May 14, 2013
TESTIMONY by AICUM
Supporting legislation (H.2537, H.2598, H.2675, H. 2717, S. 1338, S. 1316,
S.1361, and S.1405) that would provide tax deductions or exemptions for money invested in higher education
Joint Committee on Revenue
State House – A2
My name is Robert J. McCarron, and I am Vice President and General Counsel of the Association of Independent Colleges and Universities in Massachusetts [AICUM]. AICUM is comprised of 60 colleges and universities located throughout the Commonwealth – institutions which educate 275,000 students each year and employ more than 84,000 people. Our member colleges include large nationally renowned research universities, smaller, highly regarded liberal arts colleges, religiously affiliated institutions, and colleges with special missions focused on business or music or allied health services.
I wish to voice AICUM’s general support for several bills that are on the Committee’s agenda for today’s hearing, including H.2537, H.2598, H.2667, H.2675, H.2717, S.1316, S.1338, S.1361, and S.1405. All of these bi-partisan legislative initiatives would provide Massachusetts taxpayers with an income tax deduction or exemption for money invested in higher education, whether through charitable donations, contributions to college savings or 529 Plans, or expenses incurred in pursuing a college education.
At the outset, AICUM and its member institutions acknowledge that as Massachusetts continues to emerge from a difficult economic climate, it remains a challenge for the Legislature to support well-intentioned proposals that would reduce tax revenues. However, as we have seen throughout the economic recovery – the entire higher education sector, both public and private, have played an integral role in that recovery – and proposals like the bills before the Committee today should be embraced as a way to provide Massachusetts residents with even more of an incentive to save or pay for a college education.
One of the bills before the Committee – S.1316 – would allow Massachusetts taxpayers to claim a state income tax deduction for at least a percentage of the charitable contributions he or she made during the year. The deduction would be taken for any charitable giving that is deductible under federal tax law. Massachusetts is one of only a handful of states which do not provide a state income tax deduction for charitable contributions. Under Massachusetts’ current statutory system, a deduction for charitable contributions will not be allowed in any tax year until the income tax rate in the prior taxable year was equal to 5.0%. The current income tax rate is 5.3%, so Massachusetts residents have less of an incentive to engage in charitable giving, particularly to local charities. This also means that charitable organizations in Massachusetts are at a competitive fundraising disadvantage as compared to their counterparts in most other states, which is ironic given that the non-profit sector in Massachusetts is one of the largest drivers of a state’s economy of any in the country. AICUM believes that as the economy continues to strengthen, proposals such as this will provide Massachusetts’ citizens a strong financial incentive – and an equally positive public policy message – to increase private philanthropic giving.
The Pension Protection Act of 2006 illustrates the incredibly powerful – and immediate – impact that tax policy can have on charitable giving. A provision in the Act allows older persons to donate money from their IRA’s to charities free of income taxes. In just the first five months after the Act was signed into law in August 2006, more than $70M in charitable gifts from IRA’s was given to independent colleges and universities throughout the nation. In December 2012, Congress approved an extension of the IRA charitable rollover provision until the end of 2013. We believe that allowing a charitable deduction in the Commonwealth may have a similarly profound effect upon charitable giving in Massachusetts, and that the benefits that will accrue to charitable organizations and the individuals they serve will far outweigh any lost tax revenue.
AICUM also supports legislation before this Committee that would establish a tax deduction for contributions made by Massachusetts residents to college savings plans, so-called “529 Accounts”. This type of legislation is a “win-win” for the Commonwealth because Massachusetts students and their families benefit from having an incentive to build a nest egg for college without incurring additional tax liabilities and the state benefits by having residents better prepared financially to enter college. As noted above, a highly educated workforce will play a critical role in any effort to stimulate the Massachusetts economy, so increasing access and affordability for more Massachusetts residents is good public policy.
Thank you very much for the opportunity to offer testimony in support of these bills.