Right way to replace welfare, The

right way to replace welfare, The

Olasky, Marvin

Over the past few decades, government welfare programs have been designed to lift the burden of caring for the poor from ordinary people, by allowing them to write a check to pay the professionals who would solve problems. It is time for government to reassert a healthy pressure on the American people: Congress should phase out federal-assistance programs and push states to develop ways for individuals and community-based groups to take over poverty-fighting responsibility.

Our predecessors understood the Constitution’s charge to provide for the common defense but to promote the general welfare–by ensuring an environment within which individual and community action could flourish. When, for example, Congress in 1854 passed a bill for federal construction and maintenance of mental hospitals, President Franklin Pierce vetoed the bill. “Should this bill become law, that Congress is to make provision for such objects, the foundations of charity will be dried up at home,” he said.

Pierce’s veto was sustained. His concern about “dried up” charity was typical of the era: Municipal aid to the poor could dry up private charity; state relief could dry up city aid; federal programs could dry up state efforts. Hardly the way to promote the general welfare.

But the mood of that era–not to mention the Constitutional vision for addressing social needs–has been lost. The concept of the modern welfare state placed responsibility for fighting poverty not at the lowest level but the highest. National entitlement programs came to dominate the social-services scene. The reversal of Pierce’s doctrine was so complete that even conservatives in the 1980s, who favored reducing the growth of welfare programs, still talked of the importance of maintaining a federal safety net. They did not understand that the federal safety net was not only inefficient, but conceptually mistaken.

What?” Criticize the safety net itself? Yes. When I took my children to the circus recently, I realized how infrequently the Ringling Brothers safety net is used. For an acrobat, a fall to the safety net is a failure; if he falls stunt after stunt, he will be fired.

Most people during the Depression had the psychology of the acrobat: The newly installed federal safety net was to be used only when the choice was between it and a hole in the ground. But over time, as attitudes softened and welfare programs expanded, that desire to avoid using the safety net was often lost. The destigmatizing of welfare in the 1960s meant that the acrobats no longer needed to strain for those extra inches, because the audience would still applaud even if they fell into the safety net every time. What America needs is not a safety net but a vast variety of small trampolines, suited to individual needs, movable so as to be present for individual crises, and providing a level of bounce fitted to the skill level and psychology of the individuals they are designed to save. Government’s role under such a plan is clear: Get rid of constraints on the construction and movement of trampolines, and–if it does not appear that enough trampolines will be produced–provided incentives to get more. In that way, government can promote the general welfare.

What would this mean in terms of practical policy? Nothing short of a revolutionary proposal: We must place in the hands of state officials all decisions about welfare and the financing of it, and then press them to put welfare entirely in the hands of church- and community-based organizations.

Under this radically decentralist proposal, Congress would acknowledge that even the block-grant concept violates common sense–far better to leave the money in the states in the first place. Congress would acknowledge that block grants reduce accountability, for the goal of block grants is to free state governments from centralized control, but it also tends to free them from taxpayer control because the funds are viewed as “free money” blown in from Washington. Congress would acknowledge that block grants tend to breed scandal; without real accountability to either the national capital or the state’s citizenry, funds are wasted and pressure mounts for Congress to attach not just strings but ropes to hold the sides of the box together.

In this scenario, a bold Congress, pushed hard by the newcomers of 1994 and 1996, would not fall into the same old trap and recentralize. Instead, Congress would pass, effective at the end of the block-grant era, a massive tax cut, with federal taxes decreasing by the amount no longer block-granted. (A side benefit: If Congress moves toward a flat tax, the tax rate could be set lower than is currently anticipated.)

States would then use their own taxing authorities to implement new programs, or duplicate the old ones if they choose to do so. If a new Congress were to make that decision in 1997, states would have four years to plan for the post-federal welfare era. They could tax residents adequate amounts to care for the poor, but provide incentives for citizens to contribute sizable amounts of time or money to local poverty-fighting charities by providing exemptions to the new tax.

It is not as if a dollar-for-dollar replacement for the $350 billion annual cost (in 1994) of federal and state welfare spending (70 percent of it coming from Washington) is necessary: We know that much money is wasted and worse than wasted, actually causes harm. Yet, if more trampolines are needed, we should not be opposed theoretically to governments, once they have worked to reduce barriers, also working to promote the general welfare.

The best way for legislatures to do this would be to offer the average taxpayer a deal as follows: “Come the year 2001, under the Welfare Replacement Act of 1997, your federal tax burden will be reduced by an average of $3,000. We certainly do not want to be accused of being cruel or mean-spirited, so we will raise state taxes by an average of $2,500. However, we also want to promote personal involvement with community-based organizations that offer effective compassion to the poor, and if you provide to such an organization a combination of money and time totaling at least $3,000–thus leaving the quantity of societal commitment to the poor unchanged–you will be exempt from the new tax.”

