Massachusetts House lawmakers voted on Wednesday to stall the implementation of a state charitable tax deduction, overriding a gubernatorial veto and once again delaying a tax break voters overwhelmingly approved more than 20 years ago.
The provision, which would allow taxpayers to take a 5 percent deduction on their state taxes for donations, has been delayed for decades even after 72 percent of voters supported it on a 2000 ballot question. Nonprofits say the tax break would help them bring in crucial donor dollars as they recover from the fund-raising challenges of the pandemic.
But critics of the tax break say the majority of the benefits would flow to wealthy households and that the money would be better spent by state lawmakers.
Republican Governor Charlie Baker favored implementing the tax deduction, saying strong state revenue figures and an influx of federal COVID relief dollars put the state budget in a good position. But the Democratic-dominated House overruled him, 124-35, and the Senate is expected to take a similar step on Thursday, Senate leadership said.
Legislative leaders said that while the state’s current financial picture is stable, the future is uncertain and requires cautious budgeting — even after they recently revised revenue projections up by more than $4 billion from what they anticipated in January.
State officials estimate that the deduction would amount to about $300 million in lost revenue in its first full year, a small portion of its roughly $48 billion annual budget.
“While the state is running a healthy surplus at the moment, we are still at the mercy of the virus,” said state Representative Aaron Michlewitz, the Boston Democrat who leads the chamber’s budget committee. “Nonprofits around the Commonwealth have been struggling and this delay is only temporary. It is important that we stay the course that we set out.”
House Speaker Ron Mariano said delaying the deduction again will allow lawmakers to consider “permanent changes to the tax code not solely based on current revenues, but considering its long-term impact on taxpayers, charitable organizations, and tax collections.”
The veto override comes as a disappointment to some Massachusetts nonprofits and charities, whose leaders say a tax break would encourage giving at a time when they need donor funds more than ever.
Jeffrey Chin, chief executive officer of Big Brothers Big Sisters of Central Mass & Metrowest, said his organization’s fund-raising efforts were hit hard by the pandemic, forcing leaders to scale back programming and hire fewer staff members than usual.
“Part of this organization’s responsibility is to find and recruit the right type of mentors. We can’t do that without the proper resources and the staff,” Chin said.
A tax break would motivate the individual donors whose philanthropic efforts power the organization, he said.
“This is the time to have this deduction in place,” Chin said.
Most states already offered a deduction on charitable donations when Massachusetts voters approved the tax break in 2000. But taxpayers have had the chance to take advantage of it only once, because lawmakers suspended the measure in 2002, citing a budget crunch. It was set to go into effect in 2021, but lawmakers and Baker delayed it because of the uncertainty of the pandemic.
This year, though, Baker said it was time to let the deduction go into effect, writing earlier this month that “it is unnecessary to further delay the charitable tax deduction where the Commonwealth’s fiscal situation has improved materially in recent months.”
Some advocates agreed.
“We can’t delay this forever,” said Jim Klocke, chief executive officer of the Massachusetts Nonprofit Network, which represents hundreds of organizations. “We’re talking about an incentive that was approved by the voters and has been delayed by 21 years.”
Klocke said most of the people who would be eligible to take the deduction are low-and middle-income donors.
“It is the perfect point in time to say to the voters who overwhelmingly passed this in 2000, ‘We’re finally gonna live up to the commitment. We’re finally gonna live up to the demand that you made,’ ” said Representative Brad Jones, Republican of North Reading and the minority leader .
Critics of the deduction, meanwhile, say it would overwhelmingly help high-income households, which would save more money because they tend to write larger checks. And they say a 5 percent state deduction would do little to spur giving.
“This is a pretty minor tax break,” said Marie-Frances Rivera, president of the left-leaning Massachusetts Budget and Policy Center. “To argue that households are making giving decisions based on this pretty small, 5-cents-to-the-dollar deduction that they would receive simply doesn’t hold much water.”
State Senator Adam Hinds, a Pittsfield Democrat, said “A delay makes sense until we have more clarity on the economy and our revenue absent federal assistance.”
“Right now, all indications are that we’re not out of the woods yet,” Hinds said. “We need to ensure we have all the tools available.”