A Renewed Case for Ending Faith-Based Tax Exemptions June 30, 2015

A Renewed Case for Ending Faith-Based Tax Exemptions

Debate over the granting of tax exemptions to religious institutions is not new, but there is most certainly a need to revisit it in light of the Supreme Court’s ruling in Obergefell.


The landmark victory for marriage equality has spurred fear on the Right that this is just the beginning, and they’re somewhat justified in their fears. While falling short of an official designation, the decision in this case sets a precedent that bodes well for the inclusion of the LGBTQI community as a protected class. Advocates will be the first to tell you that there’s still much work to be done in terms of preventing discrimination against members of the community in arenas like housing, employment, and healthcare. The battle has only begun, and already, religious leaders are clutching their pearls over the prospect that they will be compelled to treat members of the LGBTQI community as — GASP! — human beings.

But of greatest concern for religious organizations is how such legal requirements might impact their tax exemptions. While it’s currently being debated in the context of marriage equality, the bigger problem for a larger number of religious groups will eventually be employment.

If laws are implemented preventing discrimination in hiring, for instance, can a Catholic school legally fire an openly gay teacher? The answer is probably not — at least not without threatening the manner in which they are treated under the law. This was already sorted out during the era of desegregation, where private schools were established throughout the South for the explicit purpose of continuing segregation.

But wait. Why would Catholic schools have to worry? They’re private religious schools, so aren’t they’re free to set their own rules in this regard?

Not entirely. In the 1970 Green v. Kennedy decision, the Supreme Court found that the government’s provision of tax-exempt status to these schools gave, “a substantial and significant support by the Government to the segregated private school pattern.” It goes to reason that if the Obergefell decision becomes the basis for extending employment discrimination protection to members of the LGBTQI community, a similar argument could be made regarding tax exemptions for religious institutions that argue their discrimination justifiable as a function of faith, as the approval of that status would once more provide that “substantial and significant support” to the continuance of a legally-prohibited practice.

In other words, yes, the Religious Right should be worried. The current legal and social trajectory won’t be kind to bigotry.

There are those who argue that this necessitates special legislation that would protect such organizations from what they are characterizing as “persecution.” Putting aside the fact that these efforts are better characterized as the prevention of LGBTQI persecution, realistically, even if such laws were passed, they would most certainly be challenged in the courts, and legal precedent would likely still yield the same directive: either comply with the laws, or give up your tax-exempt status.
But perhaps we’re missing the forest for the trees here. Maybe it’s time to stop cherry-picking which faith-based institutions get tax-exempt status and which ones don’t.

Maybe it’s time that none of them got tax exempt status at all.

On the face of it, giving exemptions to religious institutions ought to be viewed as a gross violation of the separation of Church and State. The First Amendment is pretty clear on the fact that the Government should not be in the business of regulating religion, and yet we have accepted just that for more than a century. Giving any kind of special treatment to a religious organization is a form of regulation of religion, particularly when the state is able to determine which organizations qualify.

And that’s a second part of this problem: the IRS gets to decide which organizations are technically a “religion.” I’m not sure how anyone could possibly believe that an agency whose primary function is to crunch numbers is somehow the best arbiter of such a complex question, but that’s been the case. One only need glance at the convoluted guidelines used by the IRS to answer these questions to recognize that they’re out of their depth on this one.

They’re also highly susceptible to political manipulation on this front. The best example of this may be the approval of the Church of Scientology as a religious organization… despite their failure to even meet the basics of the guidelines referenced above. As the recent documentary Going Clear discusses at length, the designation was not conferred based on merit, but out of fear of a tsunami of litigation against the IRS coordinated by Scientology’s leadership.

It’s not just Scientology, though. One could argue that a number of Christian megachurches — where lavish lifestyles for pastors and exorbitant spending on showmanship are often the norm — should also be facing revocation of their tax-exempt status under the existing IRS guidelines. Certainly, the churches endorsing political candidates are violating the law. But in today’s political climate, efforts to do just that are villainized as part of a larger, imaginary “War on Christianity,” creating vulnerabilities that elected officials have no interest in.

