In most cases, the private charities will receive funds exactly as they do now -- as checks from givers. Under our proposals, the donor would simply indicate on his income tax return the names and tax I.D. numbers of the organizations to whom he has allocated his tax dollar contributions. However, taxpayers also will have the option of having the U.S. Treasury make the contribution by indicating on their individual tax returns which organizations they wish to give to and in what amounts -- just as taxpayers can now allocate $1 of their taxes to the presidential election campaign fund.

2. What if an individual wishes to contribute more to charity?

Individuals will make two types of decisions with respect to private charities: (1) whether to allocate a portion of their welfare tax dollars to the charities and (2) whether to contribute additional dollars. The second category -- voluntary, personal gifts -- will continue to qualify for tax deductions as they do now.

3. How would a private organization qualify for tax dollar contributions?

The procedure would be that already in place for nonprofit organizations wishing to receive tax-deductible contributions. Under Proposals A and B, the organization's activities would have to be confined to social welfare services. Under Proposal C, educational, cultural and research activities would be included.

4. Wouldn't monitoring the private charities receiving tax dollar contributions require a large bureaucracy?

No. The IRS already has procedures for monitoring nonprofit organizations. There would be no reason to add a new bureaucracy.

5. What safeguards would be needed to prevent fraud, abuse and cheating?

A number of safeguards could be established. Here are four of the most important:

a. Existing IRS regulations governing nonprofit organizations would continue to apply. These include prohibitions against misusing a charitable organization for personal financial gain.

b. Other, stricter rules also would apply to organizations that receive tax dollar contributions. For example, no one would be allowed to allocate tax dollars to an organization from which he or a family member received a salary or with whom they had substantial business relations. Nor could people make "deals" with each other ("I'll give to your charity if you give to mine") in order to circumvent the law. Such rules would be no more difficult to enforce than current IRS regulations.

c. Special freedom of information rules would apply to organizations receiving the contributions. These rules would make it easy for the public and competing organizations to access financial and other records.

d. The most important check on an organization's activities would be the self-interested inquiries of its competitors, who would be free to use comparative advertisements in the competition for tax dollar contributions.

6. Could private charities receiving contributions engage in political activities?

No. The same prohibitions that now apply to IRS-designated 501(c)(3) nonprofit organizations would apply to organizations receiving tax dollar contributions. Public policy research institutes would be excluded under Proposals A and B, but included under Proposal C.

7. What about churches and other religious organizations?

No tax dollar contributions could be given to organizations whose primary purpose is to advance a religion. However, religious organizations could form subsidiaries such as soup kitchens, and tax dollar contributions could be given to these social welfare subsidiaries. Organizations that primarily serve a social welfare function but have a religious dimension, such as the Salvation Army, could receive tax dollar contributions.

8. If people chose to allocate a certain portion of their taxes to private charities, which federal programs would lose money?

Under Proposal A, tax dollars allocated to private charities would be made up by cuts in the budgets of means-tested federal welfare programs. The cuts would be made by Congress. Under Proposals B and C, individual taxpayers could allocate their tax dollars among all authorized private and public programs, and Congress could allocate those funds over which individual taxpayers gave them domain.

9. Don't private charities already spend too much money on fundraising? Wouldn't this problem be worsened by the kind of aggressive competition you propose?

It is possible. However, the best advertising not only persuades but also informs. Right now, there is too little information about public and private charities and what they do. Furthermore, some of the best private charities have discovered the value of disclosing how little they spend on fundraising. For example, the Kansas City Salvation Army, with a budget of over $5 million, spends only eight cents on fundraising for every dollar it raises. If the value of volunteer labor is included, the organization probably spends less than a penny of every dollar on fundraising. In our opinion, that's a good argument for giving to the Kansas City Salvation Army.

10. Won't most of the contributions go to agencies with slick advertising campaigns rather than to those that do the best job?

Not necessarily. People can be fooled some of the time but, as many a bankrupt businessman knows, they cannot be consistently fooled.

11. Given the complexity of the welfare-poverty industry, how can an average citizen make intelligent choices about where his tax dollar contributions should be spent?

One option is to rely on the advice of "experts." Right now, the taxpayer has to take the advice of one particular group of experts -- the U.S. Congress. Our proposal would preserve that option while also allowing individuals to consult experts whose opinions were not distorted by the desire to get reelected.

12. Since each individual taxpayer would make decisions without knowing what decisions everyone else was making, couldn't the result be generally unacceptable and even bizarre?

