FEATURES:
Charity Tax Credits--and Debits

By Merrill Matthews Jr, Peter S. Barwick, Grace-Marie Arnett, Stanley W. Carlson-Thies and Robert Rector

If charities are to help replace the welfare state, should government subsidize private giving? A debate

Welfare reform, by shattering the notion of government-funded dependency, represents one of conservatism’s great victories in recent years. It also presents one of the movement’s toughest challenges: If government is not to be the safety net of first resort, then what is? If charities and other private agencies are the alternative to the failed welfare state, then how can we effectively shift resources in their direction?

Charity tax credits are emerging as one of the most important--and most hotly debated--responses to that question. Most versions give either a partial or a full tax credit for donations to organizations whose primary purpose is fighting poverty. Unlike a deduction, the credit would be applied directly against a person’s tax liability.

The Renewal Alliance, a caucus of 30 members of Congress committed to the promotion of civil society, has chosen a charity tax credit sponsored by Senator Dan Coats and Representative John Kasich as one of its three principal legislative priorities for 1998. The Coats-Kasich bill would provide a credit of up to $500 per family at a cost to the Treasury of $23 billion over five years, according to the Wall Street Journal.

Apart from the question of how to pay for it, the charity tax credit has been criticized by a number of conservatives who fear that it will skew charitable giving toward direct provision of services rather than character-building institutions, and that it will amount to a taxpayer subsidy of public-policy advocacy by (mostly left-wing) charities.

In Pennsylvania, a bill was recently introduced to establish a state-level version of the tax credit concept. Drafted with help from the Commonwealth Foundation, the legislation offers a 50 percent credit for donations to charities that directly help the poor. It also tries to address many concerns of conservative critics.

The credit’s advocates often urge that charitable tax credits be financed by dollar-for-dollar reductions in government welfare spending--thus directly transferring resources and responsibility for poverty-fighting from the state to civil society. However, the Pennsylvania proposal for a charity tax credit does not include commensurate reductions in government spending.

Everyone agrees with the ultimate objective: to encourage taxpayers to become more generous and more savvy in their charitable giving. Will the charity tax credit become the legislative fulcrum on which the culture of caregiving in America will be shifted? Or will it play into statist assumptions about government and civil society?

Peter S. Barwick

It’s time to transfer resources from failed government programs
to private charities that are reclaiming lives

The recent dramatic decline in the nation’s welfare rolls is attributable in large part to the practical and psychological impact of reforms intended to create a more "conservative" welfare bureaucracy: expanded work requirements, eligibility restrictions, and a lifetime limit on benefits. These long-needed reforms are changing the culture of welfare from one of entitlement to one of reciprocity and individual responsibility.

It’s time to take the next step. Conservatives should use the momentum generated by recent successes to move toward the ultimate goal of reform: shifting responsibility and resources from the welfare state to privately funded, local charities.

The best way to recover the role of private charity is through a charity tax credit, implemented initially at the state level. Its aim is simple: to give citizens greater control over their tax dollars by allowing them to claim a credit against their personal income-tax liability for contributions made to charitable organizations that assist the poor. The ideal plan is a charity tax credit that is budget-neutral--that is, one in which public spending is reduced by the same amount credited to taxpayers. This would ensure that resources are transferred from ineffective government programs to private charities that successfully reclaim lives.

Such a credit would help to revive volunteerism and a sense of civic responsibility in American society by reminding people that providing for the poor is the responsibility, not of government, but of individuals in their local communities. The credit would also have a beneficial impact on private charity. By encouraging greater reliance on individual contributions, it would stimulate a "market" in charitable giving. This would strengthen groups that help the poor effectively while eliminating or reforming those that do not.

Beyond its practical benefits, a charity tax credit would address what is perhaps the fundamental weakness of the conservative movement: its inability to articulate a vision of society that speaks to the sense of moral obligation people feel for the less fortunate. The goal is not simply a warmed-over version of the statist forms of "compassion" favored by liberals. Rather, the credit would help address the needs of the poor in a way that is consistent with the ideal of limited government and with the American tradition of active reliance upon the institutions of civil society.

