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This is a space where Foundation staff share their thoughts and musings on giving and community:

On the Charitable Deduction Tax Cap

Posted by: Stuart Comstock-Gay on 4/6/2015

About this tax cap—

One of the great strengths of this state is our incredibly strong nonprofit sector. Nonprofits support arts and education, protect the environment, offer basic human services, and so much more. Indeed, government cannot provide the whole range of services in which we believe. Nor can business. It is the social sector that is essential to the human side of our society.

Which is why we should all take notice when efforts are underway that could make it harder to deliver the services. Right now, the Vermont legislature is considering a proposal to cap the amount of deductions—including itemized charitable deductions—that Vermonters can claim on their taxes. Surely, the state is in a very tough financial situation. We all have to be open to changes in the level of services that the state can provide, and how those services are provided. And we have to be open to other revenue models for the state. 

The challenge to this particular proposal is that it is likely to lead some donors to modify the amount of money they give to nonprofits. As I have talked with many donors, to a person they start by saying that they give because they want to. But the deduction does—to some—make a difference. To be sure, for most of us who itemize, it is the federal deduction that makes the biggest difference, and this proposal does not touch that (though regular proposals in Congress would). But for some of them, too, the level of state deduction will make some difference—how much they cannot say yet. But some difference. 

At a time when most nonprofits in the state are already feeling a pinch, and are being asked to provide more and more services, any reduction is going to be hard to swallow.

What we really need is a comprehensive review of our tax structure, perhaps building on the work of the 2011 Vermont Blue Ribbon Tax Commission. Bill Schubart was one of the commissioners on that body (he’s also a former Community Foundation board member). Some of his comments on the current issues can be found here. He urges us to step back and look at the bigger picture. I’m with Bill. Let’s go back to that report, and let’s really dig in. Otherwise, I fear we’ll be in the same situation again next year, and the next. 

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