Massachusetts
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Massachusetts
‘A whole ripple effect’: Mass. nonprofits fear drop in donations under proposed charitable deduction cap – The Boston Globe
“[Losing donations] would mean we would have to not see as many young people,” said Elisabeth Jackson, CEO of Bridge Over Troubled Waters, which supports homeless and at-risk teens and young adults. “It might also mean [we have] to close programs.”
Of Bridge Over Troubled Waters’ $12 million budget last year, $2 million came from individual donors. If the cap takes effect, Jackson fears that segment of funding could decline.
“It’s not just a cap on the deductions given to individuals that give to a nonprofit. It’s the whole ecosystem of how that money gets used to service young people, to pay for staff and their livelihood,” said Jackson. “It would be just a whole ripple effect.”
The concerns are adding to what Jackson called a “double hit,” as many nonprofits face a climate of uncertainty amid the threat of federal funding freezes.
Healey has acknowledged the “evolving situation” of cutbacks in federal funding for nonprofits since she first filed her budget proposal. The governor said in a budget hearing March 6 she was open to revisiting the proposed cap.
“With what’s happened in the last few weeks, there’s been concern from not-for-profit organizations, which we know are going to probably be facing even greater strain than ever,” said Healey.
The Massachusetts Nonprofit Network, which represents more than 700 of the state’s charities, opposes the cap and worries that it will threaten a substantial income source for vital community organizations, said CEO Jim Klocke.
“The state charitable deduction matters,” said Klocke. “It’s an important, significant, positive tool that promotes giving in Massachusetts, and we should not be cutting back on it in any way right now.”
Nonprofits’ funding often comes from a few different sources, such as government grants and foundation contributions, Klocke said, but individual donations are something nearly every nonprofit relies on.
“When one type of funding comes under attack, it can have very direct, very significant effects right away,” said Klocke.
In order to hit the maximum deduction, a person would need to donate $5,000 in a year – so the proposed cap would not impact many middle-class donors, experts said.
The “everyday American” is the target for the current state deduction, said Ray Madoff, a professor at Boston College Law.
The federal deduction more benefits the ultra wealthy, she said. Under the federal charitable deduction, 90 percent of Americans do not receive any tax benefits for what they donate because they claim the standard deduction, Madoff said. Meanwhile, she said, the wealthiest Americans can deduct up to 74 percent of what they donate in tax savings.
“For federal purposes, a wealthy donor who makes a well-planned donation can save income taxes, capital gains taxes, and estate and gift taxes. And that’s how it gets to be such a high number,” said Madoff.
The state charitable deduction was originally approved by 72 percent of voters in 2000, but Massachusetts lawmakers suspended it in 2002 and put its implementation on pause again in 2021 after rejecting a veto from former governor Charlie Baker. Massachusetts taxpayers have been able to claim the deduction in three years since the 2000 vote — 2001, 2023, and 2024.
The cap is a “sensible compromise,” said Phineas Baxandall, policy director at the left-leaning Massachusetts Budget and Policy Center, as it would free up a large portion of the state’s budget for other initiatives and make the state tax system more equitable by limiting how much the wealthy can use the deduction to grow their wealth further.
More than half the people who take the state charitable deduction have incomes over $1 million, according to Baxandall. By placing a cap, he said, it allows the deduction to benefit middle-class donors most.
There is also no guarantee that people who take the deduction donated to a Massachusetts charity, a factor Baxandall said makes the costly deduction not directly benefit the state in many cases.
“For the state, the deduction is really a lose-lose with half the promise of a win,” said Baxandall.
With the heavy reliance on donations for many nonprofits, any loss of income can have long-lasting impacts. The Massachusetts Society for the Prevention of Cruelty to Animals depends on individual donors to fund many of its programs, said Mike Keiley, vice president of the MSPCA’s Animal Protection Division.
“Anything that runs a potential risk on limiting that is worrisome,” said Keiley.
In 2023, close to a third of the MSPCA’s budget came from donations, according to a spokesperson. Keiley said he’s optimistic state leaders will consider the stability of nonprofits, as he believes they have in recent years.
“We’re hoping for the best but are preparing for challenges ahead,” said Keiley.
Capping the state deduction could cause changes in how people plan out their giving. Financial planners often advise their clients on how to best time donations to claim maximum deductions, often leading to larger sums being shelled out to nonprofits. With the cap, this strategy would only go so far, lessening an incentive to donate big, said Jack Heintzelman, a financial planner at Boston Wealth Strategies.
“We might not need to accelerate or make a large, significant contribution, and we can just do it over several years if there’s not really much benefit in doing either,” said Heintzelman, who added his clients are passionate about their charitable causes and want to make donations in the most beneficial manner for both the organizations and themselves.
The Legislature will review the budget and vote on a final version that will take effect July 1. The Senate Ways and Means committee is reviewing the governor’s proposal now, said a spokesman for committee chair and Senator Michael J. Rodrigues, a Fall River Democrat, who added the budget should be one that “uplifts residents and increases opportunity while maintaining our fiscal discipline.”
Maren Halpin can be reached at maren.halpin@globe.com.
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