Another advantage of a charity tax credit is that it will target assistance to those most directly affected by welfare reform. So far, caseload reduction has primarily involved those recipients easiest to employ. The real test will come over the next several years as work deadlines and lifetime limits on assistance kick in for the rest. If substantial suffering results, pressure will build to abandon these policies. A charity tax credit will help prevent this outcome and allow us to implement welfare reform as it was originally conceived.

Paying for the Credit

The purpose of the credit is not to create a token supplement to the welfare bureaucracy, but to begin shifting both resources and responsibility for assisting the poor from government to private-sector charity. To that end, a charity tax credit should reduce public spending--including spending on welfare programs--by a dollar for every dollar credited to taxpayers under the program.

The need to "pay for" the credit is a primary reason the idea has failed to gain traction in Congress. States will face the same challenge. This raises the inescapable political question: What if mandatory cuts in government social spending prove a poison pill to passage of the credit? The Pennsylvania bill omits such a linkage for this reason. Its author argues that the very existence of the program will create pressure to reduce existing welfare spending. This is an issue conservatives will have to settle state by state.

The federal government can make it easier for states to establish a budget-neutral charity tax credit by enacting two important changes in welfare policy. First, Congress should allow states to count the money they spend on a charity tax credit toward "maintenance of effort" requirements--that is, the minimum spending on welfare--mandated under federal welfare reform. Second, Congress should also allow states to use some portion of federal welfare block-grant funds to help pay for the credit. Every block grant intended for the poor should be included--such as Temporary Aid to Needy Families  (or TANF, which has replaced the AFDC program), Community Development, Social Services, Small Communities, Job Training Partnership, and others.

Conservative Concerns

A liberal definition of charity. Some conservatives dislike the charity tax credit because they believe that, by restricting eligible contributions to groups that provide direct assistance to the poor, it implicitly accepts a "liberal" definition of charity as a dependency-inducing handout. These critics argue that establishing such a credit will simply replace government handouts to the poor with private-sector charity that operates on the same model. In their view, public officials should stay out of the business of trying to define charity and concentrate instead on creating the conditions under which the poor can escape poverty.

It is true that many private-sector charities have been compromised by a handout mentality. But this argument overlooks the ability of individual citizens to make discerning choices in their charitable giving and to create new forms of assistance that promote self-sufficiency. Such a position is at odds with conservative philosophy, which trusts the common-sense judgment of ordinary citizens. It is also challenged by the existence of the many charities that promote self-sufficiency while providing assistance to the poor.

A good example of such a group is Bridge of Hope, a Christian nonprofit based in eastern Pennsylvania that helps single mothers formerly on welfare achieve financial independence through employment. The program works by linking each participant with a "mentoring group" of 8 to 12 volunteers from a local church. The members of this group provide an indispensable network of support for the single mother and her children as she achieves self-sufficiency.

Although relatively small, Bridge of Hope has been remarkably successful. Since it first began working with single mothers in 1989, more than two-thirds of the women it has helped have retained permanent housing and full-time employment. Over the past three years, the success rate has averaged more than 80 percent.

We don’t know how many groups like Bridge of Hope exist in the private charitable sector. Whatever the number, it is certainly not enough. However, this is not an argument against the charity tax credit but for it, since a credit would help to spur the formation of more such groups, and would raise the profile of those that already exist.

The credit envisioned here is specifically designed to promote these ends, in two ways. First, it adopts a broad definition of assistance, thereby making room for creative efforts to help the poor, such as microlending to encourage entrepreneurship. Second, by requiring qualifying groups to limit their advocacy and their dependence on government funding, it effectively excludes those groups most likely to adopt the handout mentality.

