Ground Shifting Beneath Senate Revenue Group
Charitable Giving Deduction May Be On Chopping Block
4/16/20 3:27 PM
BOSTON, APRIL 16, 2020.....The Senate working group that's been studying the state's tax code and considering possible changes met Thursday but heard from members that it's too soon to think seriously about changes meant to address the fiscal fallout from the coronavirus pandemic.
Members of the Senate Revenue Working Group, representing businesses and workers from around the state, told chairman Sen. Adam Hinds that they can't yet weigh in with their best recommendations because the scope of the pandemic and the consequences of the economic shutdown are still coming into view, though the group seemed to favor eliminating a scheduled tax deduction designed to boost donations to nonprofits and charities.
"We've been polling our members every two weeks since this started to kind of get a sense from them of the impact that they think that this will have on their business. We started with about 80 percent of members think that they will not be in business when this is over. It has shifted somewhat to 60 percent not in business and 20 percent about a medium impact -- it will have a significant financial impact but they think that they will stay open," Springfield Regional Chamber President Nancy Creed said. "But the real shift we're seeing is that more people are moving to the 'I don't know, it's still too early to tell' phase."
Brooke Thomson, executive vice president of government affairs for Associated Industries of Massachusetts, said her group's members have been dealing with different issues each week, especially for companies with essential workers who continue to operate throughout the pandemic.
"I would say the issues that are arising this week that are raising concerns are very different than what we were hearing last week or two weeks ago," she said.
The virtual meeting began Thursday with presentations from Massachusetts Budget and Policy Center President Marie-Frances Rivera and Massachusetts Taxpayers Foundation President Eileen McAnneny, each of whom detailed the forecasts they provided earlier this week at a hearing designed to help state budget managers chart a path through the end of fiscal year 2020 and into the uncertainties of fiscal year 2021.
McAnneny said a conversation about near-term pressure points is "in some ways premature" because there are still so many unknown factors at play, including what course the pandemic will take in the coming weeks and months.
"We don't really know fully the extent of the fallout at this point and we don't know how much federal resources will be available, so we don't fully understand the problem that we're trying to solve," she said.
Peter Enrich, a Northeastern University law professor who specializes in state tax policy, said there are at least two groups that have or will have clear needs, including municipalities that are losing revenue and watching costs soar.
"The other one is there are lots of categories of workers who have not been fully protected by the federal legislation and by the quite creative stuff the state has been doing on the [unemployment insurance] system," he said. "There is going to be a need for the state to provide some support to the people in those categories. It's a little hard to figure out how big those categories are ... but it's going to be a serious issue and it's going to require certainly a substantial number, tens of millions of dollars if not more than that."
When the conversation shifted to things the state might be able to do "as we move towards the other side of this, maybe post-summer," as Hinds put it, the group was largely aligned in thinking that one way to alleviate the negative revenue impact would be to scrap the planned reintroduction of a charitable giving deduction in January 2021.
That deduction, which is set to take effect because the state hit economic triggers that reduced the income tax rate to 5 percent, has been projected to result in a $64 million hit to the fiscal 2021 state budget and a $300 million impact in fiscal 2022.
"The postponement or not providing the charitable deduction -- even the governor has suggested we ought to be looking at -- seems to me to be one that we would be remiss not to be looking at right now," Enrich said. "It's predominantly going to the very wealthiest taxpayers, there's no reason to think that it provides meaningful incentives for giving to Massachusetts charities, probably a 5 percent deduction doesn't give much incentive for anyone to do any more charitable giving and it's basically reducing taxes for people who are in the fortunate position that they are still in a position to be making charitable contributions and I'm not sure that's the best use of our resources."
Rivera said she thinks eliminating the reintroduction of that deduction is "the lowest-hanging fruit" and that because the deduction does not already exist, she does not think people will be any less inclined to make charitable donations.
Noting the role charities play in creating jobs and helping nonprofits to deliver on important missions, the Massachusetts Nonprofit Network has pressed to implement the charitable deduction, in part because of a 2017 federal tax law that effectively raised the cost of making donations and contributed to a decline in giving.
"The state charitable deduction would benefit hundreds of thousands of low- and middle-income donors in Massachusetts each year. We know from the state sales tax holiday that incentives make a difference," Jim Klocke, CEO of the Massachusetts Nonprofit Network, said. "Giving incentives will be especially valuable going forward, as nonprofits work to rebound from the massive revenue losses caused by the coronavirus crisis."
The other options Hinds floated, based on work done by the group's subcommittees, included an expansion of the Earned Income Tax Credit and increasing the income tax exemption for children, an idea Gov. Charlie Baker proposed last year when the state had a budget surplus to spend. Much of the group agreed that those were good ideas, but pointed out that while both would help families, they would also cost the state money.
Hinds noted during Thursday's meeting that his working group's "long-term mandate still exists" to explore ways to modernize the state's tax code. He said the group has been working to draw from experience with previous economic recoveries and grappling with the different ways in which the pandemic is affecting different communities, regions and demographics in Massachusetts.
"We also have a third element, which is observations on what does this mean about consumer behavior? We're watching ... shifts in the economy in real time, whether it's movements in online and maybe an acceleration in preference there, delivery is possibly going to be used more, transportation choices -- I've seen some articles around are people going to be less inclined to use public transportation in light of this -- health care and telehealth is being impacted, will remote working be more utilized and on and on and on," Hinds said.
He added, "It does open the door to some interesting insights into some long-term implications."
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