NCPA - National Center for Policy Analysis

Doing Faith-Based Charitable Giving Right

May 14, 2001

Critics on the left are leery of President Bush's plan to make it easier for faith-based charities to compete for welfare funds because they worry the plan is an unconstitutional mingling of church and state. Critics on the right worry federal money will subsidize non-Western religious views, and are concerned it will distort the mission and message of charities. And there is some merit in the last argument: too often groups that get government funding come to see themselves as part of the welfare state, not an alternative to it.

However, there is a way to take advantage of the good religious groups have to offer.

  • A largely ignored Bush proposal would give taxpayers a tax credit for donations to charities that provide relief to low-income individuals.
  • As formulated, the proposal is too timid, because the credit is limited to up to 50 percent of the first $500 ($1,000 for a couple) and can only be implemented by state governments.
  • However, the idea of taxpayer choice has the potential to revolutionize America's approach to welfare and poverty by allowing taxpayers to allocate some of their welfare tax dollars to qualified charities.
  • Private charities would compete with each other and with government programs for welfare tax dollars.

Ideally, each dollar donated would reduce a taxpayer's tax liability by one dollar. There would be no tax credit for donations to churches -- but credits for donations to relief services organized by churches would be allowed.

As for determining how much to allow for the tax credit, total federal welfare spending is about 25 percent of total personal income tax payments. Thus if this proposal were fully implemented, individuals could allocate up to one-fourth of their tax payments to qualified private charities, an amount equal to about $1,600 per year per household.

Source: John C. Goodman (NCPA),"Blending Charity, Faith and Tax Dollars," Washington Times, May 13, 2001.


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