Conservative opponents of a tax credit are absolutely right to emphasize the importance of policies designed to help the poor become self-sufficient--employment-based welfare programs, school choice, economic deregulation, and the like. But what is to be done about the numerous individuals who, for one reason or another, continue to fall through the cracks? According to some conservatives, we have met our obligations to them as long as we support policies that improve the general lot of the poor. This position is an abdication of moral responsibility. In practice, it amounts to washing our hands of the problem.

Most Americans insist that something tangible be done to help those in need. As a result, they would sooner keep the current welfare system in place, bad as it is, than sharply reduce it and hope that policy reforms save the day. Those who fail to provide a concrete alternative to the welfare bureaucracy end up guaranteeing the status quo. A charity tax credit, in contrast, would provide a basis for gradually reducing the government role in welfare by transferring this responsibility to individual taxpayers.

Conservatives who argue against the credit idea because of the welfare mentality of many private charities worry especially about these groups using it to expand their political advocacy. Admittedly, large government-funded nonprofits would be eager to do this very thing. But this credit is designed specifically to exclude such groups and to favor local, privately funded charity (see box page 35). The combination of eligibility criteria proposed in the Pennsylvania bill--including a cap on government funding--is not found in any other charity tax credit plan. Together, these criteria ensure that the credit does not become a cash cow for advocacy groups on the Left.

Shredding the flat tax

Some conservatives reject the charity tax credit because it seems to be incompatible with a flat tax. Conservative support for the flat tax is a logical response to the countless loopholes and exemptions that riddle the federal tax code and to the inefficiency and inequity they produce. In the view of many flat-tax proponents, a charity tax credit is simply one more step in this direction.

Indisputably, a charity tax credit is, to some degree, inconsistent with the flat tax’s emphasis on simplification. But tax simplification is desirable, not for its own sake, but because it promotes the larger goals of efficiency and fairness. The credit idea would more effectively promote these objectives than continued government control of welfare spending under a flat tax.

A budget-neutral charity tax credit would promote greater efficiency by shifting responsibility for welfare to private-sector charities, which can achieve superior results to state programs at far less cost. It would also promote fairness by letting taxpayers choose how their welfare dollars are spent. Flat-tax proponents should regard the minimal loss of simplification under a charity tax credit to be an acceptable trade-off.

One further point needs to be made. Proponents of a flat tax express concern that making an exception for a charity tax credit will open the door to all sorts of other exceptions. This concern is misplaced. Pressure for making further exceptions is the result of extending to one group an unfair financial advantage, which causes other groups to seek a compensating benefit. In contrast, a charity tax credit is intended for the legitimate purpose of providing for those who are truly in need. On moral grounds, this is a high priority of public policy, in a way that is not true for other exceptions.

Social engineering on the Right

A further criticism of a charity tax credit is that it is social engineering from the Right, which is to be deplored as much as that from the Left. Rather than provide a credit, they argue, we should simply eliminate welfare programs altogether and allow people to use their money to provide for the needs of others as they see fit.

These critics are right in holding that the needs of the poor are best addressed through the voluntary, cooperative efforts of individual citizens in their local communities. But how do we get to this ideal from where we are now? By simply cutting existing programs? As John DiIulio has aptly observed, removing the knife from a stabbing victim does not immediately bring the victim back to life. What is needed is a transitional mechanism able to rebuild the capacity of private-sector charity.

A charity tax credit supplies this transitional mechanism. Such a credit would nurture a private-sector alternative to the government welfare system. As people come to recognize the efficacy of this alternative, they would be able to accept the idea of further reducing the direct government role in welfare. Eventually, the credit itself could be phased out, so long as the revenue used to pay for it is returned to taxpayers.

Consider the impact of individual retirement accounts (IRAs) on the debate over privatizing Social Security. Thirty years ago, conservatives such as Barry Goldwater who even suggested the possibility of Social Security privatization were laughed out of the room. But now that we have practical experience with the advantages of privately investing for retirement, support for the idea is growing.

