Vermont, like many states, is considering comprehensive tax reform. Committees in the Vermont Senate and House developed proposals last legislative session and systemic changes seem high on the agenda for the 2014 session. Key components focus on increasing the portion of personal income that is taxed by capping deductions, including charitable contributions.
If passed, this revision to the tax code would negatively affect the work of nonprofit organizations statewide.
Vermont’s robust nonprofit sector comprises nearly 4,000 human, social service, educational, religious, and cultural organizations, ranking us No. 1 per capita in the nation. The Vermont Community Foundation reported in 2010 that these agencies generate $4.1 billion in annual revenue and represent 18.7 percent of our gross state product.
Nonprofits deliver critical services that government alone cannot provide: sheltering, caring for, and feeding those less fortunate; early childhood education; and cultural enrichment are just a few examples. Nonprofits include schools, hospitals, churches, libraries, community health clinics, workforce development centers, mentoring programs, homeless shelters, food banks, theaters, and galleries.
Some focus on specific populations: providing safe spaces for women, LGBT youth, refugees, the disabled, and migrant workers. They range from small, volunteer-run groups to huge universities. Although more than 80 percent of Vermont’s nonprofits operate with budgets of less than $250,000 each year.
By delivering mission-related programs, nonprofits improve lives and transform communities. Investing in early intervention is more cost-effective than dealing with societal dysfunction later in life. Food and shelter vs. homelessness, after-school tutoring vs. illiteracy, involved children vs. disengaged teens, job skills training vs. unemployment, community vs. isolation — consider the alternatives.
The nonprofit sector depends on contributions to survive and the data in Vermont shows how complicated financial viability is for these organizations. There are few major foundations in the state, and the majority of national funders focus on large urban areas. In my experience, local corporations are supportive, but at present we have too few growing businesses.
Individuals have been extremely generous with leadership philanthropy, but of the 320,656 tax returns filed in Vermont for 2011, only 21.6 percent (69,193) claimed charitable deductions, ranking us 36th in the nation. The Vermont Community Foundation, using data from the IRS, shows Vermonters’ monetary contributions are 27 percent below the national average and our average financial contribution among the bottom 10 states in the nation.
Given these fiscal realities, it is important for our legislature to carefully consider the ramifications of capping deductions that include charitable contributions. Other states debated and tried similar measures and are now reversing their decisions.
Hawaii limited charitable and other itemized deductions back in 2011. Earlier this year, the governor signed legislation removing restrictions on charitable donations, noting the additional $12 million in annual revenue to the state came at a cost of at least $60 million per year in lost donations to nonprofits.
Missouri recently restored charitable tax credits that lawmakers had let expire last year due to budget constraints. Montana extended its charitable endowment tax credits for another six years, calling it “good, stable tax policy” providing “a huge benefit to the people of Montana.”
Oregon and Minnesota considered capping charitable deductions, but decided against it. Kansas and North Carolina also preserved charitable giving incentives, while capping all other itemized deductions. Vermont can do the same.
As our legislators debate implications of a tax overhaul, I hope they remember that nonprofits serve a triple bottom line, all subsidized by donations: they deliver programs in a fiscally balanced, cost-effective manner, their double bottom line makes programs accessible to serve those less fortunate, and their triple bottom line is achieved when those they reach contribute to society.
Civil society depends upon healthy nonprofits and philanthropy is an essential ingredient. Charitable contributions, therefore, should be incentivized and encouraged for events like Spectrum’s Sleep Out, COTS Walk, and United Way fund drives. Otherwise, the fragile social safety net will further unravel and be more costly to state coffers long-term. I urge our representatives, senators, and governor to consider the marginalized and disenfranchised whose very lives are at stake in this fiscal debate.
This article was originally published by Burlingtonfreepress.com on August 15, 2013
