Welfare | |
Answering the Critics by Merrill Matthews, Ph.D. |
A number of legislators are turning to an innovative welfare reform proposal
known as Taxpayer Choice. Under this proposal individual taxpayers could
allocate their welfare tax dollars to any qualified charity, public or private,
and receive a dollar-for-dollar tax credit for that contribution. Private
charity allocations would then be deducted from the federal government's
welfare block grant to the states. In other words, for each tax dollar allocated
to private-sector charities, public welfare programs would be reduced by
a dollar, creating a level playing field between private charities and government
welfare programs for the federal dollars allocated to poverty programs.
In the original version of their bill, Congressmen Joe Knollenberg (R-MI)
and Jim Kolbe (R-AZ) proposed legislation permitting people to allocate
up to 10 percent of their income taxes to private charity programs. Senator
Dan Coats (R-IN) has proposed - and Republican presidential candidate Bob
Dole has endorsed - a $500 tax credit ($1,000 for a family). Congressman
Jim Talent (R-MO) has proposed a $100 tax credit ($200 per family) that
could be used for private sector charities.
Unfortunately, the proposal has come under significant criticism in the
media lately, primarily from those who benefit financially from the current
system. However, the criticisms raised against Taxpayer Choice indicate
that critics either do not understand how the proposal would work, or they
are afraid of competing for welfare dollars.
Criticism #1 - The poor would be significantly harmed if government welfare
spending were reduced. Taxpayer Choice does not reduce welfare spending.
The dollar-for-dollar offset in some proposals means that total welfare
spending would remain the same. The only difference is that welfare dollars
would come directly from the taxpayer, rather than being funneled through
the government. If there were no offset, total welfare spending would increase
significantly.
Criticism # 2 - If people were able to direct their tax dollars to private
charities, wouldn't they reduce the amount of tax-deductible dollars they
had been giving? Not necessarily. In fact, most economists recognize what
is called the "crowding out" effect. When government spending
increases, private spending is often crowded out. In a 1984 article in the
Journal of Political Economy, Russell Roberts found that private relief
expenditures rose steadily in the U.S. until 1932 and declined steadily
thereafter as government welfare spending rose. An article in the National
Tax Journal that same year found that cuts in government spending resulted
in increased interest in private contributions.
Criticism #3 - Private-sector charities are too small to handle the huge
number of welfare recipients. Taxpayer Choice does not create a static welfare
system, but a dynamic one in which taxpayers assess the needs of the poor
to see which charities they believe are doing the best job. To the extent
that taxpayers directed tax dollars to the private-sector charities, those
organizations would have more funds to grow to meet the needs of more people.
Criticism #4 - The wealthy would want to help those closest to them, so
the poor living in the inner cities and places away from the wealthy would
receive very little help. Because the tax credit would be extended to everyone,
many lower- and middle-income working families would live near the poor
communities most in need of help.
However, extensive research done on this issue - see, for example by Charles
T. Clotfelter, Who Benefits from the Nonprofit Sector - found that there
is no evidence that wealthier people give disproportionately to organizations
that are closer to or primarily benefit upper-income families.
Criticism #5 - There would be widespread discrimination among private-sector
charities. Except for a few charities that exist primarily to serve a limited
population (e.g., battered women), there is no evidence that charities discriminate.
In fact, most charitable organizations that exist in the inner-city are
run or staffed by minorities.
Criticism #6 - Fraud would increase under a decentralized system. It's hard
to imagine fraud increasing any more than it has under the current federal-state
system. However, safeguards could be put in place. For example, existing
IRS regulations governing nonprofit organizations would continue to apply,
which include prohibitions against misusing a charitable organization for
personal or financial gain.
However, the key to Taxpayer Choice is that individuals rather than bureaucrats
would, in effect, police the system by determining which charities provide
the best value for their money.
Criticism #7 - Private-sector charities often tie moral strings to their
help, and some needy people may not want or need a sermon. Most charities
will help a needy person in the short term without conditions. But it is
true that many private-sector charities tie behavioral reform to long-term
assistance. As a result, and in contrast to most government welfare programs
that make no connection between providing help and behavioral change - private-sector
charities have a high rate of successfully helping people turn their lives
around and reenter the workforce.
Criticism #8 - Private-sector contributions have not been keeping pace with
public-sector increases or with the needs of the poor. Though the tax burden
has been relatively constant over the past five years (about 9.7 percent
of personal income), the slow economic growth has discouraged increased
charitable giving. Any decrease in private contributions is an argument
for progrowth economic policies, not an argument against private-sector
charities.
