THE BEACON HILL INSTITUTE AT SUFFOLK UNIVERSITY AND THE DAVID R. MACDONALD FOUNDATION COMPASSIONATE WELFARE REFORM: EMPOWERING CHARITIES AND PRIVATE CITIZENS TRANSCRIPT OF PROCEEDINGS Thursday, December 12, 1996 10:00 a.m. Cannon House Office Building Room 345 Washington, D.C. 1 C O N T E N T S INTRODUCTION AND PERSONAL SUCCESS STORIES Representative Joe Knollenberg Roger Allee Avis Jones PANEL I: What Works? Experience of Private Charitable Organizations MODERATOR: Arianna Huffington, Chair Center for Effective Compassion PANELISTS: Andrew S. Bush, Research Fellow Hudson Institute Lou Nanni, Executive Director Center for the Homeless Robert L. Woodson, Sr., President National Center for Neighborhood Enterprise PANEL 2: IMPLEMENTATION OF COMPASSIONATE WELFARE REFORM: ISSUES AND ANSWERS MODERATOR: John Fund, Editorial Writer Wall Street Journal PANELISTS: David G. Tuerck, Executive Director Beacon Hill Institute Merrill Matthews, Vice President National Center for Policy Analysis Robert Rector, Senior Policy Analyst Heritage Foundation Peter J. Ferrara, General Counsel and Chief Economist Americans For Tax Reform LUNCHEON SPEAKERS: Senator Dan Coats Representative John Kasich 2 P R O C E E D I N G S INTRODUCTION AND PERSONAL SUCCESS STORIES MR. KNOLLENBERG: I want to welcome everyone here to the Compassion- ate Welfare Reform Forum. If you get all those words in one phrase then I think you’ve made some success. I am excited to be the lead-off individual here. I’m Congress Joe Knollenberg from the State of Michigan, and it gives me a great deal of pleasure to open things up. I particularly want to thank the panelists. I want to thank the staff that contrib- uted to all of this and the others who are responsible for the efforts that brought about this forum. I want to give a big “Thank You” to Raymond Shamie and David Macdonald for making this event possible. Ray, why don’t you take a stand? [Applause.] MR. KNOLLENBERG: Both gentlemen, please, stand, if you would? [Applause.] MR. KNOLLENBERG: Because they made this event possible. Just a quick note, Ray established the Beacon Hill Institute in 1991 and is the founder of the Metal Bellows Corporation in Massachusetts. David is president of the David R. Macdonald Foundation and both are experts in the field and it’s an honor to have both of you here today. Looking back, it’s been almost two years since Congressman Jim Kolbe and I, and our staffs put this idea together in late 1994, in the summer of 1994, and the trail 3 seems to have been long and arduous since that time. We had no idea what we might be moving into. We’ve come a long way since that time and, frankly, as you know many of my colleagues have embraced this concept. Senator Dan Coats, who is on the agenda for speaking today; Congressman John Kasich, both introduced the Project for American Renewal Act; and then Congressman Jim Talent and J.C. Watts, a Congressman from Oklahoma, who both introduced the American Community Renewal Act of 1996. Each has embraced the charitable tax credit concept by making it a part of their legislation. Why a charitable tax credit? In the 1960s, the Federal Government em- barked upon, as you all know, probably the largest expansion in the nation’s history in terms of Federal programs. Literally hundreds of new programs came into being. They were created to provide America’s less fortunate with financial assistance, with food, with housing, education, health care and hopefully, jobs. And they did this in the hope that poverty would be eliminated once and for all. But the reality over the last 30 years and more than $5 trillion later is that more people today, by most definitions, are living below the poverty line than they were when this whole thing started. So, it is clear that the problem is not how much we spend, it’s how we spend it. We built this giant army to fight the war on poverty. Unfortunately, somewhere along the way we found ourselves lost in a maze, call them guerilla conflicts. The historic reforms involved in the welfare reform system that Congress passed this last year are a good first step. But, as you all know, we can’t stop there. I think something is missing. And if we’re going to finally turn the corner on this tide on the war on poverty, we have to go further. We need a plan that takes a comprehensive approach toward rebuilding 4 entire communities. And I, personally, think that the answer lies in the charitable tax credit. Such an approach would move the Federal Government away from the wholesale and retail provision of social services and, instead, make