Why New Jersey Needs a Charitable Giving Deduction

By Linda M. Czipo

It’s no secret that the slow economic recovery continues to take its toll on the ability of New Jersey’s non-profits to provide essential services for our communities in the face of a stagnant funding environment.

One important way to address the problem is to make it easier for people to give to charity by providing a state-level tax deduction for charitable donations. Several bills now pending in the New Jersey Legislature would allow taxpayers to deduct their charitable gifts from their state income taxes.

A New Jersey charitable deduction would be good for our state’s charities and everyone that relies on them. Here’s why:

Demand vs. Funding fulcrum
Adapted from https://upload.wikimedia.org/wikipedia/commons/f/f2/Palanca-ejemplo.jpg , Copyright © 2004 César Rincon, under the terms of the GNU Free Documentation License.

Demand for the programs and services provided by charities continues to grow, while needed resources lag behind. New Jerseyans turn to charitable organizations to provide vital programs and services such as food, education, health care, job training, youth programs, arts and culture, child care, services for seniors, land conservation, behavioral health services, substance abuse prevention and treatment, affordable housing, and many others.

For many years, New Jersey charities have been grappling with the mounting pressures of skyrocketing demand for services while resources have failed to keep pace. According to the Center for Non-Profits’ 2016 annual non-profit survey report:

  • 73% of organizations reported that demand for services had increased during the past year, and 65% said that their expenses had increased during the same period — but only 42% reported receiving more total funding.
  • Over one-third reported that expenses exceeded support and revenue during their most recent fiscal year.
  • 70% expected their total expenses to increase in 2016, and nearly 80% predicted that demand would continue to rise in 2016, but only 47% expected total 2016 funding to increase.

Charitable giving in New Jersey is still lower than in pre-recession 2007. 

Charitable giving by New Jerseyans is still below pre-recession levels. While demand for charities’ services has continued to rise, charitable giving has still not recovered from the economic downturn. Donations by New Jersey households, as measured by itemized deductions claimed on IRS tax returns, were still lower in 2013 (the most recent year available) than in pre-recession 2007.

A charitable giving incentive would help working families. It would not only provide a much-needed boost for charities to fill growing demands for services, but working families, who already give generously to charity, would be able to gain some tax assistance from that generosity. IRS data show that lower-income taxpayers donate a larger percentage of their incomes to charity than higher-income taxpayers do. A New Jersey charitable giving incentive – which, unlike the federal deduction, would not require filers to itemize on their tax returns – would lower the “cost” of these gifts while providing resources desperately needed by non-profits to fulfill their missions.

Taxpayers need not itemize in order to take the proposed New Jersey charitable deduction, so all taxpayers who give to charity could benefit. 

Because taxpayers need not itemize in order to take the proposed New Jersey charitable deduction, this incentive would benefit all New Jersey taxpayers. It effectively allows people to donate to charity at a lower cost, and will bring desperately needed resources to non-profits who are shouldering an ever-increasing burden of community services.

New Jersey is among the minority of states that do not have a state-level charitable giving incentive. According to the National Council of Nonprofits, as of 2015 at least twenty-six states, including New York and Delaware, provided some level of tax deduction for charitable gifts. Many others provide a tax credit on state income taxes for charitable contributions. But New Jersey provides no such incentive, placing it among the minority of states that don’t formally recognize the value of charitable giving.

There is a connection between tax incentives and charitable giving. While people give generously to charities for many reasons besides a tax incentive, research suggests a correlation between the existence of a tax incentive and the amount donated. It’s difficult to project precisely how much giving could increase if an incentive were in place, but we have seen the impact in some other states when existing giving incentives were curtailed.

  • In 2011, Michigan removed three tax credits designed to encourage charitable giving. A 2014 study by the Council of Michigan Foundations found that the removal of these tax incentives for charitable giving led to a sharp reduction in donations to charity. It was estimated that in 2012 alone, donations dropped $50 million.
  • The Hawai’i non-profit community lost an estimated $60 and $70 million after a cap on charitable donations was enacted in 2011. After officials realized that the cap was costing the community more than five times what the state treasury was saving, the cap was lifted in 2013.

Small and mid-sized charities would benefit significantly from a New Jersey charitable deduction. IRS data compiled by the Urban Institute show that in general, smaller charities are more reliant on donations compared with other forms of revenue than are large institutions . This means that even a minor uptick in charitable donations resulting from a charitable giving incentive would have an enormous, beneficial impact on small and medium-sized organizations – the ones that have been hit the hardest by the economic downturn.

To be clear, charities and philanthropy can’t fill the gaps created by the steady erosion of government funding for vital services, and they can’t substitute for the obligation of government to ensure the well-being of all of our residents. But unlike many other tax incentives, a charitable giving deduction exists specifically to encourage people to give a portion of their income to benefit others.

After years of non-profits’ being continuously called upon to do more with less, a charitable giving incentive would generate desperately-needed resources for New Jersey’s charities and the communities they serve. It deserves full legislative support.

Linda M. Czipo is President & CEO of the Center for Non-Profits, New Jersey’s statewide umbrella organization for the charitable community. Through advocacy, public education, technical assistance and cost-saving member services, the Center builds the power of New Jersey’s non-profit community to improve the quality of life for the people of our state. 

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3 Comments

  1. NJ is losing its wealthiest families because income taxes are high. Although the tax rate itself is not high, there are no deductions except within categories and no carryovers. Therefore the gross amount taxed is higher and, in my case, my NJ income tax is 4 times, yes 4 times, my federal tax. The difference, in my case, is charitable deductions.

    Like many of my friends, I may follow the advice of my tax advisor and move to another state. After the move, I will probably make my charitable donations to non-profits in my new state. Thus, as in my friends’ cases, NJ will lose not only my tax dollars but also my charitable contributions.

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