Conservatives should not delude themselves that the welfare problem has been solved. They should instead propel reform to the next stage by advancing the fundamental issue of the debate: the need to recover the role of private charity.

Seventy years ago, Americans thought of private charity as the primary social safety net. To the extent that government had a role in assisting the poor, it was a provider of last resort, at the local level. A charity tax credit offers a way to recover this arrangement and the understanding it reflects. Without progress toward this larger goal, welfare reform cannot be considered a true success.

Peter S. Barwick is a research associate at the Commonwealth Foundation, a public-policy research institute in Harrisburg, Pennsylvania, and the author of "Let Charity Begin at Home," a study of the charity tax credit.

Merrill Matthews Jr.

Critics of the charity tax credit seem to be afraid of letting
charities compete for welfare dollars

The 1996 welfare legislation took reform a huge step forward by giving states more control over their welfare programs. Now we should consider shifting control to taxpayers themselves with the charity tax credit.

The charity tax credit would permit individual taxpayers to allocate a portion of their welfare tax dollars to any qualified charity and receive a tax credit for that contribution. Depending on the proposal, the tax credit would refund part or all of each dollar donated.

Though the charity tax credit proposal is still being considered by Congress, the states are also beginning to look at variations of the proposal. It may well be that the states will adopt the approach first.

Unfortunately, the proposal has prompted a number of criticisms, primarily from those who benefit financially from the current system. However, critics seem either to misunderstand how the proposal would work or fear letting charities compete for welfare dollars. Among their arguments:

If people were able to direct their tax dollars to private charities, they would scale back their overall commitment to aiding the poor.

In fact, just the opposite would likely occur. Most economists recognize what is called the "crowding out" effect: When government spending increases, private spending declines. In a 1984 article in the Journal of Political Economy, Russell Roberts found that private relief expenditures rose steadily in the United States until 1932, and declined steadily thereafter as government welfare spending rose. An article in the National Tax Journal that same year found that cuts in government spending resulted in increased interest in private contributions. Thus it is entirely possible that reducing government welfare spending through a tax credit for charitable giving might result in an increase in total spending on the needy.

Private-sector charities are too small to handle the huge number of welfare recipients.

The charity tax credit would create a dynamic welfare system in which taxpayers assess each charity’s record of meeting the needs of the poor. To the extent that taxpayers direct tax dollars to private-sector charities, those organizations would have the funds to grow and meet the needs of more people.

The wealthy prefer to help those closest to them, so the poor living in the inner cities or other places far from the wealthy would receive very little help.

Extensive research done on this issue--such as Charles T. Clotfelter’s Who Benefits from the Nonprofit Sector?--found that there is no evidence that wealthier people give disproportionately to organizations that are closer to or primarily benefit upper-income families. Furthermore, the premise of this criticism is that only wealthy people would get a tax credit. However, since the tax credit would be extended to everyone who pays taxes, many lower and middle-income working families who live near poor communities in need of help would be able to participate. In addition, private-sector charities seeking to inform people about their missions would reach out to groups such as schools and churches whose membership often encompasses a wide range of incomes.

Fraud would increase under a decentralized system.

It’s hard to imagine fraud thriving any more than under the old federal-state system. However, we could put safeguards into place. For example, existing IRS regulations governing nonprofit organizations prohibit the misuse of a charitable organization for personal or financial gain--and the charity tax credit would relax none of those restrictions. But the key to eliminating welfare fraud is to give individuals rather than bureaucrats an incentive to police the system by determining which charities provide the best value for their money.

If lifting the poor out of poverty is the goal, then government welfare programs have been a colossal failure. According to the Congressional Research Service, this country has spent more than $5 trillion on public welfare programs since 1960, yet the poor as a percentage of the total population has slightly increased, to about 15 percent.

It is time to give private-sector charities a chance by giving taxpayers a choice. The charity tax credit would give them the ability to fund those charities they think are doing an effective job.