However, none of this is a new phenomenon. The powers that be have long left Catholics to their own devices, allowing churches to spend millions on the construction and maintenance of opulent facilities that themselves do nothing in terms of charity.

Those who oppose the elimination of this exemption often argue that they are concerned about what it would do to charitable giving, and by extension, those who benefit from charitable efforts. This argument doesn’t hold water when you look at Scientology once more. Even when donations were not tax-deductible, the Church of Scientology amassed millions from their members who believed in the mission.

But even if you consider Scientology an outlier, historical context reveals just how weak this position really is. As Mark Oppenheimer detailed yesterday for Time:

The federal revenue acts of 1909, 1913, and 1917 exempted nonprofits from the corporate excise and income taxes at the same time that they allowed people to deduct charitable contributions from their incomes. In other words, they gave tax-free status to the income of, and to the income donated to, nonprofits. Since then, state and local laws nearly everywhere have exempted nonprofits from all, or most, property tax and state income tax. This system of tax exemptions and deductions took shape partly during World War I, when it was feared that the new income tax, with top rates as high as 77%, might choke off charitable giving.

This historical light shifts the calculus a bit. Maybe in a world where we were actually taxing the top earners 77%, I could give this position some traction, but we’re nowhere near that. If revoking tax exemptions for donations to churches cut back on charitable giving, these communities aren’t charitable to begin with, are they?

And even if charitable giving were to waver, the potential for tax revenue from the revocation of exemptions is enormous. As research from University of Tampa sociologist Dr. Ryan T. Cragun explained in the Washington Post:

When people donate to religious groups, it’s tax-deductible. Churches don’t pay property taxes on their land or buildings. When they buy stuff, they don’t pay sales taxes. When they sell stuff at a profit, they don’t pay capital gains tax. If they spend less than they take in, they don’t pay corporate income taxes. Priests, ministers, rabbis and the like get “parsonage exemptions” that let them deduct mortgage payments, rent and other living expenses when they’re doing their income taxes. They also are the only group allowed to opt out of Social Security taxes (and benefits).

Cragun and his team crunched the numbers, and even when considering only six forms of subsidization, found that the government is missing out on more than $71 billion (with a “B”) in tax revenue to exemptions granted to religious organizations. That number, while staggering, is still probably quite low. As a piece examining that research pointed out:

Cragun et al estimate the total subsidy at $71 billion. That’s almost certainly a lowball, as they didn’t estimate the cost of a number of subsidies, like local income and property tax exemptions, the sales tax exemption, and — most importantly —–the charitable deduction for religious given. Their estimate that religious groups own $600 billion in property is also probably low, since it leaves out property besides actual churches, mosques, etc.

The charitable deduction for all groups cost about $39 billion this year, according to the CBO, and given that 32 percent of those donations are to religious groups, getting rid of it just for them would raise about $12.5 billion. Add that in and you get a religious subsidy of about $83.5 billion.

Of course, these subsidies do more than reduce revenue. Property tax exemptions, in particular, distort real estate construction decisions and allocate more land to religious entities than would otherwise be the case, which drives up rents for everyone else (especially since religious groups tend not to buy property in high-density, skyscraper-style developments and instead get a whole lot of land for themselves).

Consider the impact of that revenue. Consider what that money might mean to programs that directly, consistently impact the impoverished, like Medicaid and food stamps. Consider that property taxes fund schools, most of which already face steep budget shortfalls. Consider that, particularly on the state level, these already underfunded initiatives which actually help the very people churches say they want to help are likely to face extensive budget cuts necessitated by overextended governments.

Suddenly, collecting taxes from a church that spends $130 million on a facility or $400,000 on a pastor’s salary seems more prudent than ever.

It’s time to make it happen.

(Image via Shutterstock)

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