“When a religion is good, I conceive it will support itself; and when it does not support itself, and God does not care to support it, so that its professors are obliged to call for the help of the civil power, ’tis a sign, I apprehend, of its being a bad one.”
Ben Franklin, (Poor Richard’s Almanac, 1754)
“The divorce between Church and State ought to be absolute. It ought to be so absolute that no Church property anywhere, in any state or in the nation, should be exempt for equal taxation; for if you exempt the property of any church organization to that extent you impose a tax upon the whole community.”
James A Garfield, 20th U.S. President (1881)
Many “non-profit” organizations in the nation are granted tax exempt status. The Red Cross, Boy Scouts, Salvation Army and numerous others, including all recognized churches are exempt from taxes on at least part of their operations. While many of these are truly not-for-profit institutions, anyone who believes that churches are not profitable should look at the vast resources and property that churches have acquired.
In order to qualify for tax-exempt status, an organization must show that its purpose serves the public good, as opposed to a private interest. Organizations that are exempt under Internal Revenue Code Section 501(c)(3) are those whose purposes are religious, charitable, scientific, literary, or educational. They may also foster national or international amateur sports competition, prevent cruelty to children or animals, or test for public safety.
In 2001, over 240,000 information returns were filed by non-profit entities. These organizations held over $1.6 trillion in assets, an increase of 4 percent from 2000, and reported $897 billion in revenue. That number is undoubtedly much higher today. If property taxes were assessed on the real property part of the $1.6 trillion, and income tax were paid on the nearly $1 trillion in income, government at all levels would have greater income, tax rates could probably be decreased, and we would not have a budget deficit! Now here’s the shocking part. The above numbers do not include churches! I have not been able to find a credible estimate for the lost income from church tax exemptions, but the number must be staggering.
Tax exemptions are a form of government subsidy. Therefore, tax exemptions granted to churches are government subsidies of religious institutions. As President Garfield said, a tax exemption is a tax on everyone else, because the exempt institution, by not paying its share, shifts that burden to the rest of society. Isn’t that a violation of the First Amendment clause that says “Congress shall make no law respecting the establishment of religion?”
Why are tax exemptions equivalent to subsidies?
Let’s say you give $1000 to your local church over the course of a year. At the end of the year, when you prepare your tax return, you can deduct that contribution from your taxable income if you itemize deductions. If you are in the 30% tax bracket, that means that the government does not get $300 in tax revenue that they would have collected if you had not made that donation. In effect, you are giving your church $700, and the government is giving them $300. How does this differ from the Oil Depletion Allowance granted to oil companies, or the huge subsidies to agribusiness? There is no difference.
Ignoring for the moment the Constitutional question, is this good government policy? Tax exemptions are “expenditures” by the government over which it has absolutely no control. If you elect to give $2000 to the church next year, the government will have a revenue shortfall of $600. Multiply this by millions of taxpayers, and it is clear that the inevitable result must be some combination of higher tax rates, reduced funding for government services and increased government debt. These “expenditures” require no government action…no appropriations bill to be debated, no lobbying to influence the outcome. They are a silent and invisible drain on the nation’s coffers.
Consider the other effects of the tax exempt status of churches. The Catholic Church is one of the largest landowners in the nation. Most of that land and the structures on it are completely exempt from property taxes. The income that the church receives from donors is equally tax-exempt. This exemption is not limited to federal taxes. State and local taxes are also excused. Our government is giving a lot of money to churches and other tax exempt institutions. The money they are giving is ours…money collected from us, the taxpayers. That deduction on your tax form may look good, but the government is collecting that…and probably more…from you in the form of higher tax rates than would otherwise be necessary without the tax-exempt drain on revenues.
Tax exemptions are offered because contributions to charitable institutions are seen as a “good thing”…a desirable action by citizens that is to be encouraged. But do they pass the test? Are the results beneficial to the nation as a whole?
Clearly, churches do many “good works” by providing food and shelter for needy persons for example, but they also proselytize…push their religion…and even engage in political activities to advance their religious agenda in Congress. There is no restriction on how churches may use their money. Some of it surely is used to promote their faith through missionaries, printing of religious material, etc. This seems to me to be in direct violation of the Constitution.
The media have recently been full of articles about religious institutions using their facilities for political purposes. The IRS has warned several churches that they are in danger of losing their tax exempt status. IRS enforcement of this has been sporadic and uneven at best. At the moment, IRS attention seems to be focused on sermons from the pulpit that are critical of the Iraq War, rather than on the outright political campaigning for Republican candidates, mostly by southern churches, that has been reported in the media. Both activities are prohibited for tax-exempt institutions, but the current emphasis seems to favor the party in power. (Note: This was written during the Bush Administration.)
But the real question is, “why tax exemptions?” It could be argued that tax exemptions give individuals control over which charitable institutions are supported, rather than letting government make those choices. The trouble with this is that wealthy individuals are given more “control” than the poor ones. Their larger donations mandate a larger increase in tax on everyone else. Is this fair? Shouldn’t everyone have an equal “vote” in how government money is spent? If this is fair for funding of charities and churches, then shouldn’t the rich individual have a proportionally greater say in how defense spending is allocated since he pays more in taxes? Should votes be weighted by how much tax the voter pays? You will look in vain in the Constitution for any such provisions. In fact, our country is based on the principle of “one man, one vote.”
If the government wants to encourage certain activities, let them allocate the funds for that purpose explicitly, rather than through the “backdoor” route of tax exemptions. Let the light of day and public debate shine on each expenditure so that its merits can be judged.
What would be the results of such a radical change? The most important result is that tax rates could drop substantially. The resultant lower tax rates would leave most people with more disposable income, and many would probably be willing to maintain their donations to churches and other charities that they support.
But most importantly, religious organizations would be treated as the Constitution dictates.