Merrill Matthews Jr. is the vice president of domestic policy for the National Center for Policy Analysis, a nonpartisan, nonprofit public-policy research institute based in Dallas, Texas.

 Robert Rector

Let’s not endorse a corrupted form of compassion

When Marvin Olasky wrote The Tragedy of American Compassion (1992), he offered a vital and challenging idea: the traditional wisdom of aiding the poor has been forgotten, for modern charity as practiced by both the government and the private nonprofit philanthropy is permissive and often destroys rather than aids the poor. The difficult task ahead was to recover the lost wisdom of true charity. Since then, conservatives have tended to distort this robust idea into another theme that is more comfortable but false: Government welfare is largely bad and private sector charity is largely good.

This is simply untrue. Although there are a few sound conservative organizations helping the poor, the bulk of nonprofit private charities serving them are more liberal and more permissive than their counterparts in government. Any criticism I have ever written about government welfare applies doubly to nonprofit charity. It is thus the most retrograde and corrupt part of the welfare system that the advocates of a charity tax credit are proposing to expand.

Peter Barwick suggests a trade-off: Government welfare spending will be reduced and money re-channeled through the tax code to the private nonprofit philanthropy. In reality, it will not work that way. The philanthropies he seeks to subsidize are nearly unanimous in their claim that the United States must spend more on the poor. If a charity tax credit is created, it will not replace government welfare, but will merely be added on top of the vast existing welfare system that already absorbs 5 percent of GNP.

Moreover, public-sector welfare has one important advantage over private charity: Government funds are rarely used to intervene in the political process. Not so for private philanthropy. Indeed, most liberal and moderate charities believe that the noblest deed they can perform on behalf of the poor is to lobby for greater government welfare spending and expanded state power. In a recent hearing in the House of Representatives, the chief lobbyist of Catholic Charities stated that, in the view of her organization, the best charity activity was voter registration!

Barwick does propose a ban on the use of tax-subsidized charity funds for policy advocacy. But this ban is an illusion and has no chance of survival in the long term. Whenever similar charity tax bills have been introduced in Washington, the entire philanthropic industry has been mobilized to remove any ban on advocacy. As a result, most bills like this one deliberately include policy research and advocacy as a "service to the poor" worthy of subsidy.

A ban on commingling private and public funds is similarly nonenforceable. In reality, this proposal would lead to philanthropies using tax-subsidized private funds to aggressively promote expansion of government programs of which they were beneficiaries.

Most of the liberal agenda, from civil rights to environmentalism, is already packaged as service to the poor. Under the tax-credit proposal, those seeking to raise taxes to expand the food-stamp program get a potent tax cut while supporters of a balanced budget do not. Advocates of expanded welfare, Head Start, and a hike in the minimum wage get a tax break not available to advocates of Star Wars and the flat tax. Backers of affirmative action to help disadvantaged groups get a subsidy but opponents of affirmative action do not. Virtually every liberal cause gets a subsidy while conservative ones do not, unless they twist their message severely in order to accommodate a left-leaning ideological litmus test.

The charity tax credit is a liberal fundraiser’s dream: a potent tax break available primarily to those who have and advance liberal ideas. It will lead to a tax code that subsidizes liberal speech at the expense of conservative speech.

If conservatives want to commit suicide, there are surely more direct means available. Why not just create an extra 20 seats in the United States Senate and assign them permanently to the ACLU, the NAACP, and the Children’s Defense Fund? Enacting Barwick’s plan would have the same practical effect.

Barwick says he wants to create a marketplace for charity permitting individuals to choose where their monies go. In fact, he does neither. His proposal is narrow and corrupt because he mimics the core premises of the War on Poverty. His idea of "charity" bows in obeisance to the liberal icons of guilt, victim worship, envy, and indulgence. It is divorced from true benevolence. To mention one example among a thousand: he would subsidize hospice care for the indigent terminally ill, but not donations for medical research to cure diseases. This is a very bad idea.