This would obviously represent a sweeping change from the current system. Now, taxpayers who itemize can deduct from their taxable income the contributions they make to a wide range of religious, charitable, and educational organizations, at their marginal tax rate (the lowest is 15 percent, the highest is 39.6 percent). This is helpful, but not good enough, and movement toward a flat tax might eliminate that deduction anyway. Under the new system proposed here, states would push taxpayers in a massive way to become involved with groups that provide direct social services to the poor, and offer exemption from taxation for such purposes to those who were helping others in their own way.

At least 11 critical questions about such a revolutionary departure from current practice immediately arise:

Q: What percentage of taxpayers would choose to support local charities and thereby gain exemption? That is very difficult to predict, but with four years of preparation it is likely that many would, resulting in a tremendous boost to nonprofit finances and a large increase of citizen involvement. Those who did not become involved would pay the new tax, and states could use that fund to pay for any missing trampolines.

Q: Would church-based and community-based organizations be ready to expand or replicate themselves in order to make use of their new resources in a new century? They would have time to prepare, and the encouragement of a new system would blow away the “compassion fatigue” that has built up over the years.

Q: Would acceptance of exemption-creating contribution force poverty-fighting charities to accept governmental control? At the moment, charitable organizations that seek government grants come under government oversight; some church-related programs have gained financially but lost their souls in the process. Even nonreligious charities accepting public funds have been forced to treat all of their clients bureaucratically, within the parameters set by law and regulation, rather than dealing with each human being on an individual basis.

The advent of “new tax” exemptions would not automatically free up religious groups and other community-based institutions to participate as equals in the social services sector. Despite precedents set by the GI Bill and other programs that allowed consumer choice, the ACLU would not be amused by the removal of secular liberalism from its established, privileged place.

Still, the offer of an exemption (signifying a right not to pay because of other services rendered) is as clear a hands-off statement as a legislature can make. Exemptions offer a greater degree of protection than deductions, credits, or especially vouchers, since the latter requires government not only to overlook revenue but to send out checks. A political coalition strong enough to obtain tax exemptions should be strong enough to keep them from being abused by antireligious zealots.

Q: Wouldn’t some exemptions from taxation go for funds sent to phony, needless, or simply ineffective projects? Wouldn’t these cases be cited by artisans of the welfare state as reasons for opposing the exemption system? Certainly, and those cases would make an impact on people who are startled to find that some among their fellow human beings are foolish, incompetent, or gullible. Markets work not because everyone exercises perfect-judgment, but because, on balance, most people make good judgments most of the time. Even with all the anticipated human error, a charitable sector in which the funds are allocated by individual private decisions is likely to be less wasteful than the current system. Besides, with more resources at stake, more careful analysis of charitable effectiveness is likely to become common. Publications that examine charities the way a Consumer Reports examines products would emerge.

Q: Wouldn’t acceptance of volunteer time as part of exemption-creating contribution open the door to fraud? It is true that proof regarding the giving of money tends to be clearer than that concerning time, the valuation of which can be complicated. Still, emphasis on the crucial meaning of compassion–suffering with–is vital, and a plan that provides incentives for contribution of money but not time is incomplete.

Many groups already keep records of volunteer hours, so bookkeeping would not be an insurmountable problem. Corruption could be kept to a minimum by keeping the general credit for exemption purposes at the level of the minimum wage–enough to provide a bit of compensation for work time lost and to signify societal commitment to compassionate action, but not enough to promote widespread cheating.

Q: What would happen to health care for the poor? Medicaid is the single biggest element of current federal and state welfare expense; of the $324 billion that federal and state agencies spent on welfare in 1993, $132 billion went for that one program. And yet, many cities have free or sharply-reduced-price clinics where some dedicated doctors and nurses volunteer their time. What can governments do to help such organizations?

In Jackson, Mississippi, the Voice of Calvary Family Health Center sees about 8,000 patients each year, and would like to expand its operations or start other clinics like it. Center director Lee Harper contrasts her clinic with higher-budgeted state operations and concludes, “When you have more money, you tend to waste more.” Still, she needs more funds. Job one, however, is getting more hours from volunteer doctors, dentists, and nurses. “If we get the health professionals, we’ll get the money.”

Such an urgent need translates into a specific proposal that could be implemented at the federal level in lieu of all the macro-reform proposals of the 1990s: Give medical professionals tax credits for hours regularly worked at clinics. If a typical doctor, dentist, or nurse worked one day every two weeks at a clinic or in a similar way spent time to provide health care to poor individuals, billions of dollars in medical expenses could be saved. Participating health personnel, in return, could receive a tax credit equivalent to 10 percent of their salaries. Such a credit could be the cornerstone of the personal alternative to bureaucratic health-care plans that are rightly regarded with skepticism.

Q: Why substitute a state tax (with exemptions) for a federal one? Why not simply reduce taxes and allow individuals to spend the money as they see fit? Advocates of individual rather than governmental responsibility have the personal emphasis right, but will a reliance merely on individual goodwill and effort lead to the production of enough trampolines? For those who emphasize original sin rather than natural goodness, there is a middle ground between government and individual: Call it societal responsibility, within which government requires payment but leaves to the individual taxpayer how the money shall be spent.

