The busker, street performer for those who are unfamiliar with the word, are providing a public service. Many even pay rent for their performance spaces or belong to organizations that setup a system for where and when they perform. Often park services will invite them to entertain those enjoying the park, in many inner city parks it's actually the only reason some people go.
They do work off tips, sometimes product sales as well ranging from CDs to paintings. With the modern world they give out business card or flyers with their website addresses to purchase downloads. This is their job, and many enjoy it a lot. They are not "bums" and most have homes.
Their competition are the beggars, who provide nothing but expect people to give them money. The beggars will often make it difficult for the buskers in many ways, taking up space they could use and depleting the chances of garnering a tip when a passerby gives their cash to the beggar first.
Another huge, and often overlooked difference is that beggars are aggressive in most areas. Offer them what they claim the money is for and most often they turn it down. The reason is that many beggars are professionals, they beg for a living and often have homes, and food, even cars. It would not be bad if they were all honest and did not syphon money from those more deserving.
The buskers are almost always polite as well, while the desperate beggar can often be rude, even offensive. The beggar that actually is not wealthy is also typically one who is dishonest in how they spend the money, making beggars, as a whole, undeserving of your cash, save it for the buskers.
In Seattle, we have an alternative to the busker, they sell a newspaper that publishes stories written by homeless people, for one dollar you can learn more about the homeless in your area while you enjoy your coffee or lunch. The paper is called Real Change, and it is a very good program which allows people in need, usually unable to work in any other job, a way to pay rent and buy needs.
If you do want to help those in need and don't have buskers or paper sellers, donate directly to charities. There are many great charities in the developed countries, do some research and help out in a way that works.
So the next time you see a street performer and have some time or cash to spare, enjoy their work and offer a tip in return for their hard work. Please do be kind to them, I have known many in my life and they are great people just trying to get by with a skill they worked hard at. Thanks.
Visit my friend Eido's site for an example of a busker who works for the city at http://poodlepublishing.com/