If we wish to strengthen civil society, reduce government, and combat moral deconstruction, we should consider enhanced tax relief for all philanthropic giving, not merely the narrow leftish aid to the "poor" envisioned by Barwick. Such an alternative would foster true benevolence, rather than a stale repeat of the War on Poverty. To the extent speech and advocacy were funded, all ideas would be treated equally and public discourse would not be biased toward the Left.

Robert Rector is the senior policy analyst for welfare and family issues at The Heritage Foundation.

Grace-Marie Arnett

Granting credits for charitable gifts
will make a complex tax code worse

Who can argue that a tax credit for charitable contributions isn’t worthwhile? Of the thousands of twists and turns in federal and state tax codes, one that promotes charitable giving to encourage civil society should be at the top of the list. But there are costs and trade-offs, and it is important that they be visible during the debate.

The advocates of hundreds if not thousands of worthwhile causes can and do make passionate and convincing cases for special tax favors to benefit their constituents. But whenever a social cause is steered through the maze of the tax code, the donor, the recipient, and the beneficiary are subject to government intrusion to assure compliance. Further, any tax deduction or credit must be assessed with an eye toward its impact on the overall tax rate.

Just looking at the criteria that Peter Barwick has listed for eligibility for a charity tax credit suggests the complexity of the proposal: Under his plan, charities must prove that 75 percent of their budgets go to direct assistance for low-income individuals and that no more than 5 percent of the charities’ budget is spent on political activities.

Government bureaucrats would have to write detailed regulations to define what "direct assistance" means, charities would be required to provide volumes of paperwork to assure they are in compliance, and government agents would be free to scrutinize records detailing how the staff and volunteers of the charity spend their time and money.

Next, government could demand the lists of beneficiaries and ask for their income statements to determine if they meet the criteria of "low-income individuals" eligible for the "direct assistance." Then, taxpayers, as always, would need to keep records to provide documentation of their donations.

Furthermore, tax deductions and partial tax credits like the Pennsylvania proposal are much more likely to be used by those with higher incomes. It only makes sense: Those with higher incomes have more money left over, after providing for their housing, food, transportation, and clothing, to give discretionary income to charity. They can afford to spend money to save money on taxes.

People at the lower end of the income-tax scale, on the other hand, are often least able to take advantage of tax preferences. A much higher percentage of their income--sometimes all of it--is consumed just to meet living expenses. They are limited in their ability to spend money on something that government encourages in order to save money in taxes.

Those who can afford to spend money on the tax credit can lower their effective tax rate; those who can’t are stuck. These loopholes create the perception that the rich are able to game the tax code, thus engendering resentment between the rich and the poor and hatred of the tax code.

The National Commission on Economic Growth and Tax Reform said in its 1996 report that there are important social and economic consequences to certain tax breaks such as the deduction for charitable contributions but that they should be considered "with an eye to their impact on the tax rate and the costs to the Treasury."

The best way to encourage charitable contributions may be to lower tax rates across the board and trust in the generosity of the American people--as we have throughout our country’s history. The greater economic growth and wealth generated by a lower tax burden and a simpler tax system would provide people with the resources to give even more.

Taxes are too high and take too much of a family’s income, and they have increased decisively over the last four years: In 1994, federal tax receipts consumed an estimated 19.8 percent of GDP. And state and local taxes have risen to an estimated 11.1 percent of GDP. According to Forbes, that means the total tax take (30.9 percent) exceeds the previous high in 1981 of 30.2 percent (before the Reagan tax cuts). Even in 1944, at the height of World War II, taxes consumed only 25.4 percent of GDP.

In spite of this, the American Association of Fund-Raising Counsel reports that annual charitable giving by individuals in America has risen 9 percent after adjusting for inflation, or $10.7 billion, since 1991. People don’t make contributions of $10, or $100, or $1,000 to cut their taxes by $3, or $30, or $300. They give because they believe in a cause or an organization. A thriving economy provides the best incentive for charitable giving.

