Last week, the Legislature once again delayed the implementation of a 2000 ballot question that was supposed to reward Bay Staters who made charitable contributions with tax breaks — and nonprofit leaders are frustrated.
“We understood the need to delay it during the pandemic,” said Massachusetts Nonprofit Network CEO Jim Klocke. “But we are now in a much stronger economic and fiscal position, and nonprofits are still struggling to recover financially from the past year and a half.”
According to an MNN survey, more than 60% of nonprofits who responded reported revenue loss during the pandemic — 34% on average.
The tax break, passed by Massachusetts voters with 72% support in 2000, would allow donors to deduct those donations from their tax bills, which is already enacted at the federal level for those who itemize their deductions. The break took effect only in 2001 before economic downturns stalled its implementation until after the personal income tax rate was reduced to 5%. Massachusetts hit this mark last year.
Lawmakers delayed the implementation of the tax break a year due to the pandemic. This year, however, with an estimated $10 billion in surplus cash from the federal government and unexpectedly high tax revenues, the Legislature overrode Gov. Charlie Baker’s veto to postpone the tax breaks to 2023.
Charles Chieppo, a senior fellow at the Pioneer Institute, called the veto a “head-scratcher.” “Voters approved this by more than a two-to-one margin,” he said. “It was just so clear that that’s what voters wanted.”
“Massachusetts’ local charities have helped our most vulnerable residents through the pandemic, and as the Commonwealth has a significant budget surplus and billions of dollars in federal aid available, it is time to finally deliver this charitable deduction that voters approved decades ago,” Baker said in a statement.
Critics argue that these tax breaks tend to skew toward the wealthy. A study published by the Massachusetts Budget and Policy Center last year found that the average savings of a policy like this would be $7 for those who earn under $50,000 a year, while those earning over $1 million would get almost $10,000 back from the state. This could cost the state about $300 million in annual revenue, according to the paper.
“If we didn’t have such stark and widening inequality, then it would be more acceptable to have a policy which mainly benefits those who are least in need,” said Phineas Baxandall, a senior analyst at MBPC.
State Sen. Diana DiZoglio, D-Methuen, one of the few Democrats in favor of this measure, argued that “the charitable tax deduction would make a world of difference for nonprofits across Massachusetts,” she said, speaking partly from her prior experience in the nonprofit sector. She cited the statistic that 627,000 low- and middle-income earners would utilize this deduction.
And for Elizabeth Cannon, executive director of the Lowell Association for the Blind, she said small donors are the backbone of her donor pool, many of whom donate under $100. “This will have an impact,” she said. “The opportunity to get a tax deduction would encourage them to continue to give.”