“You also have to recognize that a lot has changed in 21 years. Our economy has changed dramatically in the past 21 years, ”said Senator Michael J. Rodrigues, Senate budget chief.
“I don’t know if it’s effective public policy,” the Westport Democrat said of the withdrawal. “I will remain open to this and the entire tax policy.”
Lawmakers included the delay in the $ 48.1 billion state budget it sent to Baker on Friday. Rodrigues, who was involved in negotiating the spending package, said House and Senate leaders did not discuss removing the withdrawal delay from the draft budget during the closed-circuit talks, even if they expected revenue of $ 4 , Raised $ 2 billion and canceled a hefty withdrawal from the state savings account.
While the withdrawal was originally aimed at ensuring the state budget survived the pandemic, it has become part of a deeper political debate where lawmakers are weighing how best to protect the state treasury in the years to come.
Progressive advocates and policymakers have resented tax policies, which are designed to help encourage charitable giving by allowing taxpayers, including those who fail to record their deductions on their federal taxes, to deduct 5 percent from their state taxes on donations, according to the state . For example, if you donate $ 500, the tax saving is $ 25.
Critics say this benefits the wealthiest residents in the state the most, as they are more likely to list deductions and thus be eligible to deduct charitable donations from their federal taxes. The democratic legislators have already expressed their openness to reforming the tax law to appeal to the wealthiest in the state.
Senator Adam G. Hinds, a Democrat in Pittsfield and chair of the Revenue Committee, said lawmakers are weighing whether abolishing the deduction would discourage donations against the revenue the state would absorb when state taxpayers availed of the tax subsidies could take.
“Sure, we have a surplus that we control now,” said Hinds. “But I think a lot of us look at this in terms of the long-term impact and how we ensure sustainable income. We don’t look at it from one financial year to the next. “
The legislature has given no guarantee that the withdrawal would still be possible after this final delay.
“Politically, it seemed attractive,” said David Tuerck, president of the right-wing Beacon Hill Institute, who argued in 2000 that the move would help encourage charitable giving. “But it’s been a while, I think voters may have forgotten.”
The House of Representatives and the Senate had passed an identical language to ensure this was “not allowed” in 2022, and Baker called for a delay in January, suggesting that the state do not withdraw until he ran out of savings accounts needs to tap into his books. A year earlier, before the pandemic, the Republican governor had proposed considering whether to limit the amount any taxpayer can claim from a state deduction for charity.
A spokesman for Baker said he was still reviewing the budget that lawmakers passed on Friday.
The withdrawal has come a long, tortured journey. The voters approved him at the ballot box, 72 to 28 percent, and in the same year they called for a gradual reduction in the state’s income tax rate to 5 percent. But taxpayers could only use the withholding tax for one tax year before lawmakers suspended it and tied it to an income tax rate cut, which they also slowed by tying it to a number of economic triggers.
Only when the income tax rate drops to 5 percent, which took 20 years, will the tax deduction be allowed again, they ordered. It should become an option again in 2021 before lawmakers delayed it for a year. And then again.
The state’s constitution does not prevent lawmakers from changing what voters approve, a path it has repeatedly taken to reshape what lawmakers consider problematic parts of electoral initiatives, from the Cannabis Legalization Act of 2016 to the Law on Repair 2012.
But postponing the charity withdrawal forever would be a more muscular response to a bill passed by voters.
What makes the debate more difficult is what the withdrawal might actually cost. State officials estimate the delay at $ 64 million. However, the Baker administration previously announced that it could cost the Treasury about $ 300 million on a full-year basis starting this fiscal year, rising to $ 300 million to $ 363 million by fiscal 2024.
These estimates, released by the government in April 2020, came with major reservations, including the fact that they were based on pre-pandemic data.
Nonprofit executives have urged lawmakers to reintroduce the deduction, saying it could help motivate residents at a time that is uncertain even for nonprofit groups.
“We have no doubt the reinstatement will give a huge boost to donations,” said Jim Klocke, executive director of the Massachusetts Nonprofit Network, which is calling on officials to restore withholding for 2022 because of better-than-expected tax returns since COVID -19 loosens his grip.
“We knew the state had to focus on the pandemic first. We totally understood that, ”he said. “But we’re in a much better place now.”
Others disagree. The Massachusetts Budget and Policy Center, a left-wing think tank, has urged lawmakers to redesign the deduction by limiting it or making it available only to those who don’t list their federal income taxes. That could attract more low and middle income people to use them than high earners.
The center has also questioned whether the 5 percent deduction could result in more donations, as wealthy taxpayers can already deduct a far higher rate from their federal taxes by claiming a deduction for charity.
“Any policy that uses most of the benefits for the top earners is inappropriate at a time when we have raging inequality,” said Phineas Baxandall, an analyst at the Massachusetts Budget and Policy Center.
Matt Stout can be reached at [email protected]. Follow him on Twitter @mattpstout.