Killacky: Incentivizing Charitable Giving

Mar 16, 2018

Federal tax changes could seriously affect Vermont’s nonprofit organizations that rely on contributions to deliver mission-related services. With the new legislation enacted in December, taxpayers can now choose a doubled standard deduction or can elect to itemize their charitable contributions up to sixty percent of their adjusted gross income.

The latest IRS data from the state’s Joint Fiscal Office shows about sixty five thousand Vermonters itemized charitable contributions on their Federal tax returns. Total contributions were $289 million. With the federal tax reform, Vermont’s Department of Taxes estimates the percentage of households opting to itemize deductions will decline from thirty percent to ten percent. What’s unclear is whether this change in reporting will diminish charitable giving.

National surveys find that seventy five percent of all philanthropic dollars comes from individuals. In order to offset any potential negative effects and encourage Vermonters to donate to nonprofits, Governor Scott proposed a five percent tax credit for all contributions. The House Ways and Means Committee, in a bill now making its way to the full House and Senate, included the Governor’s five percent tax credit, but capped eligible charitable giving at ten thousand dollars. Five percent only results in a $500 credit.

Limiting and capping deductions is discussed in Montpelier as a painless way to increase taxable income without significantly raising taxes. But previous conversations stalled both in twenty thirteen and twenty fifteen when elected officials understood the damage done to nonprofits in other states with similar capping schemes. Moreover, state funding is not likely to increase, making nonprofit organizations even more dependent on foundations, corporations, and especially individuals.

Until the full impact of the federal tax revisions becomes clear, it seems reasonable to prioritize and reward generosity toward shelters, food banks, affordable housing, hospitals, schools, churches, theaters, museums, libraries, social service agencies, and other nonprofit organizations employing the more than sixty one thousand Vermont workers who account for seventeen percent of the state’s workforce. Destabilize this sector and the already fraying safety net collapses, which would be much more costly to Vermonters in the long run.

It is shortsighted to cap deductions. Any gains in tax revenue would come at the expense of the already undercapitalized nonprofits. And it would be foolhardy not to support the generosity of all donors, both large and small, as they enable our region’s resilient nonprofits to fulfill their critical missions.