O'Brien speaks on compassion tax credits at APEE conference

from NewsLink, Vol. 1, No. 3, Spring 1997

Compassion tax credits for charitable contributions: Finding a new way to fund welfare was the subject of a paper presented by BHI Senior Economist and Assistant Professor William F. O'Brien, Jr. in Washington, DC on April 14.

O'Brien delivered his remarks at the Association of Private Enterprise Education's 22nd Annual Conference.

Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, gave the conference keynote address. The theme of the conference was "Zero-Based Government: A Fundamental Reexamination of the Proper Role of Government in a Free-Enterprise Society."

Using BHI's three charitable tax credit studies as his base, O'Brien demonstrated the viability of a compassion tax credit and how it accords with the principles of a market-driven society. He expounded on the benefits accruing to society from enactment of such a credit, describing how charitable giving and volunteering would increase.

The tax credit would allow the private sector to increase its share of welfare funding, a favorable alternative to the status quo.

He described how the increased funding flowing from the tax credit would significantly reduce government involvement in welfare provision. Further, the tax credit would allow funding decisions to be made by individuals living in their local communities. O'Brien argued that the tax code would be made fairer by extending the credit to nonitemizers.

O'Brien's presentation drew a crowded room and generated a vigorous discussion of its practicality. Of particular relevance was whether contributions to religious groups would be eligible to receive the credit given the wall of separation between church and state. O'Brien indicated that religious groups, many of whom have laudable track records, would be eligible if they established a subsidiary to provide human services.

Many of the audience members were enthusiastic because the proposal gives private nonprofit organizations the means to employ innovative solutions to social problems government programs have been unable to solve.

Some audience members, however, argued that the enactment of a flat tax is more important than further complicating the failed existing tax code. In response, O'Brien pointed out that a tax on consumption and a charitable tax credit were not incompatible. Moreover, even with welfare reform, government would continue to spend funds on welfare, but the tax credit would allow the private sector to increase its share of welfare funding, a favorable alternative to the status quo.

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