it a facilitator—ff you can believe this—make the government a facilitator—it can be that, I believe—a facilitator of economic growth, of capital formation and, most importantly I think, neighborhood self-help. This challenge is an opportunity to get every taxpaying individual, every taxpaying American, involved in the fight with their tax dollars and whether they’re young or old, middle class or working poor, labor or manager, I mean everyone, this charity tax credit will allow them to turn their tax liability into a charitable contribution that will help attack poverty whether it’s with a large national organization or with a neighborhood or local com- munity charity down the street. Before we really can comprehend what this all is, we probably have to under- stand what a tax credit is. I know many of you in this room know it very well, better than I. But it seems like when I talk to groups around my State and at various forums their eyes kind of glaze over when you talk about deductible contributions and tax credits. Let me just briefly explain. Let me say what the charitable tax credit is not, first of all. It is not designed to replace the current charitable deduction. Nor is it meant to replace Federal assistance. Its purpose is to foster growth of neighborhood nonprofits that seek to fight poverty within a community. Under the current system, those individual contributions can be deducted if you itemize. And, for example, if you have a taxable income of $30,000 and you give, say, $100 to your favorite charity that fights poverty, you can reduce your taxable income by $100. That’s taxable income. The tax credit, on the other hand, works like this: If you are one of the mil- lions of Americans who still owes Uncle Sam on April the 15th, a tax credit reduces the 5 amount of tax that you owe. And, for example, if we use the concept in our own common- sense welfare reform program, if the allowable tax credit is $100, for a single filer or $200 for a joint filer, you simply write a check to the qualifying charity for $100 or $200 and you reduce your tax payable to the Federal Government by that amount. Thus, a person who owes $1,000 in taxes now, with the charitable tax deduc- tion, would only owe $900 as a single or $800 if it were a joint filing. And those dollars could be directed right to the charity in your community, the one around the corner that you know something about. And, as you can see, the advantage of the credit is much more beneficial to the individual and the credit would extend to everyone, not just those people who itemize. If you look at the 1994 tax returns, individual contributions accounted for over 80 percent of the $130 billion that was contributed. But, yet, only one-fourth of those who filed a tax return took the charitable tax deduction. I think it’s time to open the door for the countless ordinary people, many of whom file the short form, to be able to fight poverty in the very same manner. And by implementing a tax credit we, as taxpayers, can reward private charities for doing what they do best by giving prompt, efficient, temporary assistance to those in need and, at the same time, you empower individuals to actively seek charities, giving them a sense of pride and commitment in helping those in need. And one other thing—I think this is missed many times when we talk about the charitable tax credit—volunteerism. We believe that if you are an individual in Home- town, USA, that has an eye on a particular charity that perhaps you’ve been working with or its drawn your attention, if you are able to convert a Federal tax liability into a contribution to that particular organization, we believe it will increase your volunteerism and it might, in fact, increase it to a point where you will draw others to that particular community center to 6 increase the possibility of the success of this program. Volunteerism is something that, frankly, the American people exceed; more than any other country in the world. And, I think we’ve just scratched the surface in many ways with respect to this kind of program. Now, the outlook. And I will conclude before we introduce a couple of people I very much want you to meet. Embarking on this task is a very substantial challenge. However, during the 105th Congress, we can continue to chart our course, that’s the one forthcoming, and find a way to actually implement a charitable tax credit. Now, whether we accomplish this goal through a Federal pilot program or implement it at a State level, any State, it is something I believe we must strive for.