Massachusetts House Overrides Baker on Charitable Giving Tax Deduction

By Matt Murphy

Twenty-one years after voters approved a tax deduction for charitable donations, the House on Wednesday voted to override Gov. Charlie Baker’s veto and postpone for another year the tax break that non-profits said would help encourage residents to support an industry hurting from the COVID-19 pandemic.

House Speaker Ron Mariano called the vote “consistent” with the Legislature’s decision to postpone the tax deduction for one year, but Baker said he was deeply disappointed in the outcome given the strength of the state’s financial situation.

“Yes, the revenue picture is rosy, but it’s not certain. It doesn’t mean no, just not now,” Rep. Mark Cusack, the House chair of the Committee on Revenue, said.

The House and Senate approved a one-year postponement of the charitable tax deduction as part of the state’s fiscal year 2022 budget, proposing to push back its implementation until January 1, 2023.

While the tax break is worth an estimated $64 million in the current budget and $300 million annually, Baker vetoed the delay, arguing “the combination of strong state revenues and serious needs facing non-profits and charitable organizations necessitates this tax deduction’s going into place.”

The House voted 124-35 Wednesday to reverse that veto, and a spokesperson for Senate President Karen Spilka said she expects the Senate to take similar action Thursday.

All 30 Republicans in the House voted to sustain Baker’s veto and allow the tax deduction to take effect next year. They were joined by Rep. Susannah Whipps, the House’s only independent, and four Democrats — Reps. Nika Elugardo, Christopher Markey, David Robertson and Joan Meschino.

“I think it is the perfect point in time to say to the voters who overwhelmingly passed this in 2000, we’re finally going to live up the commitment, to the demand you made as voters,” Minority Leader Brad Jones said.

Jones said legislators are “on the precipice” of an election in 2022 when voters will be asked by the Legislature to approve an income surtax on millionaires with the promise that the $2 billion in new revenue will be spent on education and transportation.

“If you want those same voters to believe you that that’s what this Legislature is going to do, then you should absolutely vote to restore this tax deduction,” Jones said.

The state is projected to have a sizable surplus once the books are closed on fiscal 2021, and the Legislature is currently weighing how to spend billions in federal relief money at a time when the state’s reserves have been built up to record highs as a bulwark against an economic downturn.

Baker, in a statement, said that given those factors “it is time to finally deliver this charitable deduction that voters approved decades ago.”

“I am deeply disappointed that the Legislature would deny these front-line organizations a crucial opportunity to generate the resources they need to help families keep food on the table, address substance use and behavioral health challenges, support survivors of domestic violence, and more,” Baker said.

Mariano called the override vote “consistent” with the Legislature’s decision in the budget to delay the implementation for one year and “revisit it in the future.”

“This will allow us to debate permanent changes to the tax code not solely based on current revenues, but considering its long-term impact on taxpayers, charitable organizations and tax collection,” Mariano said.

Since its passage with the support of 72 percent of voters in 2000, taxpayers have only been able to take advantage of the deduction once in 2001. Legislators the next year suspended the measure amid a budget crunch and linked its revival to a combination of economic metrics that was finally triggered last year.

With the deduction set to take effect in 2021, the Legislature delayed it for one year last year and is on the verge of doing so again.

“An override will delay the deduction for one more year, and we’ll keep working on it,” said Jim Klocke, CEO of the Massachusetts Nonprofit Network. “We want to see its benefits become a reality, especially for 627,000 low- and middle-income donors and tens of thousands of non-profit organizations across Massachusetts.”

Ahead of Wednesday’s vote, the certainty of which was unclear to start the day, the Massachusetts Budget and Policy Center and Codman Square Health Center co-founder Bill Walczak made forceful arguments against the tax break.

In one of a pair of letters published by The Boston Globe, Kurt Wise, senior analyst at the Massachusetts Budget and Policy Center, wrote that the benefits would accrue “overwhelmingly” to the state’s highest income households.

Wise also said that the federal charitable tax deduction is seven times larger than the one potentially being offered by the state and has a far greater impact on people’s decisions about whether and how much to give.

“The Legislature should delay implementation of this expensive, unfair, and ineffective tax break,” Wise wrote.

Walczak said the main beneficiaries of increased giving because of the deduction would be “already well-resourced hospitals, museums, schools, colleges, and churches, not local community nonprofits.”

“Yes, the state should help nonprofits, but it should fund them directly,” Walczak said.

Klocke said that one of the important parts of the charitable giving tax deduction is that it’s “universal” and can be claimed by anyone, regardless of income.

“It rewards giving and encourages giving and we think we should do more to strengthen the culture of giving in Massachusetts,” Klocke said.

Just last month, both Mariano and Spilka submitted videos for the MNN’s virtual Nonprofit Excellence Awards ceremony.

Mariano described non-profits as being “on the front lines of this (COVID-19) crisis, providing aid and support to the many residents who have been severely impacted by it,” and said lawmakers on Beacon Hill rely on non-profits to keep abreast of what’s happening in communities regarding everything from substance addiction to voting rights.

Spilka described a history of a “strong collaborative relationship” between the public and non-profit sectors.

“If there was ever a time to celebrate that bond, and continue to strengthen it, the time is now,” Spilka said in remarks for the June ceremony.

Klocke said the MNN remains committed to working with anyone interested in the issue.

“We know the Legislature and people across state government see the work of the non-profit sector and respect the work of the non-profit sector and we look forward to continuing to work with them,” he said.