While a state income tax deduction for charitable giving has long been a good idea for New Jersey, last year’s changes in federal tax laws make it all the more urgent. The timing is also right, given trends within New Jersey. Whereas our state has a long and rich history of philanthropic giving, new data shows New Jersey falling to last place among wealthy states for giving.
It is, therefore, heartening to see Sen. Tom Kean re-introduce legislation this month creating a state charitable deduction, as many states already have. Legislators from both parties should consider this proposal, which would provide a needed boost to New Jersey’s charitable sector, the nonprofit organizations that make our state a better place, and the countless New Jerseyans who rely on their services.
We otherwise face serious headwinds. Federal tax reform nearly doubles the standard deduction for single filers and married couples, meaning that far fewer taxpayers will itemize their deductions going forward. If they are not itemizing, they are less incentivized — from a tax-planning purpose — to give to charity.
Compared with other states, New Jersey is in the middle of the pack for charitable giving in 2017 — ranking 27th overall according to WalletHub’s Charity Calculator. When compared with other wealthy states, however, New Jersey ranks last in the percentage of income donated to charity. In raw numbers, there are encouraging signs — fundholders at the Community Foundation of New Jersey have created nearly $300 million in new philanthropy in the past three years — but there is room for significant growth as compared with the need.
If you have never encountered New Jersey’s robust social safety net, you are one of the lucky ones. But for countless other New Jerseyans, the support of nonprofit organizations large and small is the key to survival in our state.
From Project Self-Sufficiency, which helps families in Sussex County get back on their feet, to the Boys & Girls Club of Monmouth County, which keeps children active and healthy throughout the year, these nonprofit organizations and countless others are the glue that keeps our communities together, and they do their work out of sight and out of mind for most New Jerseyans.
It is time for our state to reward and recognize the charitable New Jerseyans who make this work possible. In so doing, we will catch up to the other states already promoting charitable giving. Of the 43 states with state income taxes, the large majority provide charitable deductions or credits, including nearby New York and Delaware.
The Kean legislation would enable any New Jersey taxpayer — regardless of income — to take advantage of the charitable-giving deduction. This benefit would mitigate the fact that only taxpayers with incomes high enough to justify itemizing currently enjoy the federal benefit. We know from IRS data and New Jersey’s Center for Nonprofits that, in fact, lower-income families donate a higher percentage of their income to charity than higher-income taxpayers do. A deduction would send an important signal to New Jerseyans of all incomes that we value their charitable giving.
David Thompson of the National Council of Nonprofits has said that, “the charitable deduction is not just a nice thing for taxpayers, it's vital to the communities. All politicians from across the political spectrum have come to the same conclusion that we are hurting our communities by discouraging giving to charities.”
We agree and have long argued that New Jersey should aspire to be the most charitable state in the nation. The trend in giving has been flat for too long, while the need in our communities only grows. A state income-tax deduction for charitable giving could turn things around without negatively impacting the state’s budget. According to Jon Bakija, economics professor at Williams College, “tax incentives for charitable donations in the U.S. succeed in causing donations to increase, probably by about as much or more than they cost in terms of reduced tax revenue.”
As legislators in Trenton consider how to restructure New Jersey’s taxes in the face of difficult headwinds, they should keep their focus on a deduction for the New Jersey giving that fuels our nonprofits and, in turn, helps thousands of people across our state.