State should offer 'Compassion Tax Credit'
David G. Tuerck
known for its generous welfare benefits, has become a trend setter
for its get-tough welfare policy. In February 1995, Governor William
F. Weld signed legislation requiring able-bodied welfare recipients
to work for benefits. The law imposes time limits and a family cap
that denies additional benefits for children born to recipients.
Since then the caseload
has dropped by 20,242 or by 19.6 percent. According to the Department
of Transitional Assistance, the current level is the lowest since
1973. Other get-tough states, particularly Michigan and Wisconsin,
have obtained similar results.
In August 1996, President
Clinton signed the Personal Responsibility and Work Opportunity
Reconciliation Act. The new law limits lifetime welfare benefits
to five years, requires recipients to work and reduces federal welfare
spending by about $55 billion over six years.
In light of this, some
welfare reformers are declaring victory. Their celebration is premature.
The battle to correct the damage done by 30 years and more than
$5 trillion of Great Society welfare spending will not be won simply
by reducing benefits and caseloads.
Make welfare taxpayer-funded and taxpayer-controlled through
a 'compassion tax credit.'
More than 36.4 million
Americans still live in poverty, 665,000 of them in Massachusetts.
The poverty rate is 13.8 percent for the United States and 11.0
percent for Massachusetts. Despite an economic recovery, the Massachusetts
poverty rate rose by 13.4 percent over the period 1994-95, an increase
of 80,000 people.
The national statistics
for poverty are even more disturbing:
The poverty rate for
single, female heads-of-household is 32 percent, more than twice
the overall rate; for black and Hispanic female householders, the
poverty rate is over 45 percent ; children comprise 40 percent of
the poor, but only 27 percent of the total population; the poverty
rate for children rose from 14.9 percent in 1970 to 20.8 percent
in 1995, a rate higher than any other age group.
The present welfare
system rests on the assumption, unchallenged by the latest wave
of welfare-reform legislation, that a large impersonal government
bureaucracy provides the best method of dispensing benefits to recipient
There is a better way.
Make welfare taxpayer-funded and taxpayer-controlled through a "compassion
tax credit." It would work as follows.
A taxpayer would donate
money directly to a food pantry, homeless shelter or private job
training program. In return, the taxpayer would receive a tax credit
on his federal and/or state taxes. Instead of "paying"
the government to provide welfare benefits, with the money filtering
down through the system, the taxpayer could provide direct assistance
The current federal
law provides for a charitable tax deduction for individuals
who itemize their tax returns. A federal taxpayer in the 28 percent
tax bracket taking the existing deduction pays 72 cents for every
dollar contributed to charity. With a 100 percent tax credit,
however, he would pay zero.
A tax credit could be
given to both itemizers and nonitemizers, thus making it more democratic
than a tax deduction: It would be worth the same to a low-income
and a high-income filer. A tax deduction, in contrast, is worth
more to those with high-incomes.
With a compassion tax
credit, government could launch a bold new, "second generation"
of welfare reform. In addition to giving the taxpayer control over
where his dollar is spent, the tax credit would inject much-needed
competition into the monopolized welfare market, leading to economic
Charities that underperform
would be eliminated; new charities would enter the market to take
advantage of the new dollars. The compassion tax credit would provide
an enormous incentive to the thousands of private charities in Massachusetts
to expand and develop new programs.
There are a number of
proposals to offer tax credits. The Coats-Kasich proposal would
provide a 90 percent federal tax credit for contributions up to
$500 for single taxpayers and $1,000 for joint filers. The Beacon
Hill Institute has offered a proposal that would allow a 100 percent
federal tax credit for cash contributions by individuals to qualified
organizations to up to 25 percent of federal income tax liability.
become a leader in the implementation of the compassion tax credit.
Several states, including Michigan, Colorado and Missouri, already
offer narrowly-based compassion tax credits.
Massachusetts has tax
credits for lead paint removal and purchases of solar energy equipment
and could offer one for contributions to qualified charities.
The tax credit should
appeal to Americans troubled by the failure of the welfare state.
As taxpayers, Americans have long sought a delivery system that
balances compassion, cost-effectiveness and individual responsibility.
The compassion tax credit, boldly implemented, promises to fulfill
David G. Tuerck is executive
director of the Beacon Hill Institute for Public Policy Research
at Suffolk University, where he also serves as chairman and professor
of economics. This article first appeared in The Worcester Telegram
& Gazette on March 27, 1997.
Format revised on August 18, 2004