Giving Results

This entry continues the series exploring improvements to the federal tax system.

It is clear that the ideas presented in the previous entries will require huge cuts in government spending. Many people, including government employees, have become dependent on these programs, and cutting them will certainly put some Americans in a difficult position.

Fortunately, there is a community in America that is dedicated to helping people in need, and, unlike the government, they achieve consistent results.

I'm talking about our charitable institutions. Americans give huge dollar amounts to charity every year, and these smart, competitive organizations stretch the contributions they receive to the limit. How do I know? I spent two years working as the Director of Development (fundraising manager) of a non-profit charity.

Charities do not work like government. They understand how difficult it is for people to give and appreciate every dollar they receive. Donors are an intelligent group as well, only contributing to the best-run charities that produce consistent results. In short, the charitable giving industry has a client/company relationship that closely resembles that of businesses. In the case of non-profits, the product you are offering a donor is the fulfillment of their desire to help others and improve their communities, their country, and the world. Producing better results and making donations go further naturally leads to receiving more donations, just like an effectively run business that satisfies its clients tends to do more business.

This is a distinctly different model from government entitlement programs. Rather than investigating best practices and thoroughly examining each case, government gives money on the basis of predetermined benchmarks. What this means is that if an individual meets the qualifications laid out in the law, he or she is entitled to receive benefits. Furthermore, government does not have a responsibility to its donors, because taxpayers must fund the government. By its very nature, it is an inefficient institution. The result is poorly run programs that fail to produce results.

I have also worked at a homeless shelter. During my time there, dozens of homeless individuals came into the shelter to take advantage of its functions, which included a place to shower, free meals, reception services (yes, we even received mail and took phone messages for homeless individuals), public transportation fare, food stamps, and benefit applications.

At the risk of sounding callous, I was amazed at how few of these homeless individuals were taking active steps to find gainful employment or housing. My second day there, I approached a woman who had been working there for several years and asked her about this. She explained that about 1-in-30 people coming through their doors were making use of the intended function of the shelter, which was to help these individuals get back to work and find homes. My experience at the shelter confirmed her estimation.

This is not efficient. The cost of running the shelter must have been extremely high. There were at least five full-time employees in a large office space in an area where real estate prices are among the highest per square foot in the nation. The food and bus tokens alone must have totaled at least $1000 per day. No charity in the country could operate so poorly (a 1-in-30 success rate) and continue to receive donations.

Contrast this performance with that of "Habitat for Humanity," a well-known charity committed to building shelter for those in need. This organization has constructed over 200,000 homes and shelters, and finishes a new shelter every 24 minutes. Every 24 minutes! By June of 2006, Habitat had put 100 families who had been devastated by Hurricane Katrina into new homes. By mid-summer of 2007, they project that 1,000 new residences will have been constructed for the hurricane victims. And these are not shacks or government projects, either. I encourage readers to visit their website, www.habitat.org, and see what real charity looks like.

And that's not all. Habitat also does vast amounts of work abroad. Over the next 18 months, they expect to build 10,000 homes for victims of the Indian Ocean tsunami. Not only does this save lives and help people start over, it also aids in improving the image of the United States around the world.

Like all charitable organizations, Habitat publishes an annual report that the public can read (this is where all this information comes from). All non-profits are transparent, allowing potential donors to see the organization's record of success. The government frequently fails to research the success of its own programs, much less offering the public an opportunity to look at its records and determine whether or not they wish to continue funding the waste.

Because a charity's income is tied to its performance, efficiency and effectiveness are vital to operations. Because the government's income is guaranteed, efficiency and effectiveness are almost unnecessary.

On top of the 20% income tax proposed in previous entries, Americans should be asked to give to charity. Requiring this by law would flood money into our charitable organizations, and this is sure to be more effective than any government program. A sliding scale based on total income level would look like this:

Income (in thousands of dollars); (Percentage Tax)
$25-50 (5%)
50-75 (6%)
75-100 (7%)
100-200 (8%)
200+ (10%)

This scale does not mean that an individual making $250,000 per year must give $25,000 (10%) to charity. What it means is that the first $25K of income is charity tax free, the next $25K is taxed at 5% (for a total of $1250), the next $25K at 6% ($1500), and so on. So, using the above example, an individual earning $250K would pay a total of $17,500 ($1250 + 1500 + 1750 + 8000 + 5000) in charity tax. That amounts to only 7% of the $250K in total income.

Along with the new charity tax, fierce penalties for charity fraud would be written into law. Individuals who are caught trying to beat the system would be fined and jailed.

The end result would be amazing. Not only would charities help the Americans who need help, but instead of a government program throwing money at a problem it will be Americans helping Americans (and foreigners). Anyone who has ever been involved in charity work knows what a special relationship this is, and how beneficial it is for all parties involved.

The influx of funding to charities would also boost the industry, opening new possibilities for philanthropy and allowing anyone with a good idea on how to help people make it a reality. Charities would continue to strive for excellence and compete for dollars, and Americans could choose how their contribution improved their community, country, or the world.

American taxpayers deserve a good return on their investment. Let charities and fellow Americans take care of each other, and let the government take care of funding things like infrastructure, military and security, and public education. This is the kind of honest change we need.