Although these reforms are an improvement over the existing system, they are still government-run entitlement programs. They do not and cannot allow program administrators to exercise the subjective judgment and hands-on management so essential to successful private charities.

State welfare reform efforts would work even better if there were a way to transfer decision-making authority from government to individual taxpayers. However, suppose the federal government refuses to implement taxpayer choice. Is there as way for state governments to do so? There are three possibilities.

State Options to Use Federal Income Tax Credits.

The federal government could amend the tax law to (1) create 501(c)(3)(+) charities and (2) allow taxpayers to allocate their share of federal tax dollars to these charities provided that the state where the taxpayer resides chooses to authorize the program. This is the same as the federal taxpayer choice plan described above, with the proviso that states do not have to participate.

State Taxpayer Choice.

Even without federal cooperation, states could set up their own taxpayer choice plan. First, the state must decide what amount each taxpayer is allowed to exercise choice over. Second, there must be a mechanism for allowing the taxpayer to make charitable contributions with what otherwise would be tax dollars or to be reimbursed for those contributions.

Third, a funding source must be designated.

This could be the federal government's block-grant funds, the state's match of those funds or both.

One mechanism for allowing choice is a credit on the taxpayer's state income tax return. Another is a rebate system whereby the state reimburses taxpayers for charitable contributions. In the latter case, taxpayers would be penalized by the delay in reimbursement - the lapse between the time they give and the time the state reimbursed their gifts.

One way around this delay is a variation on Britain's "charity card" system. British taxpayers can make deposits to the Charities Aid Foundation (CAF), a sort of bank for charitable contributions. When they deposit aftertax money, the Inland Revenue (the British equivalent of the IRS) immediately adds one-third to the deposit so taxpayers can reclaim the taxes they paid on the deposited funds. Account holders are then issued a debit card called a charity card with which they can make contributions to specific charities.⁴

In a similar way, state governments could set up charitable "bank accounts," depositing some portion each taxpayer's share of welfare tax dollars and issuing charity (debit) cards so taxpayers could make charitable gifts and not have to wait for reimbursement.

Allowing Taxpayers to Voluntarily Pay the State's Share of the Federal Match. A third approach relies on the principle of voluntarism and reduces the state's need to raise taxes. Under a block-grant system, states ordinarily would have to raise taxes to generate the revenue to meet federal matching requirements. But suppose the state allowed individual taxpayers to make the match on behalf of the state. In return, individuals would be able to direct both parts of the match to any qualified charity.

It might work like this.

Suppose that for every $2 of federal block-grant money, the state had to commit $1 in matching funds. If the state invited its taxpayers to make the match, for each $1 voluntarily given the taxpayer would be able to direct another $2 (the federal share) to a private charity.