Should Churches Be Tax-Exempt?
Are Tax Exemptions for Churches a Good Idea?
Tax exemptions for churches and other nonprofits are so taken for granted that we seldom stop to think if they are a good idea. According to a University of Tampa study, the tax breaks for churches alone cost the United States an estimated $71 billion a year in uncollected taxes.
A case could be made for abolishing the tax exemptions of all nonprofits because if one group gets a tax break, everyone else has to pay more. However, I will focus on churches because they have the strongest case.
- It violates the principle of separation of church and state.
- Churches get more benefits than others.
- Churches often abuse the special privileges they are given in the tax code.
- The tax code puts limits on the churches’ freedom of speech.
Why Are Churches and Religious Institutions Tax-Exempt?
One reason for the tax-exempt status of religion is that it has always been that way.
The first recorded tax exemption for churches occurred circa 312 in the Roman Empire. Emperor Constantine granted the Christian Church a complete exemption from all forms of taxation following his conversion to Christianity.
In the United States, the origins of the tax-exemption for organizations that benefited the public good (including churches) predated the formation of the republic.
Today in the United States, we have two types of organizations that are relieved from paying some taxes—nonprofit organizations and tax-exempt organizations. These two types are similar but have some differences. Many organizations can claim both designations.
What Is a Nonprofit Organization?
Nonprofit organizations are more correctly called “not-for-profit” organizations because they do not exist to make a profit as ordinary businesses do. Their purpose is religious, charitable, educational, scientific, literary, humanitarian, etc.
Any surplus income remains within the organization to be used for the stated purposes of the group instead of being distributed to shareholders or any individual.
Nonprofit status is conferred by the individual states and exempts the organization from a broad array of state taxes—state and local income taxes, property taxes, and franchise taxes or sales taxes.
States lose a considerable amount of money due to nonprofit exemptions. Some wealthy institutions, are exempt because of their nonprofit status—for instance, Yale University. However, the majority of lost income comes from churches.
There will usually be only a few universities in a state, but hundreds, and even thousands, of churches. Many of these churches are sitting on some very pricy real-estate. Just take a walk down New York City’s Fifth Avenue to see for yourself.
What Is a Tax-Exempt Organization?
Any nonprofit organization may apply to the Federal government for tax-exempt status (Section 501(c) 3 of the IRS code).
This status confers extra benefits:
- no corporate income taxes
- People who donate money to the organization can take a tax deduction on their personal income tax returns for their donations.
Tax-exempt corporations must still pay FICA taxes and Federal Unemployment Tax on employee salaries.
A tax-exempt organization has the same requirements concerning its purpose as a nonprofit organization. However, it is prohibited from being directly involved in election campaigns or attempts to influence legislation. This prohibition was enacted in 1954.
What Special Tax-Exemption Benefits Are Given to Churches?
Churches receive special benefits.
- If an organization declares itself to be a church, it receives automatic 501(c) 3 status. Churches do not have to go through the lengthy process of applying for it.
- They are also relieved of the burden of filing Form 990 which allows the IRS to confirm that the regulations are being followed. Consequently, there is no oversight as to how monies are obtained and spent.
How Has the “Faith-Based Initiative” Given Even More Tax Benefits to Churches?
The "faith-based initiative," was introduced by President George W. Bush. It has given even more special financial benefits to churches.
The U.S. government no longer requires religious organizations receiving federal or public funds for the purpose of delivering social-welfare services to separate this work from church work. Often these social services are performed along with proselytizing actions.
Additionally, money is fungible, meaning that if a religious agency receives federal grants for the social services it provides, these grants free up an equivalent amount of church money to be used for religious purposes.
Churches receive public dollars, but there is no public accountability as there is with non-faith-based organizations that may also receive federal money to provide these services. At the very least, the books of any group receiving public funds should be open for examination by the government.
How Do School Vouchers and Charter Schools Funnel Tax Money to Churches?
States love school vouchers and charter schools because they can pay less money per pupil than allocated for public schools. Often these payments are going to schools run by religious groups and they often include religious instruction. This is public tax money being used for religious purposes.
In Florida where I live, the former Governor of Florida, Jeb Bush, found a sneaky way to get around what the state constitution explicitly prohibits—no public money shall be used for religious schools.
A new law was enacted to allow corporations to contribute directly to private religious schools and deduct that money from their corporate taxes. Whether the money is given from tax dollars after they are collected or before they are collected, the state treasury is still out the same amount of dollars.
Why Does Special Treatment for Churches Violate the Principle of Separation of Church and State?
The state and the federal government should not be in the business of subverting the principle of separation of church and state. United States citizens lose their freedom of religion when tax exemptions support churches other than their own.
A “church” that almost all Americans would not want to support is the Church of Scientology. This group is notorious for its cult-like practices. The founder of the group, L. Ron Hubbard, admits that Scientology was incorporated as a church in order to avoid taxes. He said, “If you want to get rich, start a religion.”
Some atheist groups call attention to this problem by declaring themselves to be a church. This is usually done to make a point about church-state separation and not to bilk the government. In spring 2010, the state of Oklahoma was compelled to award tax-exempt status to a Satanist group called “The Church of the IV Majesties.”
