VTDigger, 4/22/18 – Nonprofit leaders say a provision in the House income tax reform plan could discourage Vermonters from making large charitable donations.
Under H.911, the tax bill passed by the House last month, Vermonters would no longer be able to deduct charitable contributions.
To replace the deduction, the bill created a 5 percent tax credit, for charitable gifts up to $10,000.
Many nonprofits say capping the tax credit could eliminate the incentive for donors to give organizations gifts above the $10,000 limit.
In a letter to the legislature and Gov. Phil Scott, leaders from 32 Vermont nonprofits urged lawmakers to scrap the capped credit and either keep the charitable deduction, or add a credit on top of the deduction.
In their letter, the nonprofits say the capped credit is of particular concern because “many charities receive 80 percent of their dollars from 20 percent of their donors.”
“H.911 communicates a message to donors that Vermont does not encourage or welcome large, transformational gifts,” the letter says. “We urge you to reconsider this proposal and create a new model that further incentivizes public-private partnerships.”
The tax credit provision in H.911 is part of a sweeping tax reform plan designed to shield Vermonters from one of the consequences of the tax reform plan pushed through by the Trump administration — a $30 million tax hike for Vermonters.
Among several provisions for returning the $30 million to Vermont taxpayers, the proposal would create a Vermont standard deduction and Vermont personal exemptions.
In January, the Scott administration proposed its initial plan to return the $30 million to Vermonters. It included the 5 percent tax credit for charitable donations as a way of counteracting the federal shift away from itemized deductions.
The administration’s tax credit had no cap.
Janet Ancel, D-Calais, the chair of the House Ways and Means Committee, said that capping the credit gave her committee some flexibility in making changes to the plan.
The House proposal included adding tax exemptions for social security beneficiaries as well as slightly higher personal exemptions than those proposed by the Scott administration.
“We feel that we came up with a reform proposal that’s good for low and middle income taxpayers… and capping the credit was just a piece of making that work,” Ancel said.
Both plans would lower income tax rates by 0.2 percent for each income bracket. But the House’s proposal also collapses the two highest brackets.
Ancel noted that offering the charitable tax credit would provide more savings for Vermonters who make charitable donations.
Under the current system, only people who itemize their deductions—about 30 percent of Vermonters—can deduct charitable contributions.
“What I really like about the credit is that it’s available to everybody no matter what income level they are and you don’t have to be an itemizer,” Ancel said.
But she also acknowledged that the capped tax credit could change the way nonprofits do business.
“This is going to require them to rethink the way they approach donors and the way they raise money and I am sympathetic with that,” Ancel said. “I think they can do it and I think they will continue to thrive and they’ll continue to do good work in our communities.”
Kaj Samsom, commissioner of the Vermont Department of Taxes, said nonprofits’ concerns are valid.
“We can’t predict what the impact will be,” Samsom said. “I think most people give because they want to give, but do they give a little more because there’s a tax incentive… absolutely.”
“The governor’s proposal had no cap and it was very much meant to mitigate some of the potential harm that the nonprofit leaders are talking about in that letter,” Samson said.
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