Private Charities Part II: The Economic Reason

Federal Unemployment Assistance:	$373 billion
Medicare:	$484 billion
Other Health Services:	$324 billion ($255 billion to Medicaid)
Unemployment:	$109 billion
Other Income Assistance (TANF, earned income, child tax credits):	$161 billion
Housing Assistance:	$59.6 billion
Diability Payments:	$8.3 billion (amazing how $8.3 billion sounds small…)
Social Security:	$819 billion
World’s most expensive welfare system:	Priceless

Numbers pulled from:

• US Government Revenue - revenue link
• US Federal Budget – spending link

If you’ve never seen the MasterCard Priceless commercials, please check out the following videos. You can also check them out if like me, you think Peyton Manning is a great actor.

• Peyton Manning MasterCard Commercial #1
• Peyton Manning MasterCard Commercial #2
• Peyton Manning MasterCard Commercial #3

Federal government welfare payouts constitute $1.5 trillion (39.5% of budget) without social security, and $2.3 trillion (60.5%) with social security. In fiscal year 2012, the federal government collected $2.5 trillion in revenue. Thus with social security included, our entire budget is almost consumed just with welfare spending. Good thing our government can print money and sell debt to finance the additional $1.3 trillion in spending ($3.8 trillion total expenditures by US government in 2012).

To bring additional significance to these numbers, the most frequent government spending criticism I hear is foreign aid and military. Perhaps shockingly, these only account for $0.043 trillion (1.1%) and $0.75 trillion (19.7%) of the budget respectively. Total welfare spending almost doubles the amounts of these two budget items combined, and consistently fails to produce desirable outcomes.

Of the four advantages cited in part one of my private charities writings, I would like to expand upon economic reason. I admit the economic reason to favor private charities seems distant and cold. However, I want the most bang for my buck, and any inefficient use of limited resources is a major concern of mine. 

It is admittedly difficult to know the extent of inefficiency and estimates range from 30 to 85% of government funding assigned to public assistance programs reaches beneficiaries. Likely the true figure lies in middle, maybe ~55%. Inefficiencies occur for any number of reasons but include costs to: 

• Collect funding (IRS record keeping and audits) 
• Distribute these funds to various programs (Medicare/Medicaid, Unemployment, etc.)
• Distribute to beneficiaries (Verify beneficiary eligibility)
• Perform audits to prevent waste, abuse, and fraud
• Inefficiencies from beneficiaries receiving assistance that helps, but often is not what they actually need

• A medical analogy would be a child suffering from an ear infection receiving Tylenol or ibuprofen. While undoubtedly helpful, the child needs an antibiotic to relieve the primary cause of suffering rather than simply having his/her secondary symptoms managed.

References -
Center on Budget and Policy Priorities
Mises Institute
The Independent Institute
MediaMatters for America


Admittedly, private charities will also incur most, if not all of the above listed expenses. However, according to Charity Navigator, private charities often incur fewer of these expenses when compared to their public counterpart. Charity Navigator has found more than half of private charities pass through greater than 75% of the funding received to intended beneficiaries, with more than seventy percent of private charities passing through at least 65%. (Government programs may pass on ~55%)

I also believe private charities utilizing local citizens, as opposed to Washington D.C. bureaucrats potentially thousands of miles away, have a much greater understanding of the needs of their intended beneficiaries. Not only do local charities have a greater understanding of needs, but they are in a much better position to hold beneficiaries accountable and prevent the waste, fraud, and abuse of services.

Lastly, I believe a competitive environment continually increases the efficiency (and effectiveness) of almost all things (businesses, athletes, musicians, etc.). Unfortunately the government does not compete with private charities as their source of revenue is forced taxation and printing money. By removing forced support of government assistance programs, competition will be increased amongst charities, which I believe will translate into greater efficiency and effectiveness of all charities.

Of note, I have no problem with governments operating charities. I just want to see the playing field leveled. Rather than government charities relying on forced taxation, they should only be able to spend what their donors choose to give them. Thus, if one believes the government is the best charity to support, they can continue to donate their time, talents, and treasures. However, for those individuals who do not believe the government is in the best position, I can choose to support any number of other charitable organizations.

Therefore, the economic reason I favor private charities is due to the combination of increased efficiency, accountability, and competition coupled with decreased waste, fraud, and abuse.

Next Week's Topic: Book Review #1: End the Fed

Private Charities Part I: Overview

Do you have a favorite charity you enjoy supporting? If so, is it a well known, multinational charity such as the American Red Cross or Salvation Army whose aid may support relief efforts following a devastating earthquake in Haiti?

Or do you prefer a local charity whose funds may support your own community? Going a step further, do you prefer to simply help out your fellow citizens by directly giving them of your time, talents, and treasures rather than going through a charity acting as a middle man?

If you do support charities, are you cause-oriented? Medical research (ie. breast cancer), disabled veterans,  save the rain forest, save national parks, scholarships for prospective students, or human rights just to name a few.

One charity a majority of the nation supports is the federal government. About 39% of federal tax dollars go towards welfare programs (Basic Level of Care). Thus an individual making $40,000, who may pay ~$4,000 in federal taxes, will give ~$1500 to "government charity".

