Welfare | |
Questions and Answers About
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In most cases, private charities will receive funds exactly as they do now
- as checks from givers. The donors would simply indicate on their income
tax returns the names and tax I.D. numbers of the organizations to whom
they have made contributions. However, taxpayers also could have the U.S.
Treasury make the contribution by indicating on their tax returns which
organizations they wished to give to and in what amounts p;p; just
as taxpayers can now allocate $1 of their taxes to the presidential election
campaign fund.
Individuals could decide: (1) whether to allocate some or all of their welfare
tax dollars to private charities and (2) whether to contribute additional
dollars. Voluntary, personal gifts would qualify for tax deductions as they
do now.
The procedure would be the same as the one the Internal Revenue Service
already has in place for organizations with tax-deductible status. The IRS
would have to certify that a 501(c)(3)(+) applicant engaged in traditional
welfare activities.
No. The IRS already monitors nonprofits. No new bureaucracy would be required.
A number of safeguards could be established. Here are four of the most important:
No. Prohibitions against political activities now apply to 501(c)(3) nonprofit
organizations. Even stronger prohibitions would apply to 501(c)(3)(+) organizations
receiving tax dollar contributions.
Organizations whose primary purpose was to advance a religion would not
qualify for welfare tax dollar contributions. However, religious organizations
could form subsidiaries such as soup kitchens, and welfare tax dollar contributions
could be given to the subsidiaries. Organizations that primarily serve a
social welfare function but have a religious dimension, such as the Salvation
Army, could receive welfare tax dollar contributions.
That decision would be made by state governments. Presumably lawmakers would
take into account what private charities were doing and which government
programs - in the light of private charitable activity - were the most valuable.
It is possible. However, the best advertising both persuades and informs.
Right now, little is known about the structures and functions of public
and private charities. And some charities have discovered that disclosing
how little they spend on fund-raising acts as a valuable incentive to givers.
A bill introduced by Rep. Jim Kolbe (R-AZ) and Rep. Joe Knollenberg (R-MI)
would prohibit 501(c)(3)(+) organizations from spending more than 30 percent
of their budget for fund-raising and administration. Lower percentages could
be adopted for larger organizations.
Moreover, the private marketplace can perform an information dissemination
process independent of the law. Federal employees, for example, can make
monthly contributions to charities and their employer (the Office of Personnel
Management) automatically deducts the amount from their pay check and makes
the contribution. To qualify for the program (and be listed in a booklet
given to all federal employees), however, a charity must not spend more
than 25 percent on overhead, and the percent spent on overhead is listed
in the federal booklet in any event.
Not necessarily. As numerous business bankruptcies show, people cannot be
consistently fooled. Moreover, it would be a mistake to think that puff
wins over substance in the charity market place. Under the current system,
foundations and charitable giving programs routinely receive slick brochures.
But they don't give the most money to the organizations with the slickest
brochures.
One option is to rely on the advice of "experts." Right now, the
taxpayer has to take the advice of one particular group of experts - politicians.
The taxpayer choice proposal would preserve that option while also allowing
individuals to consult other experts. Moreover, we may find that individuals
observing and participating in private charities provide a much better guide
to intelligent giving than any expert advice - whether public or private.
It is possibly quite unlikely. In the first place, people contribute to
private charities every day, and the results of such giving are far from
bizarre. Secondly, not all of the giving decisions would be made on April
15. Individuals could make cash gifts and pledges throughout the calendar
year and have access to a great deal of information about where others'
money was going by April 15.
In the third place, private sector remedies could deal with any bizarre
result. For example, if the Salvation Army received most of the funds it
would have to share with underfunded agencies in order to maintain good
relations with the giving public.
Finally, the problem if it arose would be of short duration. In making giving
decisions the next year, people would remember the previous year's results
and adjust their behavior accordingly. Over time, America would move to
a fairly stable pattern of giving.
In that case, the federal programs would be abolished. Clearly, eliminating
programs of such magnitude would require some adjustments. That is why we
propose phasing in the privatization of public charity over time and leaving
some money in government hands to be a funder of last resort.
Social Security and Medicare would be exempt. However, means-tested poverty
programs such as Supplemental Security Income (SSI) would be included.
Perhaps so - if the proposal allowed the wealthy to make spending decisions
about how to spend other people's money. However, taxpayer choice simply
allows people to allocate their own money - in the charitable marketplace.
Not necessarily. A great deal of wasteful, inefficient and counterproductive
spending would be eliminated. Considered in isolation, this change would
reduce the perceived need for charitable giving, which in turn might reduce
the amount of "voluntary" giving and create political pressure
to lower the amount of "required" giving.
However, people would have complete control over their own giving decisions
and thus a personal interest in how their dollars are spent. As a result,
they might be willing to accept higher tax rates to fund higher levels of
"required" giving. Personal voluntary giving might increase as
well.
We don't. Economists theorize that spending is "ideal" when: the
last dollar spent on program A creates as much social benefit as the last
dollar spent on program B. The current system has no mechanism for reaching
this ideal. Indeed, the current system cannot reach the ideal because decisions
are based on political rather than economic costs and benefits.
Our proposal also has a theoretical defect. Individuals will tend to allocate
their tax dollar contributions so that the last dollar spent on program
A provides as much personal or "psychic" benefit as the last dollar
spent on program B. Clearly, such psychic benefits cannot be equated with
social benefits.
As a practical matter, the system we envision will be better, but it will
not be perfect.
We don't. Suppose that everyone in Dallas, Houston and San Antonio had some
concern about poverty in rural Texas. For each individual, this concern
was so small that they allocated all of their tax dollar contributions to
charities in their home cities and none to the rural areas. Meanwhile, the
needs of the rural areas added up to a major social concern.
No one knows how serious such a problem might turn out to be. Gradually
moving to the new system would allow us to prevent such problems.
That might be desirable. However, government programs have different degrees
of "publicness." As with rural Texas poverty, individuals might
tend to allocate all of their tax dollars to projects in their own communities,
with nothing left over for truly national concerns such as defense.
Again, we cannot know what choices people would make until we begin to experiment.
The proposal developed here applies to federal means-tested programs. However,
state governments could expand the proposal to include other welfare programs
as well. Moreover, even under the proposal developed in this study taxpayers
could allocate their tax dollar contributions to state and local government
welfare programs if they chose to do so.
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