Restore the state Charitable Tax Credit to help nonprofits survive and flourish

(Baumer is President/CEO of the Capital Region Community Foundation and Moser is President/CEO of the Jackson Community Foundation.) 

The nonprofit sector plays a critical role in supporting the quality of life for our community. Nonprofits are vital to the local social safety net, stepping in to provide housing and food assistance, access to mental health services, literacy programs and more before government resources are used. The nonprofit community also helps maintain bike trails, beautify neighborhoods and sustain local arts and cultural programs.  

The organizations doing this important, community-enhancing work largely depend on the generosity of our fellow citizens, and those who support these efforts deserve to be thanked and rewarded.  

For many years, the Michigan Charitable Tax Credit did exactly that. This state income tax credit incentivized donations by allowing donors to write off 50% of their gifts to local charities on their state taxes. Unfortunately, this credit was eliminated in 2011 through sweeping tax reform.  

The tax credit’s repeal was felt immediately, with a significant drop in giving, particularly among first-time givers. The Capital Region Community Foundation has seen a 70% drop in $400 donations and a 76% drop in $200 donations since the tax credit was eliminated, and the Jackson Community Foundation has had a similar experience. 

Take the Loaves and Fishes Ministry, for example. This Lansing nonprofit provides short-term emergency and long-term transitional housing and support services for children and adults experiencing homelessness. They set up an endowed fund through the Capital Region Community Foundation where they could use the Charitable Tax Credit to incentivize donations supporting its work.  

Over the years, Loaves and Fishes grew its fund to over $220,000 by highlighting the fact that even a modest gift of $200 or $400 would provide significant tax benefits for the donor. Today, gifts to its endowment have all but disappeared.  

State  Sen. Sam Singh has introduced Senate Bill 127, to restore the nonprofit community’s ability to incentivize donations by once again providing a 50% tax credit for donations to endowed funds at local community foundations.  

The proposed law is designed to increase access to charitable giving in two ways. First, it targets giving at the levels where donations have declined most, which is among middle-income donors. It would do this by capping the tax benefit at donations of $200 for an individual or $400 for a family. 

Second, the tax credit would apply only to donations to endowed funds at a local community foundation, which serve a unique role statewide. Endowment funds set up through our organizations create permanent charitable capital designed to address local community needs now and in the future. These funds are often referred to as “for good forever” funds, and this long-term stability allows community foundations and their nonprofit partners to be strategic in their response to community needs, particularly in times of crisis. 

Community foundations also provide access to fundraising that would otherwise be out of reach for many organizations. Even the smallest grassroots nonprofit can set up an endowment through its community foundation, and it’s often those small nonprofits and those doing work in marginalized communities that struggle to achieve the same fundraising power as other institutions. This tax credit will provide them an additional tool for fundraising that has a proven track record — just like with Loaves and Fishes Ministry — of building a long-term funding source. 

The Senate Fiscal Agency estimates Singh’s bill could have a $3 million impact to the state general fund. However, this is a tax credit that pays for itself. The estimated $3 million in charitable tax credits issued by the state would equate to at least $6 million in private giving being incentivized across the state.  

This legislation has the potential to supercharge the work our nonprofit community does to support our region by providing an important fundraising tool that has demonstrated effectiveness while also incentivizing donors to support them. It’s time for the Legislature to restore the Charitable Tax Credit. Please reach out to your local state representative or senator and encourage them to pass this bill immediately.