As the Vermont Legislature attempts to squeeze water from a stone in satisfying the many demands of state with few available revenue streams, one of the victims of that squeeze may prove to be working class contributors and the charitable interests they would like to support.

Deep in the weeds of tax reform legislation being considered by our representatives is a provision that would eliminate the tax benefit from charitable contributions, when the individual donor contributes less than $5,000. in total to all recipients.

That means that, while those wealthiest enough to contribute more than $5,000. in total can still claim a 5% deduction on those contributions, the rest of us are just out of luck.  

The devaluation of the small donor is only part of the challenge that non-profits will face under this proposal, but it is the part that stings the most.

As Lauren-Glenn Davitian of Common Ground explained the issues to me:

The House Bill H.489 seeks to generate $16M of a $32M hole by capping deductions at 2.5 standard deductions. The challenge for nonprofits with this is that mortgage, health and property tax deductions are fixed. Charitable giving is discretionary. Particularly for individual filers as the income approaches $100K, they will not be able to deduct most of what they give from their state taxes.

The Senate Bill (not yet out of House Finance) poses a different issue: It offers a charitable tax credit (which is taken off the state tax bottom line) only if you give MORE THAN $5K to instate charities (designated by state tax dept). Then you can take 5% of the amount in excess of $5K.

This benefits big givers and not most of the charitable donors who itemize. The average gift is $2800 and not until you approach $300K in annual giving. Those people just start to reach $5K in gifts.

Overall, the scheme seems destined to drive-down charitable contributions in general.

So, once again, rather than raising revenue by directly increasing top earner’s tax rates, the proposal is to move down the food chain to “find” money in the shallow pockets of those who earn the least and those who need the most.  

And what of the arcane system of deductions that is supposed to be one of the targets for tax reform? As far as I can tell, in this instance, it will be just as arcane as ever.