Let's take an example. Suppose everyone in the nation decides to donate all of his tax dollar contributions to the Salvation Army, on the assumption that other people will give to other causes, such as suicide prevention centers and homes for battered women. When the results are in, we learn that the Salvation Army is overfunded and many other worthy causes have no money at all. Seeing this result, people wish they could go back and change their minds, but they can't.

Could something like this actually happen? It's extremely unlikely. In the first place, people contribute to private charities every day without consulting their neighbors. The results of such private giving are far from bizarre. Secondly, not all of the giving decisions would be made on April 15. Individuals could make cash gifts and pledges throughout the calendar year and have access to a great deal of information about where others' money was going by April 15.

In the third place, should there be some bizarre result, private sector remedies could deal with it. For example, it would be in the Salvation Army's self-interest to share with the underfunded agencies in order to maintain good relations with the giving public.

Finally, the problem -- if it is a problem -- would be of short duration. In making giving decisions the next year, people would remember the previous year's results and adjust their behavior accordingly. Over time, America would move to a fairly stable pattern of giving.

13. What if no one allocated their tax dollar contributions to federal welfare programs?

Under Proposal A, Congress would still allocate approximately two-thirds of the federal poverty budget. Under Proposal B, federal welfare programs would have no money and would have to be abolished. Clearly, there would be some adjustment problems in eliminating programs of such magnitude. That is why we propose phasing in the privatization of public charity over time.

14. What about programs for the elderly, such as Social Security and Medicare?

Social Security and Medicare are exempted under our proposals. However, means-tested poverty programs such as Supplemental Security Insurance would be included.

15. Aren't you substituting "one dollar one vote" for "one person one vote" and won't this give the wealthy an unfair, disproportionate influence over where charitable dollars are spent?

The criticism would be apt if we proposed to allow wealthy people to make decisions about how to spend other people's money. However, we are simply proposing to allow people to allocate their own money -- in the charitable marketplace.

16. Under your proposals, won't the total amount of public and private charitable giving go down?

Not necessarily. We do anticipate that a great deal of wasteful, inefficient and counterproductive spending will be eliminated. Considered in isolation, this change would reduce the perceived need for charitable giving, which in turn might cause a reduction in the amount of "voluntary" giving and create political pressure to lower the amount of "required" giving. However, we also propose a system under which people would have complete control over their own giving decisions and thus a personal interest in how their dollars are spent.

As a result of the increased personal interest and control, the public might be willing to accept higher tax rates to fund charitable activities. Personal voluntary giving might increase as well.

17. Technical question: How do we know that the tax dollar contributions will actually be distributed to the "right" charitable activities?

We don't. Economists have a theoretical way of describing "ideal" spending decisions: the last dollar spent on program A should create just as much social benefit as the last dollar spent on program B. One theoretical criticism of the current system is that it has no mechanism for reaching this ideal. Indeed, the current system is inherently destined not to reach the ideal. That is because, in the political arena, decisions are based on political costs and benefits (How many votes lost? How many votes gained?) rather than economic costs and benefits.

The proposal we are making also has a theoretical defect, however. When people make individual decisions, they will tend to allocate their tax dollar contributions so that the last dollar spent on program A will provide just as much personal ("psychic") benefit as the last dollar spent on program B. Clearly, such psychic benefits cannot be equated with social benefits.

As a practical matter, the system we envision will be a great improvement over the current one, but it will not be perfect.

18. If the system you propose is not perfect, how do we know that it will meet all important social goals?

We don't. Consider the following problem. Suppose that everyone in Dallas, Houston and San Antonio has some concern about poverty in rural Texas. For each individual, this concern is so small that he allocates all of his tax dollar contributions to charities in his home city. As a result, no city money flows to the rural areas. However, the small concerns of the millions of charities might add up to a major social concern.

No one knows how serious such a problem might turn out to be. Gradually moving to the new system would allow us to prevent such problems.

19. If individual choice is superior to choices made by politicians, why not allow each taxpayer to allocate all of his tax dollars among all federal programs?

That might be desirable. However, federal programs have different degrees of "publicness." As with rural Texas poverty, individuals might tend to allocate all of their tax dollars to projects in their own communities, with nothing left over for truly national concerns such as defense.

Again, we cannot know what choices people would actually make until we begin to experiment.

20. What about state and local government welfare programs?

Our proposals apply only to federal income taxes. However, state governments could adopt similar programs -- and taxpayers could allocate their federal tax dollar contributions to state and local government welfare programs if they chose to do so. .

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