The Commonwealth could provide incentives through the tax code. The Massachusetts Senate has offered its own tax deduction as part of its FY 2001 budget. Currently, the federal government offers a tax deduction for individual income tax filers who make charitable donations and who itemize their taxes. Thirteen of the states that levy income taxes also provide for a state charitable deduction. Unlike direct government support for nonprofit organizations, tax deductions empower individuals to vote with their dollars and encourage an alternative to the government provision of public goods.
Charitable deductions reduce the price of giving and in turn induce taxpayers to give more.
An analysis by the Beacon Hill Institute estimates that the benefits of a state tax deduction outweigh the costs to the state's treasury. Both the ballot question and the Senate proposal would allow nonitemizers to take a tax deduction. Bringing in nonitemizing taxpayers would make a state charitable deduction more democratic. The state's nonprofit sector already provides a variety of much-needed services for the Commonwealth's citizens. A charitable tax deduction would enable nonprofit organizations to expand their work across the state.