Is private charity more efficient than government welfare?
About ten years ago you wrote: “When help is given privately, approximately 80% of each charitable dollar gets to a worthy recipient. Only 20% of each tax welfare dollar reaches the poor.”
This is a very powerful argument for why government should leave issues of the poor and disabled to non-profits and people who care. In fact, those numbers make it sound almost cruel to support government welfare programs. What’s your source for this estimate?
I am currently using a slightly more conservative figure, though it still makes the same point. I would now, if asked, say: “When help is given privately, 70% or more of each charitable dollar gets to a worthy recipient. But only about 30% of each tax welfare dollar reaches the needy.”
Here is a citable source for that. The Costs of Public Income Redistribution and Private Charity [pdf], by economist James Rolph Edwards, Journal of Libertarian Studies, Vol. 21, Number 2 (Summer 2007).
On pages one and two, Edwards cites two studies, over a seven-year period, backing up that figure. He writes:
“[Government] income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar. Using government data, Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split.
“In contrast, administrative and other operating costs in private charities absorb, on average, only one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients. Charity Navigator, the newest of several private sector organizations that rate charities by various criteria and supply that information to the public on their web sites, found that, as of 2004, 70 percent of charities they rated spent at least 75 percent of their budgets on the programs and services they exist to provide, and 90 percent spent at least 65 percent. The median administrative expense among all charities in their sample was only 10.3 percent.”
Later on he adds: “In fact, the average cost of private charity generally is almost certainly lower than the one-quarter to one-third estimated by Charity Navigator and other private sector charity rating services…” and tells why.
The bottom line: Government spends about 70% of tax dollars to get 30% of tax dollars to the needy. The private sector does the opposite, spending about 30% or less to get 70% of aid to the needy.
There is much more of interest in that article, including this important observation:
“[R]aising only half as much money through voluntary donations, the private agencies (and families) could deliver the same amount as the government, saving, in the process, all the costs the government imposes on the public through the compulsory taxation. Given that aiding the poor must have large support among the public for coercive government redistribution to be policy, couldn’t the supporters raise, through voluntary donations from among themselves, half the amount that would have to be raised through taxation, and avoid coercing the rest of the nonpoor public?”
That’s the promise the libertarian vision offers: more effective aid for the poor and needy than ever before, delivered voluntarily by the private sector at a far smaller cost than today’s welfare state.