Governor Charlie Baker wants the Massachusetts Legislature to take another look at the charitable giving tax deduction that Democrats delayed for another year, proposing once again to implement the voter-approved tax break as part of a budget bill the Republican is filing to allocate last year’s surplus.
Baker on Wednesday was expected to file legislation to spend almost $1.57 billion in surplus tax collections from the budget year that ended July 1, while another $1.1 billion from the surplus would be used to cancel a planned draw on reserves.
The governor, in an interview with State House News Service, said his goal for using the surplus is to “fill gaps” and support the programs and organizations that were most strained by the COVID-19 pandemic. More than $1 billion in capital gains taxes would also flow automatically to the state’s “rainy day” fund, pushing the balance on the reserve account to a record $4.63 billion.
While the full details of the proposal have yet to be released, the governor’s plan would allow a 5 percent tax break on donations to charity to take effect in 2022, fulfilling the promise of a ballot law approved by voters more than 21 years ago.
“I think this one’s worth another look, and I hope the Legislature gives it some serious consideration because, as I said, it’s affordable, people voted on it and many of the organizations that would benefit from this did a lot of really heavy lifting for us all over the course of the last 16 months,” Baker said.
Supporters of the charitable giving tax deduction hoped its implementation would spur donations to many of the non-profits that were stretched thin during the pandemic. Baker said many of the food pantries, shelters, and addiction treatment providers that would benefit “carried a big part of the burden of helping people through the pandemic,” adding that the tax break “would send the appropriate signal to them that their work is appreciated.”
However, the Legislature, led by Democrats, put a delay on the implementation of the tax break in the fiscal year 2022 budget it sent to Baker in July, arguing that the uncertainty of the state’s economic health warranted a cautious approach.
The tax break, according to the state Department of Revenue, would be worth about $64 million in the current budget and as much as $300 million annually moving forward. Critics also suggested that wealthy residents stood to benefit the most from the charity deduction and that donations would predominantly flow to wealthier institutions like large hospitals, museums, and universities, not local non-profits.
While Baker vetoed the delay, the Legislature solidly overrode his objection by votes of 124-35 in the House and 34-6 in the Senate, with only seven Democrats and the one House independent joining all 33 Republicans to side with the governor.
Massachusetts House Speaker Ron Mariano at the time said the override was consistent with the Legislature’s original position that the tax break should be “revisited” next year, and a Revenue Committee co-chairman, state Representative Mark Cusack (D-Braintree), said the committee needed more time to review the deduction.
Baker said some of the facts on the ground have changed since lawmakers took those votes during the last week in July.
“There are a lot of good ideas that end up taking many trips around the track before they get enacted, and I’m perfectly willing to give this one another try because I think it’s worth it,” Baker said.
Since the Legislature overrode the governor’s veto, the Department of Revenue has reported that July tax collections were up 5 percent from last year and that tax revenues for the full fiscal year 2021 beat projections by more than $5 billion, or 17 percent.
“We know a lot more about the current state of play fiscally for the commonwealth at this point in time than we did then,” Baker said. “I mean, we knew we were in pretty good shape. I’m not sure people understood just how good of shape we were in.”
The governor also pushed back against the notion that it was a tax break for the rich, calling back to the vote in 2000 when it was approved by 72 percent of the electorate.
“This benefit wasn’t voted on by the 1 percent of the population in Massachusetts. It was voted on by way north of 50 percent of the people of Massachusetts,” he said.
Baker intended to outline more of his plans to allocate the $5 billion in surplus revenues later Wednesday morning. The proposal, according to a senior administration official, is “designed to improve the Commonwealth’s economic competitiveness, support vulnerable communities, and make investments in other key priorities.”
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