You realise that, especially where I live, one can make tax deductible donations to a wide variety of organisations? I give away thousands and get to write off much of the tax. In fact, I give away a few thousand and can technically qualify for a different tax bracket, I believe.
>We would have charities all over the place competing for this money, competition would produce far better results than the abysmal record of the state/federal social services.
No, you would have charities spending this money on advertising and gimmicks to get their share of your dollar. Some charities today spend large proportions of their budgets advertising and engaging in lawsuits (e.g. Susan B Komen)
What the government does is use it's uniquely large scale to help people. Education, healthcare, housing, welfare - for many countries in the world, having the government provide these services results in an relatively efficient system. I for one would rather pay the Medicare Levy in Australia than pay for private healthcare in the US - last time I was living there, the US system left me about $1500 worse off, and that was a year without any medical mishaps.