to make it retroactive to January 2002, or have it apply only to future donations. Meanwhile, the overall future of the deduction is just as uncertain.
“The situation now is so volatile on Beacon Hill right now that it would be impossible to predict the outcome,” Widmer said.
This is an account occasionally used by the Daily Free Press editors to post archived posts from previous iterations of the site or otherwise for special circumstance publications. See authorship info on the byline at the top of the page.
