These are the theoretical arguments often used to justify government coercion -- to require that people give a certain portion of their incomes for the relief of poverty. They are arguments that, in one form or another, most people accept.

It does not follow that the government should nationalize the charity industry. Government requires licensed drivers to carry automobile liability insurance, but few would argue that it is necessary or desirable for government to nationalize the automobile liability insurance industry.

However, government has assumed the role of a public monopoly in the welfare industry. It has put itself in the position of being the exclusive recipient of charitable contributions taken by coercion (through the tax system) and of having sole discretion over how these dollars are spent.

This is unfortunate, because the most serious defects of the American system of public charity all stem from its monopoly by government. In the first place, under the government's monopoly the dollars almost never go where the givers would have them go. Although the private sector makes voluntary gifts totaling $124 billion each year, ¹¹⁸ whoever heard of anyone voluntarily giving money to the AFDC or food stamp programs? Furthermore, when spending decisions are made through the political process, it is inevitable that powerful, organized special interests have considerable influence over how the dollars are spent. Thus it is no accident that more than two-thirds of federal welfare spending ends up in the pockets of people who are distinctly not poor. Medicaid dollars go to doctors and hospitals; food stamp dollars go to the agricultural industry; housing subsidies go to landlords; and legal aid dollars go to lawyers. Finally, because it faces no marketplace competition, the public charity monopoly can continue to spend money in wasteful and inefficient ways, to fail miserably in achieving its objectives and to misbehave generally without fear of losing customers to a competitor.

To remedy these defects, public sector charity must be denationalized.

Proposal A: Competition and Choice. The basic idea of privatizing public charity is simple. Government would continue to force people to give their "fair share" through income taxes. However, individual taxpayers, rather than politicians, would decide how their share of the welfare bill would be spent by allocating their welfare tax dollars to any qualified charity -- public or private. In this way, private charities would compete on an equal footing with government welfare programs for the federal dollars allocated to poverty programs. Furthermore, there would be free and open entry into the market. Anyone could start a private charity and be eligible for "tax dollar contributions," provided the charity had a social welfare purpose and satisfied certain other minimal requirements.

Proposal A involves partial privatization of public charity. Under the proposal, individuals would be able to allocate up to 20 percent of their personal federal income taxes to qualified private charities and then deduct the 20 percent from their total income tax payments. Alternatively, individuals could instruct the U.S. Treasury (on their income tax returns) to pay up to 20 percent of their taxes to specific private charities. Such private charity allocations would be deducted from the federal government's poverty budget. In other words, for each tax dollar allocated to private sector charity, public sector charity would be reduced by a dollar.

In 1992, total federal personal income taxes amounted to $476 billion. Twenty percent of this amount is approximately $95 billion, or almost half of the federal government's share ($197 billion) of spending under federal means-tested programs ($305 billion). (The remaining $108 billion was spent by state and local governments.) Had Proposal A been in effect in 1992, individual taxpayers could have allocated almost one-half of the federal welfare budget to private sector programs. If taxpayers did so, Congress would have been required to cut $95 billion out of public sector programs.

Proposal B: Competition and More Choice. Proposal B is a natural extension of Proposal A. It broadens the choice of individual taxpayers by allowing individuals to allocate their entire share of the social welfare budget among all public and private sector agencies and programs. Every agency -- public and private -- would compete against every other for welfare tax dollars. In principle, Proposal B allows the public to make all of the allocation decisions, although individuals could forgo this responsibility by indicating on their tax returns that Congress should allocate their individual welfare tax dollars.

In 1992, total means-tested welfare spending by the federal government was equal to about 41 percent of all personal income taxes paid that year. Thus Proposal B would give individuals direct control over how 41 percent of their tax dollars would be spent.

Proposal C: Competition and More Choice Still. Proposals A and B deal only with activities designated as "welfare." They exclude educational, cultural, medical and other human service activities which are not directly related to the problems of poverty. They also exclude research activities such as preparation of this NCPA report. Yet because these activities also have a public nature, it would seem desirable to expand taxpayers' choices to include them as well.

Proposal C would do just that. Under the proposal, Congress would define a "human services budget," which would include spending on poverty programs, education, medical research, arts and cultural programs. (Proposal C would exclude spending on religious and political activities, as would Proposals A and B.) All public and private sector agencies with a human services purpose would compete against one another for taxpayer dollars, and individual taxpayers could allocate their individual shares of the human services budget or turn that privilege over to the Congress.

Conclusion: Advantages of the Proposals The three proposals made here would lead to a more humane and desirable welfare system. The proposals would replace public sector monopoly with private sector competition. All charitable organizations would have to persuade the public that their service merited support. Inefficient, wasteful federal programs would lose their uncontested access to taxpayer dollars. Special interest groups would have little access to political largesse. Most important, those of us who give the money would have direct control over how our future welfare tax dollar contributions are spent.

NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.

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