Vermont's Proposed Charitable Deduction Cap Raises Concern

Vermont's Proposed Charitable Deduction Cap Raises Concern

Charities in Vermont are hoping to stop a proposed cap on charitable deductions that is working its way through the state legislature, the Associated Press reports.

The plan under an appropriations bill that passed the state's House of Representatives last Friday would cap itemized deductions at 2.5 times the standard deduction, meaning that when filing state income taxes, a taxpayer could claim deductions of up to $15,500 for an individual or $31,000 for a married couple filing jointly. The total includes deductions for mortgage interest and property taxes, work-related expenses, charitable contributions, and a host of other items. The proposed cap is part of an effort to raise $35 million in new revenue to help close a $113 million shortfall in the state budget. The bill now goes to the Senate, where charities hope to reverse the measure.

"Vermonters are relying on the nonprofit sector to provide services that government would otherwise have to provide," Martha Maksym, executive director of the United Way of Chittenden County, told the Senate Finance Committee last week. The charitable gift deduction is "distinctly different than a mortgage or property tax deduction," she added, "because the charitable tax deduction results in a benefit that goes beyond the taxpayer and really serves the greater good."

Rep. Janet Ancel (D-Calais), who chairs the House Ways and Means Committee, told the AP that only 6.4 percent of taxpayers who itemize currently take deductions above the proposed cap, and only 27 percent of Vermont filers itemize, so most taxpayers won't be affected by the cap.

"Even in this very dire budget year, you have to be very mindful of decisions we make on capping these deductions, because they will have a secondary impact," Common Good Vermont executive director Lauren-Glenn Davitian told state senators. Citing information from the National Council of Nonprofits, Davitian warned that while several states had moved to cap deductions in recent years,  Hawaii had reversed course when legislators there saw the negative effects of the cap. "The policy decision is not actually informed by data," she said. "You can assume it's not going to have an impact, but it probably does, based on what's happening in other states."

Dave Gram. "Cap on Vermont Tax Deductions Has Nonprofits Worried." Associated Press 03/29/2015.