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The state Legislature is considering a package of legislation that would restore the charitable giving tax credits, which were eliminated in 2011 in an attempt to balance the state’s budget. Foundation and nonprofit leaders say the credits helped expose residents to philanthropy, even in small amounts. The state Legislature is considering a package of legislation that would restore the charitable giving tax credits, which were eliminated in 2011 in an attempt to balance the state’s budget. Foundation and nonprofit leaders say the credits helped expose residents to philanthropy, even in small amounts. COURTESY PHOTO

Legislature considers restoring charitable giving tax credits

BY Sunday, June 11, 2017 09:48pm

Philanthropic leaders throughout Michigan are throwing their support behind state legislation to restore tax credits for taxpayers who make charitable donations to nonprofits.

In May, Senate Republicans introduced bills designed to restore the tax credits for donors to nonprofits ranging from food banks and homeless shelters to public broadcasting. The credits were eliminated in 2011 by Gov. Rick Snyder and a GOP-led Legislature as part of a plan to balance the state’s budget. 

“It’s an incredible thing. I don’t see a downside to it at all,” said Joanna Dales, vice president of donor relations for the Kalamazoo Community Foundation. “The silver lining is that everybody will have the ability to take a deduction for making a charitable gift.”

Michigan was the first state to introduce the charitable giving tax credits, said Rob Collier, president and CEO of the Grand Haven-based Council for Michigan Foundations.

“The credits really served as a pipeline for introducing all Michiganders, but particularly younger generations, to charitable giving,” Collier said. “We did lose out on having a wonderful introductory giving tool. Michiganders are very giving people and we have a long history of giving. This partnership with the state is well worth having.”

The proposed legislation would allow taxpayers to receive a 50-percent tax credit for donations to charitable nonprofit organizations, institutions of higher education, or various state-sponsored agencies. The bills would cap the credit to individuals at $100, or $200 for couples filing jointly. An estate or trust can claim a credit worth up to 10 percent of its tax liability or $5,000, whichever is less. 

Related bills would allow adoptive parents to get a credit of up to $1,200 per child toward the costs of the adoption process and offer donors a credit for vehicle donations in certain cases. 

“The cost to the state is not huge,” Collier said.  “The combined community foundation, food bank and homeless credits cost the state about $15 million a year. We know that from all the research, giving incentives return about $3 for every $1 lost.”

State Rep. John Hoadley, D-Kalamazoo, said he thinks doing away with the tax credits did more harm than good. He said giving incentives are even more important now because cuts to the state budget are negatively affecting the safety net for many of Michigan’s most vulnerable populations.

“We need strong partners to fill those gaps,” Hoadley said. “Residents can become small philanthropists in their own communities to help their neighbors. Restoring these deductions would be a shot in the arm.”

The package of charitable tax credits has been introduced every year for the last three years with bipartisan support, Collier said.

“The word ‘credit’ is not the most popular word in the political landscape,” Collier said. “Then when the Flint water crisis erupted, I was essentially told that we’d have to wait another year for state lawmakers to reconsider this.

“The timing of this is important because if you look at what’s going on at the federal level with tax reform likely and the president’s proposed budgets, the president is proposing some major cuts that will dramatically impact the nonprofit sector.”

Dales said when the tax credits were eliminated at the end of 2011, the Kalamazoo Community Foundation saw a significant drop in the number of $200 and $400 donations. She said even though these donation amounts didn’t make up a huge amount of total giving to the foundation, the organization worried about a less tangible loss of exposure to philanthropy in the community.

“We saw the future impact in the long term because that would delay people from being introduced to community foundations and endowments,” Dales said. “It’s a huge tool for the community foundations to introduce individuals to supporting the community and providing permanent community capital.” 

A number of nonprofits rely on endowments through community foundations, which gives them the incentive to explain the importance of giving today, Dales said.

Some nonprofits are unprepared to manage endowments valued at $5,000 or $20,000, which is why they often turn to agency funds at local community foundations, Collier said. Donations to those funds would be eligible for the tax credits, which provides an added tool for growing endowment funds.

“This gives them more dollars in the future for their work. It’s huge for nonprofits that have endowments,” Dales said.

Former Michigan Gov. John Engler originally put the tax credits in place to ensure that all Michigan residents could be philanthropists. 

Diana Sieger, president of the Grand Rapids Community Foundation, said she thinks the tax credits helped people to realize that they didn’t need to be millionaires to be philanthropists and give back to their communities. 

“There were a number of people who became donors and were encouraged to give to our community foundation,” Sieger said. “To receive that 50-percent credit really did encourage them to give more.” 

Collier at the Council for Michigan Foundations agreed.

“We found that this was a wonderful way of introducing younger families and individuals to giving early on,” Collier said. “Once they used and took advantage of the tax credits, families in many respects found that they could actually do more.”

The four-bill package, introduced in late May, was referred to the Senate Finance Committee. As this report went to press, it had not received a hearing. 

Similar legislation last year made it through committee but was never taken up for a vote by the House or Senate after the Department of Treasury said it would result in $50 million in lost revenue for the state, according to various reports.

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