Executive Summary

Currently, we are spending more than $350 billion a year on 79 means-tested federal welfare programs. That's more than we spend on national defense. Theoretically, we could take that money and give $8,939 to every poor person in America, or $35,756 to a family of four.

Since 1965 we have spent $5 trillion on the War on Poverty, measured in 1992 constant dollars. Yet the poverty rate is higher today than it was the year the War on Poverty began. How can we spend so much and achieve so little? One reason is that most of the money we spend doesn't go to poor people. It goes to nonpoor people who work in the welfare-poverty industry. Medicaid dollars go to doctors and hospitals; food stamp dollars go to the agricultural industry; housing subsidies go to landlords; and legal service dollars go to lawyers.

Meanwhile, the official poverty counters look only at money income and ignore goods-in-kind. That means the welfare system can give poor people unlimited amounts of food, shelter and medical care and still count them as poor. That explains why the real value of cash benefits to welfare mothers has changed little in the past 20 years, even though the welfare state has mushroomed. We're paying people to be poor, but mainly not in cash.

There are remarkable differences among the people we label as "poor." The poverty population includes the elderly poor as well as unwed teenage mothers. It includes people with college degrees as well as the functionally illiterate. It includes the healthy as well as the sick. It includes the mentally impaired as well as the normal. It includes people who use the welfare system for temporary relief as well as those who become perpetual wards of the state.

Unfortunately, rules written in Washington are tragically inadequate to take account of the differences in attitude and circumstance of the millions of recipients of this money. In the very act of helping some people, federal welfare programs create perverse incentives for others. Scholarly studies show that the welfare system discourages work and encourages dependency, single motherhood and the breakup of families. The underclass -- replete with crime and other antisocial behavior -- is subsidized and sustained by the welfare state. Even when the welfare system achieves good results, it does so incompetently. A humane welfare system is one that gets aid first to people who need it most. Yet one of the most astonishing and little-known facts about the welfare state is what a miserable job it does in pursuing this goal. According to a government report:

• Only 41 percent of all poverty families receive food stamps, and 28 percent of food-stamp families have incomes above the poverty level.

• Only 23 percent of all poverty families live in public housing or receive housing subsidies, and yet almost half of the families receiving housing benefits are not poor.

• Only 40 percent of all poverty families are covered by Medicaid; yet 40 percent of all Medicaid beneficiaries are not poor.

• Amazingly, 41 percent of all poverty families receive no means-tested benefit of any kind from government; yet more than 50 percent of all families who receive at least one means-tested benefit are not poor.

Ninety-four percent of all shelters for the homeless in the U.S. are operated by private sector organizations.
• Studies show that as many as 80 percent of low-income people turn to the private sector first when facing a crisis.

There is mounting evidence that the private sector does a better job of getting prompt aid to those who need it most, encouraging self-sufficiency and self-reliance, preserving the family unit and using resources efficiently. Yet the federal government has a monopoly on welfare tax dollars. It is time to end this monopoly by allowing private citizens to make decisions on how our welfare tax dollars will be spent.

Under this proposal, government would continue to force people to give their "fair share" through the income tax system and would determine the total national welfare budget. However, individual taxpayers would be free to allocate their welfare tax dollars to any qualified charity -- public or private.

Moreover, for each dollar taxpayers allocated to a private charity, government welfare programs would lose a dollar. In this way private charities would compete on an equal footing with government welfare programs for the portion of the federal budget that is allocated to poverty programs.

Under this proposal, a welfare program would be able to attract contributions only by making a persuasive case to the public. No longer would inefficient, wasteful programs be able to count on uncontested access to taxpayer dollars. Instead, the people giving the money would have direct control over how their share of welfare dollars was spent.