Criticism #9 - Private charities cannot provide the national oversight,
planning and coordination that federal welfare programs provide. Strangely,
this argument is made by two groups that provide a lot of planning and coordination
among smaller charities: The United Way and Catholic Charities USA. Both
are solicitation organizations that seek money, including government money
(42 percent of United Way's budget and 62 percent of Catholic Charities'
funds come from the government), and funnel that money to smaller organizations
that do provide the services.
Criticism #10 - While private organizations have been around to help the
poor, they have been unable to lift the poor out of poverty. If lifting
the poor out of poverty is the criterion for success, then government welfare
programs have been a colossal failure. According to the Congressional Research
Service, this country has spent more than $5 trillion on public welfare
programs since 1960. However, since the inception of the War of Poverty,
the poor as a percentage of the total population has slightly increased,
to about 15 percent.
The real reason why some people oppose Taxpayer Choice is that they would
be forced to compete against other charities by making their case to the
public, rather than bureaucrats, that they provide the best welfare services
for the money. That means that charities would have to reveal how much money
goes to administration and how much really gets to the poor. It means that
charities would have to show positive results. And it means that those charities,
public or private, that could not convince the public that they were providing
value for the taxpayers' dollars would likely go out of business.
Dr. Merrill Matthews Jr., is vice president of domestic policy for the
National Center for Policy Analysis, a nonpartisan, nonprofit research institute
based in Dallas, TX. |
"Taxpayer Choice" is
|
The facts: Bob Dole is on record as supporting a charity tax credit (also
known as "taxpayer choice") that would allow taxpayers to earmark
$500, or $1,000 per couple, of what they otherwise owe in taxes to private
charities which devote 75 percent of their funds to poverty relief.
|
Matthew Miller (The New Republic): No |
In today's anti-government climate, taxpayer choice's rhetoric sells well:
give your money to the Department of Health and Human Services, or give
it to Mother Theresa. Who's going to bet on Donna Shalala in that race?
However, the idea is costly and dangerous.
For example, say you give $300 to poverty-related charities. The $500 tax
credit prompts you to give another $200. But to finance your giving, the
government cuts $500 from AFDC. Thus, you have given an incremental $200,
but federal spending has been reduced by $500, leaving a net reduction in
aid of $300.
The program could be defended if charity-delivered aid was more efficient,
but that's not the case:
This isn't to say that some innovations wouldn't work. We could cut the
proposed $500 to $100, target middle and lower-income taxpayers and distressed
communities. Then rather than cutting the safety net, we could cut "welfare"
for the wealthy -- for example lower the amount of principal on which mortgage
interest can be deducted from $1 million to $300,000.
Source: Matthew Miller, "This 'Compassion' Would Hurt the Poor,"
syndicated in the Dallas Morning News, June 17, 1996. |
Dr. John C. Goodman (NCPA): Yes |
After 30 years of the War on Poverty, the federal government has proved
one thing: it does a bad job of dispensing welfare. According to the Congressional
Research Service the poverty rate is higher today than in 1965.
Taxpayer choice is based on the notion that individual taxpayers know more
about the effectiveness of poverty programs in their communities than do
bureaucratic overseers in Washington.
Government would still force people to give their "fair share"
to charity through their income taxes.
Private charities would compete on an equal footing with public welfare
institutions. The taxpayer choice plan is revenue neutral, since all tax
credits would be offset by reductions in block grants or matching fund payments
to the states in which taxpayers reside.
Current poverty programs spend $6,100 per poor person yearly, or $24,400
on a family of four. But not all poverty money is spent on the poor:
Furthermore, there is considerable evidence that private charities do a
better job of helping the poor:
How much should taxpayers be allowed to allocate to private charities?
In 1994, federal personal income taxes amounted to $543 billion. The federal
government spend about $168 billion on means-tested programs other than
Medicare, or about 31 percent. If this proposal were fully implemented,
individuals in the average state could have allocated up to 31 percent of
their personal income taxes to qualified private charities.
As to the argument that taxpayer choice would create geographical discrepancies
in giving, a recent Beacon Hill Institute study shows that overall giving
would go up under a plan similar to the one Dole proposes.
If government chooses the amount that must be given and individuals choose
the recipients, the result will be a massive shift from federal programs
that do more harm than good to private sector programs that actually work.
Source: Dr. John C. Goodman (president, NCPA), "Welfare Privatization,"
Wall Street Journal, May 28, 1996.
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