By Hans Dekker, Linda M. Czipo and Jeffrey M. Vega
New Jersey leaders seeking to promote affordability, strengthen the economy and provide tax relief for our state’s residents could advance all of these goals by enacting a state income tax deduction for gifts to charity.
Bipartisan legislation (S-2179, cosponsored by state senators Tom Kean and Troy Singleton) that would allow New Jersey taxpayers to deduct their gifts to qualified charities from their taxable state income passed the state senate unanimously on March 25 and is awaiting committee action in the Assembly. A New Jersey charitable deduction would be good for our state, good for our state’s charities, and good for everyone who relies on them.
New Jersey’s charitable non-profit community touches all of us. Whether providing disaster relief, education, foreclosure assistance, artistic and cultural enrichment, or preserving our natural resources, non-profits fulfill a vital public function that would leave a gaping void were they not present. When the government shut down for a month this past January, wreaking havoc on government workers and other individuals alike, charities stepped up.
New Jersey charities employ nearly 10 percent of the state’s private workforce. These 324,000 individuals – and the organizations that employ them – pay payroll taxes and patronize countless local merchants and businesses. The programs, services, and economic benefits provided by non-profits are critical factors in making New Jersey an attractive place to live, work, or locate a business.
Despite all this, more and more people have been turning to New Jersey charities for help, while the resources charities need to meet this demand have failed to keep pace. According to the Center for Non-Profits’ 2019 annual non-profit survey:
- 66 percent of non-profit organizations reported that demand for services had increased in 2018, but only 38 percent reported receiving more total funding.
- 76 percent of non-profits predicted that demand would continue to grow in 2019, but only 49 percent expected total 2019 funding to increase.
The federal tax law is already starting to exacerbate these problems. The federal charitable giving deduction is only available to taxpayers who itemize on their tax returns. Now, because of the doubling of the standard deduction, the charitable deduction is only a viable option for roughly the top 10 percent of filers – down from approximately 30 percent before the law was passed, and resulting in a projected nationwide loss of $12 billion to $20 billion in contributions annually. Making matters worse, the state and local tax (SALT) deduction cap and other tax law changes have threatened to reduce many New Jerseyans’ discretionary dollars available for charitable contributions. Charities are already seeing the negative effects of these changes.
S-2179 would provide meaningful relief for New Jerseyans by making a state income tax deduction available for donations to qualified New Jersey charities. Importantly, under the bill taxpayers need not itemize in order to take the deduction, so all New Jersey taxpayers who give to charity could benefit. For a cost to the government of pennies for each dollar donated to charity, S-2179 would leverage government resources and bring desperately needed funding to non-profits.
New Jersey is among the minority of states that do not have a state-level charitable giving incentive. Of the 43 states with an income tax, at least 25, including New York and Delaware, provide some level of tax deduction for charitable gifts, and many others provide a tax credit on state income taxes for charitable contributions. S-2179 would position New Jersey more competitively with its neighbors.
To be clear, charities and philanthropy cannot fill all the gaps created by the steady erosion of government funding for vital services, and they cannot substitute for the obligation of government to ensure the well-being of all of our residents. And while people give generously to charities for many reasons, studies clearly show a positive correlation between the existence of a tax incentive and the amount donated.
New Jersey should aspire to be the most charitable state in the country. A charitable giving deduction – which unlike other tax incentives, exists specifically to encourage people to give a portion of their income to benefit others – can help us achieve that. We urge the Assembly and Governor Murphy to act swiftly to enact this important bill.
Hans Dekker is president of the Community Foundation of New Jersey. Linda M. Czipo is president and CEO of the Center for Non-Profits. Jeffrey M. Vega is president and CEO of the Princeton Area Community Foundation.
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