Q: Will it be possible to restrict tax-exempting contributions to those organizations that are actually engaged in fighting poverty and its associated pathologies? In some cases the correct category will be obvious, but in others careful judgment will be required. For example, it would seem that general donations to a college or a private school should not be used for exemption purposes, but donations to a college or school scholarship fund for poor students should be. General donations to a church should not produce an exemption, but those to the church’s specific poverty-fighting endeavors (an antiaddiction program for example) should be. General donations to a hospital should not; donations to a free or reduced-rate clinic for the poor should.

Such categorization would be necessary, even though it could cut into the individual flexibility that straightforward tax reduction would allow. No matter how carefully state legislatures define the new tax category for poverty-fighting organizations, officials would have to write and apply regulations implementing the pew tax. That authority potentially could allow a state agency to exclude organizations that it did not favor for ideological, theological, or political reasons. Some organizations might change what they do and the way they do it in order to conform to the regulatory standards.

Such a threat does not mean that the new system could not work. It does mean that eternal vigilance will continue to be the price of liberty.

Q: Why not rely on pure voluntarism to do what is necessary? The seeds of welfare replacement are already planted; if we wish to move quickly enough to save a generation of children during the first decade of the 21st century, those seeds need lots of water. If men were angels, no incentives for goodness would be necessary, but devolution to the states and further devolution through an exemption system is a good way for human beings to shift resources from the public sector to the private sector. Such a shift would provide a pool of capital for worthy charities to use in replicating themselves and thus replacing the welfare state.

The stimulation of voluntarism through tax exemption is an impure tactic, but our predecessors in this country, with their realistic view of human nature, were not above using impure motives to promote virtue. Colonial settlers who took in a poor person received compensation from the township, and some of them may occasionally have profited a bit (although that would be more than made up for by the time they spent mentoring the needy person).A farm family that adopted an orphan gained a farm hand, though the economic advantage was outweighed by the hard task of being new parents to someone who had grown up under tough conditions.

Q: Why require $3,000 to receive the exemption payment of $2,500? If some people hesitate to give (in money or minimum-wage time) the greater amount necessary to receive an exemption, that is fine; the quality of their giving would probably be low. Some personal contribution by the taxpayer is important to build a sense of involvement with and responsibility for the work of the charitable organization. The goal is to have as many taxpayers as possible think through their giving, and not merely respond to direct-mail appeals.

Q: Why would taxpayers be expected to make better decisions on groups to support than government officials have? Competition has made the American economy the strongest in the history of humanity, and the American political system the envy of the world. The American people have proven themselves capable, on average and over the long haul, of making good economic and political-judgments. Taxpayers who invested $500 of their own money and time in order to direct 962,500 to satisfying projects would be likely to make equally good judgments in the charitable sphere.

Decisions about where funds shall go would no longer be a function of political struggles over the budgets of government agencies, but would result from the decisions of millions of individual donors. Independent charitable organizations would for the first time in generations be on a level playing field with those groups favored by government. Some errors would occur, but there is every reason to expect this system of delivering assistance to the needy to be far more effective than the current model of top down government monopoly.

Yes, some innovators would fail, but isn’t it better to win a football game 50-14 than to play so defensively as to fall into a 3-3 tie? Given the growing number of damaged children and ruined adults under our current regime, isn’t it better to take the rational risks that could liberate millions, rather than suffer constant winter without Christmas?

In general, decentralization offers the best shot for each state to innovate in the way that is right for its unique population and specific problems. Since we do not know precisely which legislative plan would best promote the offering of individual compassion, an emphasis on state-level action maximizes the opportunity to find out for sure which tactics work best. Furthermore, there may be greater opportunity to move quickly in some states than in Washington.

While each state would have to sort out its particular problems, all must face, for example, rising rates of illegitimacy. Abstinence programs are a start. When pregnancy nevertheless results and marriage does not, states should foster group-living arrangements for women while pregnant and during the year or two afterwards, so that those who would otherwise be alone will have a support network. States should challenge biases against adoption, and stress the advantages to the child of adoption at birth (or up to age two, at the latest). Having a baby out of wedlock should not bring with it the reward of any governmental cash payments.

No public-policy measure can take the place of the personal changes that are necessary to raise high the standard of American compassion. With supportive laws and rules compassionate individuals can make real progress toward reducing some of our most serious social pathologies, but the crucial change is still the one that goes on in each individual soul, not in the federal or state capitols.

Marvin Olasky is a professor of journalism at the University of Texas at Austin and the author of The Tragedy of American Compassion. This article is excerpted from Renewing American Compassion by Marvin Olasky. (C)1996 by Marvin Olasky. Reprinted by permission of the Free Press, an imprint of Simon & Schuster, Inc.

Copyright Heritage Foundation Mar/Apr 1996

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