As outlined in my Roles of Government post, I do believe the federal government should be a “lender of last resort” in meeting the basic needs of its citizens. However, I believe privately managed charities (including friends/family) have many advantages compared to their main competitor: public assistance programs.

1. The Economic Reason
• I believe private charities exhibit greater efficiency and accountability.
2. The Outcome Reason
• I believe given the same number of resources, private charities can produce better outcomes.
3. The Freedom Reason
• I favor a small government (My Voting Issues) and preserving citizens’ freedom of how to best spend their time, talents, and treasures.
4. The Social Reason (generosity vs. force)
• I believe an assistance system built on generosity and personal relationships will build community and cohesiveness rather than a system built on force and impersonal handouts.

Although I see many advantages in moving towards a system more reliant on private charities (again, includes family/friends) utilizing generosity, rather than governmental welfare utilizing force, there are real fears and questions which warrant addressing:

1. Private charities will be overwhelmed by the massive needs of a community.
2. Poor communities may suffer the most due to lack of local capital.
3. Some, if not many, will donate nothing to private charities.

I challenge you to determine if, given the option, you would prefer to give of your time, talents, and treasures to government sponsored charities (food assistance, Medicaid, Medicare, WIC, housing assistance, etc.) or to another charity of your choosing (Red Cross, Salvation Army, Breast Cancer Society, Feeding America, Disabled Veterans). Secondly, I would challenge you to determine how you feel when you are forced to support a cause you don’t believe in, or believe could be solved more efficiently and/or effectively.

Next Week’s Topic: Private Charities Part II: The Economic Reason

Basic Needs Part I: Food Assistance

I understand people need assistance during certain seasons of life, and I support the wealthiest nation in the world ensuring adequate provision of its citizens most basic needs. However, I am disappointed, discouraged, and angered by the waste, fraud, and abuse of our country’s current public assistance programs. It is my main objective (MO) to design public assistance systems which:

1. Preserve the provision of basic needs, in this case our need for sustenance (food and water). 
2. Reduce the amount of public funding directed towards assistance programs.
3. Allow others to shoulder a greater amount of the resource (time, talent, treasures) burden.

As a disclaimer, I do not consider myself any better or worse than those who choose to accept public assistance, or than those who may abuse it. There are circumstances and price points where if the government offered me money, I would take it.


Outlined below are a handful of general principles I see as being beneficial in achieving my MO:

1) Food assistance will be an option available to every citizen.

It is a citizen’s choice to accept public assistance, no force will be involved. Also, a person’s income, nor any other criteria, will exclude a citizen from receiving food assistance.

2) Individuals will choose how much assistance ($) they need on a monthly basis.

A maximum monthly limit will be established based on family size.

3) Individuals will exchange freedoms for monetary assistance.

I am no dietitian,  however, as a general principle there will be severe restrictions on food items eligible for purchase. As Dave Ramsey recommends: live on rice and beans. Thus no New York Strip steaks, lobster, caviar, sugared beverages, etc.

 

4) Individuals will pay back into the system the amount they received plus a surcharge.

Although controversial, the concept of paying back into the system what an individual received is perhaps my favorite. I believe it places an emphasis on personal responsibility and establishes a disincentive to accept public assistance (as one will have to pay back in what they took out plus a surcharge).

I hope an example may aid in clarifying the above concept – all numbers subject to change :). Bob, over the course of the last 3 months, has chosen to accept $500 in food assistance secondary to company layoffs. Bob has now accepted new employment and is making $200 per month over the poverty line (to be calculated later). A surcharge of 10% ($50 – subject to change) will be added to Bob’s total assistance received ($500) to cover administrative costs and provide a disincentive for those who don’t need assistance to utilize the system. Thus Bob will be required to pay back a total of $550 ($500 + $50) into the food assistance system.

Bob will be allowed a 6 month grace period where he may choose to pay back any amount (including none) of the funds he owes ($550). After 6 months, the federal government will garnish 15% (subject to change) of Bob’s wages above the poverty line until the full $550 is paid. Assuming Bob chooses not to pay back any amount into the system in the 6 month grace period, the federal government would garnish $30 ($200 x 15%) of Bob's wages each month until it had received $550 ($550 / $30 = 19 months + 6 month grace period = 25 month total repayment period). 

5) A lifetime maximum benefit will be established.

After an individual reaches their maximum lifetime benefit, they will no longer be eligible to receive further benefits. At this point a secondary safety net option will still be available. As with the monthly limit, the lifetime limit will be adjusted based on household size.

Potential concerns:

1. Individuals may receive assistance, but never be above the poverty line, and thus never pay back into the system.
1. This is what we do now. No one is currently required to pay back what they have received. Therefore, my proposed system is no worse than our current system.
2. Children
1. Rightly so, there are many who are concerned about the well-being of our country’s children. An argument could be made with lifetime maximums established and less willingness to accept assistance, children have a higher risk of being neglected. Although not a perfect solution, I see such scenarios as a perfect opportunity for private charities and local governments to design programs specifically addressing children.

Revamping our country's food assistance program is a difficult topic for me to address succinctly and with a high degree of clarity. Unfortunately, I am not sure how to do better articulating my thoughts and would thus appreciate other's input as this is an issue we all need to work together to find a workable solution.

Next Week's Topic: Private Charities Part I: Overview