Welfare

Real Welfare Reform

Social services for the poor could be improved and expanded by allowing taxpayers to directly fund eligible charities through a 100 percent income tax credit for up to 25 percent of their tax liability, according to a study by economists at Suffolk University.

The federal government spends about $115 billion for individual and family services, job training and vocational rehabilitation, residential care, day care and legal aid to the poor. The tax credit would allow shifting those services to the private sector without impacting the balance between federal revenues and expenditures.

The study concluded that:

  • Funding eligible organizations through a tax credit would be more efficient since it would not require the 15 percent administrative overhead incurred in federal funding.

  • In addition, government spending "crowds out" private giving by an estimated -0.5 percent to -0.35 percent, suggesting private giving would increase if the federal government weren't responsible for funding some activities.

  • An econometric model of charitable giving shows that a 10 percent reduction in the price of giving, as measured by the aftertax cost of a dollar's worth of donations, increases charitable giving by 11.1 percent.

  • And since volunteering and giving are complementary goods, increasing the amount of giving would also increase the number of volunteers for eligible organizations from 3.76 million to 5.82 million.

The study estimates that there are about 80,000 nonprofit organizations eligible for tax creditable donations. Those organizations now receive about 42 percent of their revenues from government, 35 percent from private giving and 23 percent from fees for services.

The researchers estimate that individuals gave $102 billion to private charity and $17 billion to nonprofit human-services and public-benefit organizations in 1992.

Source: James P. Angelini, William F. O'Brien Jr. and David G. Tuerck, "Giving Credit Where Credit is Due: A New Approach to Welfare Funding," Beacon Hill Institute for Public Policy Research, Suffolk University, 8 Ashburton Place, Boston, MA 02108, (617) 573-8750.

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