As I write this, I’m looking at the “Service Alerts” from the MBTA over the past seven days: 15 for the Red Line alone, including 10 delays due to “mechanical problems” related to the 50-plus year-old trains that we ride in. The state needs billions of dollars for MBTA improvements and expansion. Add to that billions of dollars in deferred maintenance of our roads, bridges, schools, parks, and other capital needs that a wealthy state like Massachusetts should be taking care of during an economic expansion.
Instead, tax cuts going into effect this year reduce revenue, even as we face a $93 million MBTA deficit for FY21. Making matters worse is the implementation of an initiative petition passed in 2000, which calls for state tax deductibility for charitable contributions.
As a person who has raised tens of millions of philanthropic dollars in my career, I’m certainly not saying that I oppose charitable contributions. Indeed, the generosity of Massachusetts residents has sustained many nonprofits that perform essential services.
The reality, however, is that this tax deduction is extremely unlikely to result in a windfall of donations to our community nonprofits. It will, instead, reduce our state’s tax collections by more than $300 million. That’s money that is badly needed by state agencies that our communities depend on.
The Legislature should reconsider its decision to implement tax deductibility of charitable contributions. Here’s why:
First, the benefit of tax deductibility of charitable contributions is heavily skewed toward the wealthy. The Mass Budget and Policy Center determined that, with regard to federal taxation, nearly 100 percent of charitable contributions of the top 1 percent of income receive tax deductions. Compare that to the 22 percent of contributions made by the middle 20 percent of incomes and the 5 percent for those in the bottom 20 percent of income. This is mainly because getting the charitable tax deduction requires that you itemize deductions on your tax returns, which most moderate and lower income people do not do.
The state deduction would also require itemization, and as with the federal system, the benefit would mainly go to the affluent while taking money away from programs that benefit those in lower income categories. Do we really want to give even more tax benefits to the wealthy?
Secondly, philanthropic dollars go overwhelmingly to universities, museums, hospitals, and churches. Large donations are most often made in the form of quid pro quo arrangements. Some large donors to hospitals get special treatment when they need hospital services, and some hospitals have special floors where wealthy donors are treated.
And we certainly know how universities treat wealthy donors. Upwards of one third of Harvard admits are “legacy” admissions, which means that about a third of those admitted have a parent who both attended Harvard and donates to the university. Legacy admissions are a reality for most of the very selective universities. Should the taxpayers subsidize legacy admissions to elite universities through tax reductions for parent-donors? I say no.
These universities also admit non-legacy students through “donations.” Jared Kushner’s father “pledged” $2.5 million to Harvard in 1998 to ensure his son’s admission. Due to federal deductibility of such “donations,” Charles Kushner likely received, and the taxpayers lost out on, about $1 million, based on the likelihood that multi-millionaire (and convicted felon) was in the 39.6 percent top tax bracket.
Another scheme is to name institutions or buildings of non-profit institutions in exchange for large “donations.” The infamous Sackler family, which made billions of dollars making opioid medications that addicted and killed countless victims, have their name on dozens of buildings. This is a way of buying good will among the powerful, while dramatically reducing their taxes, or as Kelsey Piper from Vox called it, “a way to wash blood off your money.”
Most large donors, infamous or not, donate to build their brand, which is a form of power. Buildings and parts of buildings are named for wealthy individuals who donate money with the expectation or requirement that they will see their name prominently. This is also a quid pro quo, for which there should be taxable acknowledgment of the value of the brand-enhancing naming. Creating a brand is very expensive. Partners Health Care is rebranding itself to “Brigham MGH” at a cost of $100 million. The good will generated by a naming should have a price associated with it. They are getting something for their “donation” that has great value. It should not be tax deductible.
We have many great needs in our Commonwealth that are not funded because we don’t have the money to do so. We are already giving mainly well-off people the opportunity to get upwards of 35 percent of their contributions to non-profits back in the form of cuts to their federal taxes. Providing another nickel in lowered taxes from the Commonwealth for every dollar given to a nonprofit will not dramatically increase donations. It will eliminate $300 million from the taxes that fund our schools, transportation systems, health care services, and other essentials.
While I think philanthropy is a great thing, it should be practiced without expectation that a third or more of the dollars will come from the taxpayers. Ask your legislator to stop tax deductibility for charitable contributions from being implemented in Massachusetts.
Bill Walczak is a Dorchester resident.