This is a Zen exercise.
Clear your mind.
I want you to set aside all of your current thoughts and opinions on tax exemptions and tax-exempt charities, churches or other organizations.
Okay. Ready?
Now, repeat after me: “Tax exemptions are taxes on everybody who doesn’t have a tax exemption.”
That wasn’t too hard, was it? Now, think about what you just said. No, don’t start thinking about how “good” it is to encourage donations to worthy tax-exempt groups. Just think about the fact that when you donate to those groups and then take a deduction when you file your income tax, the government has a tax revenue shortfall that has to be made up somewhere else…or else they have to cut some program or take on more debt. It’s a zero-sum game…if somebody gains, somebody else loses. Also, that tax-exempt organization doesn’t pay any property taxes, so all the civic services…fire department, law enforcement, streets and sewers, etc…must be paid for by everybody else, even though the tax exempt organizations use and benefit from all those essential services just like everybody else. Once again, the non tax-exempt are taxed to pay for the tax-exempt.
Now, open your mind a little wider. Consider for a moment what would happen if there were no tax exemptions at all for anybody. Everybody pays taxes equally! Wow, what a concept! Everybody…every person, every business, every charity…every church. Equal before the IRS! Equal before the property tax assessor!
The first and most apparent result of this would be vastly greater tax revenues! Or greatly reduced tax rates. Or a combination of both.
Now, let’s say the government wants to encourage certain charitable activities. So, the legislative body…Congress, state legislature, city council, whatever…debates the issue, and decides to fund that activity…subsidize it. The choice is a classical one that every business has to deal with…it’s called “make or buy.” Provide the service as a government function or fund a private business to provide it. Ideally, the decision is made based on economic efficiency…how to get the most “bang for the buck.” In practice, politicians….well, you know. But at least, the funding for that charitable activity…Red Cross, Salvation Army, food for homeless…is determined openly where the public can observe and participate in the decision making process. And the government can establish rules for how that money is to be spent.
Now let’s look for a moment at the current situation. Churches, charities and anybody else who can wangle a tax deduction escapes from taxation. That’s really a big advantage for any organization! Just look at the churches in this country. Look at the Catholic church, one of the largest landowners in the nation. How did they amass all that wealth? Could it be that “We the People” contributed substantially to that wealth accumulation through tax-deductible donations by church members and tax-exemptions on all their revenue and property? Once any organization has an exemption, it is usually permanent. No debate, no discussion, a silent, continuous drain on tax revenues that goes on forever.
Furthermore, there is little constraint on how they spend that publicly-provided largesse. There is no prohibition against a church spending it for proselytizing…missionary work, spreading the gospel. Although outright political campaigning is supposedly prohibited, in practice many churches serve as political rallying centers, and many sermons are heavily politicized. That is illegal, and is supposedly being enforced by the IRS, but in practice their effort is sporadic, uneven, and largely ineffective. If funding for charitable activities were provided by the government directly, appropriate constraints could be placed on how that money is spent, with strict oversight to prevent abuses. And, political activities by churches would be perfectly legal…as long as they didn’t use any public money to fund them…eliminating a difficult enforcement problem.
Once you view tax exemptions as taxes, it changes your whole perspective. Who are all these people asking me to pay their taxes? Everybody benefits from the services that government provides. Why should anybody be excused from the taxes that pay for those services?
Let the democratic process decide how to spend taxpayers’ money. No more silent free rides for anybody!