Unintended consequences of new tax code worry local charities

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One of the state’s largest charities is worried it will have less money to help those in need next year because of tax changes that take effect next month.

Norm Baker from the Aloha United Way said the new tax law has some unintended consequences that will negatively affect charities. Baker says the effect would mean the community will suffer.

“We are going to see less dollars less services available for the community until something is done to fix this” Baker said.

The new tax law raised the standard deduction. That means many people will not itemize their deductions.

With that comes other consequences according to Baker.

“The fact that they are not going to be using the itemized deductions is problematic for charitable deductions because that’s one of the things that you can itemize,” he explained.

Coralie Matayoshi, the Chief Executive Officer of American Red Cross, said she’s very concerned.

“They predict that the number of people that itemize will go from 30 percent to 5 percent,” Matayoshi said. “In Hawaii, that translates into about 32 million dollars less in donations.”

Baker said the new law primarily impacts middle class donors.

“The large donors, the folks that give us substantial amounts of money… they’re going to be able to itemize deductions and continue to write off their charitable donations. It’s the folks in the middle income group that… they’re just not going to be able to continue to give. In essence what’s going to happen is they’re being taxed for their donations to a charity,” Baker said.

KHON2 asked, “how does this directly affect our communities?”

“If the estimates are correct, we are probably looking at a one-and-a-half to two million dollar decrease in the amount of money that comes to Aloha United Way,” Baker answered.

That doesn’t bode well for Hawaii.

“I think in the long run there’s going to be fewer non-profits operating,” Baker said. “There’s going to be fewer services for the community and you know, we’re going to have to start prioritizing who we serve.”

Aloha United Way currently provides funding to over 300 agencies that assist everyone from kupuna to pregnant mothers

“We’re on call 365 days a year,” Matayoshi said. “And we will respond to any disaster within two hours. If we have to worry about the funding, that just makes it that much more complicated.”

The American Red Cross and other nonprofit organizations are advocating for a universal charitable tax deduction that opens up a giving incentive to all taxpayers regardless of their income.

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