Republican Governor Charlie Baker is none too happy that the Democratic-dominated Legislature is moving to once again delay a charitable tax deduction, overriding his veto.
“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 Wednesday evening statement. “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.”
At the ballot box in 2000, voters overwhelmingly supported a 5 percent state tax deduction for donations. But the provision was in effect for only one year and has been delayed for decades after lawmakers pushed it off, citing a budget crunch.
Under a complex formula pegged to several economic triggers, it was supposed to return this year, but the Legislature and Governor Charlie Baker in late 2020 delayed it, citing the fiscal instability wrought by the COVID-19 pandemic. Then, this year, the Legislature again voted to push it off until at least 2023, saying state finances, though currently stable, still face an uncertain future.
Baker vetoed the delay provision, moving to implement the tax break, but the Massachusetts House voted to overrule him on Wednesday, and the Senate is expected to do the same on Thursday.
Charitable organizations say the deduction would help them raise crucial donor dollars as they emerge from the pandemic, a difficult time for fundraising. But critics say the deduction would mostly help the wealthy and argue that it does not offer enough tax savings to meaningfully change donor behavior.
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. Legislative leaders said they want to act cautiously because the state is currently buoyed by an influx of federal dollars, a one-time funding source. State tax revenue projections are also strong, though, having been revised up by more than $4 billion from that lawmakers anticipated in January.
House Speaker Ron Mariano said Wednesday that 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.” And State Representative Aaron Michlewitz, the Boston Democrat who leads the chamber’s budget efforts, emphasized that “this delay is only temporary.”
But nonprofit leaders say the time has long since come for the tax deduction to go into effect.
“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.”