Direct giving by individuals, without the government looking over everyone’s shoulder, means that charities would truly be able to channel their resources toward building a better society, not complying with suffocating government rules and regulations. Professor Dale Jorgenson of Harvard University told the Tax Reform Commission that the income level in the United States could be 15 to 20 percent higher today if our anti-work, anti-saving, and anti-growth tax system were replaced. This translates to $4,000 to $6,000 per year for typical middle-income families. Imagine how much more charitable giving would be possible in such a world!

Grace-Marie Arnett, formerly the executive director of the National Commission on Economic Growth and Tax Reform, is the president of the Galen Institute, a not-for-profit tax and health policy research organization based in Alexandria, Virginia.

Stanley W. Carlson-Thies

Their is no substitute for government’s special role in fighting poverty

The charity tax credit is an innovative way for government to encourage greater involvement by citizens and social institutions in helping the poor. But the credit is no magic replacement for government’s own anti-poverty role.

Families in deep crisis need more than dollars and bureaucratic services, to be sure; they need assistance that is, in Marvin Olasky’s words, "challenging, personal, and spiritual." A government that wants an effective welfare effort must find ways to expand nongovernmental and personal forms of assistance.

By offering a credit on taxes owed, government can stimulate taxpayer giving to anti-poverty groups and encourage greater citizen engagement with the needy. Because the government’s support is indirect, there is little danger that it will turn the groups into simple vendors of government services or encroach on their moral or religious character. At the same time, because the credit is targeted to donations for anti-poverty action, government ensures that lower tax revenues and reduced social spending are offset by increased service by nongovernmental assistance programs.

Nevertheless, the charity tax credit is problematic in both its details and its overall design. Typical proposals define eligible charities narrowly as groups directly assisting the poor, so that increased giving will go to the needy and not to the orchestra or someone’s alma mater. But this risks reducing the anti-poverty fight to emergency help at the expense of long-term, transformative programs. Similarly, the proposals typically ban legal and political action by eligible charities so that they cannot lobby for more welfare spending. However, sometimes what the poor really need is a courtroom advocate against a shoddy business or an unjust landlord. Or they may need political action to sweep away laws and regulations that hamper entrepreneurial activity or to change the structure of the education system.

Moreover, as a way of assisting the poor, the charity tax credit’s chief virtues are also its worst flaws. Proponents hope to empower taxpayers to choose which anti-poverty programs to support instead of simply sending tax dollars off to Washington or the statehouse. Yet few taxpayers know much about deep poverty and poverty-fighting organizations. What grabs our hearts and pocketbooks is photogenic poverty--the gaunt homeless veteran rather than the teenage druggie mother. This is not a reliable way to make allocation decisions.

Structuring the credit so that donations can only go to local nonprofits would certainly make charity less remote than government programs can be. But it exacerbates another problem: the mismatch between places of greatest need and areas of the most resources. The charitable donations of suburban residents may be most needed in a central city neighborhood, or across the country in a depressed region. Is that where they will go when "localism" is the cry?

Conservatives have begun to ask taxpayers whether they would rather send their hard-earned dollars to HUD than to Habitat for Humanity. But in deciding how to assist people trapped in poverty effectively, policymakers must understand not only how to energize taxpayers but also how to identify and prioritize needs and marshal dispersed resources.

We already elect, appoint, and hire people to carry out the public interest in assisting the needy: the mechanism is called "government." According to biblical teaching, government has a high calling to do justice. When it misses the mark, it’s time for an overhaul, not to cast about for whatever other tool might be pressed into service.

The Bible insists that help should be given to the needy. So it is heartening that policymakers and policy experts are being driven by the (much exaggerated) failings of government welfare to devise more effective ways of rendering assistance to the poor. The reinvigoration of civil society will be a central feature of any new design. The charity tax credit is one way for government to water the garden of community and faith-based service organizations. But the charity tax credit is no substitute for a limited yet vigorous governmental role in protecting the poor and defenseless.