Should Churches Get any Money From the Government?
Some churches get government grant money to provide social services. The problem with this is that religious content is not kept out of the social-service work done by churches
Additionally, faith-based groups often discriminate in hiring and in the delivery of services. There are some Catholic adoption agencies that will only allow Catholic couples to adopt. A Catholic hospital might refuse to perform a medically required procedure that would cause an abortion. A church that provides social services will sometimes refuse to hire gays/lesbians or will only hire members of their own faith.
Churches should use their own money to fund any social services they may wish to provide and any schools they wish to establish. They are then free to include as much religious content as they wish.
How Much Money Does the Property Tax Exemption for Churches Cost?
Property taxes pay for many local services, such as police, fire, and education. Churches benefit from these services the same as any other property owner.
- According to former White House senior policy analyst Jeff Schweitzer, PhD, U.S. churches own $300-$500 billion in untaxed property.
- According to a July 2011 analysis by New York's nonpartisan Independent Budget Office, New York City alone loses $627 million in annual property tax revenue due to 9,500 churches being tax-exempt.
Some areas of the country have a high concentration of churches which severely affects the finances of the state or county affected. Ordinary citizens must make up the shortfall.
How Do Some Churches Misuse the Tax Exemption?
Religious leaders who live in a home provided by their church are entitled to a parsonage exemption. They pay income taxes on their personal income, but the value of the housing is not added to their income as it would be for any other citizen. If the "parsonage exemption" were revoked, there would be an estimated half-billion in taxes collected each year.
The abuse is rampant among the ministers of the mega-churches. They live in multi-million dollar estates and avoid property tax by calling their home a parsonage. For instance, televangelist Joel Olsteen, senior pastor of the Houston based Lakewood Church, lives in a $10.5 million “parsonage” which boasts six bedrooms, six bathrooms, three elevators, five fireplaces, a guest house, and pool house.
The exemption on property taxes extends to any building on land used for religious purposes, such as a library or educational institution. It can even be used for a theme park.
In Orange County Florida (Orlando), there is a theme park called “The Holy Land Experience” owned by The Trinity Broadcasting Network. It is registered as a nonprofit church even though it resembles a theme park in every way and charges a similarly high price for admission. The County fought this exemption for years and finally lost. This costs the County about $300,000 in lost property taxes every year. The “church” was forced to make only one concession—they had to provide free admission one day a year. Only one lousy day! Plus they make it difficult for the public to know which day has free admission because it changes every year and it is not widely advertised.
Do Churches Adhere to the Restrictions on Political Speech?
Churches, because of their tax-exempt status, are legally barred from involvement in politics. This prohibition was not always in place. The law against churches intervening in political campaigns was passed by the US Congress in 1954.
However, this restriction is very often violated.
- During the 2004 presidential election, Boston’s archbishop Sean O’Malley announced that John Kerry would be refused communion because of his pro-choice position. The Catholic Church is a private organization and has every right to refuse to offer communion to someone. However, if the Church publicly announces that they are refusing communion to a political candidate that is tantamount to political speech.
- Churches are often involved in political matters. They may speak out for or against abortion, a war, marriage equality, or capital punishment. All of these may be moral matters, but they are also political matters. Churches often spend large amounts of money on public campaigns to advocate for their views and this affects public policy.
- Many churches give out voting guides. The guides are careful not to mention specific candidates or political parties. However, the information is clearly slanted in favor of a particular candidate, and it is usually quite clear which candidate the guide is meant to support.
- In some churches, the prohibition is often just blatantly ignored. The preacher will openly state who the faithful should vote for. Some will even declare it is a sin to vote for a particular candidate.
Additionally, churches often invite political candidates and other politicians to speak to the congregation. During these speeches, the candidates promote their political views. And even if they keep their remarks to “godly matters,” their very presence in the pulpit implies an endorsement.
Do Churches Ever Lose Their Tax Exempt Status When They Engage in Political Speech?
Churches seldom lose their tax-exempt status for breaking the law. They are seldom even investigated.
The Internal Revenue Service has been successful in revoking the tax-exempt status of only one church: the Church at Pierce Creek in Binghamton, NY, which had placed an advertisement in USA Today and the Washington Times speaking out against Bill Clinton four days before the 1992 presidential election.
Does the Tax Exemption of Churches Actually Benefit Charities and/or Charitable Works?
Churches defend their special tax status on the basis of the charitable works that they do. It’s true--they do charitable work, just not very much of it. Secular groups provide aid far more efficiently.
According to a University of Tampa study of 271 congregations, an average of 71% of church revenue goes to “operating expenses,” while helping to the poor is somewhere within the remaining 29%. Compare this to the American Red Cross, which uses 92% of revenues for aid to the public and only about 8% on operating expenses.
Is it Right to Abolish Unfair Tax Exemptions?
All not-for-profit groups, secular and religious, should not have to pay income tax because technically they have no profit—all their income stays in the organization.
However, all nonprofits, including churches, should pay sales and property taxes since these taxes are used to pay for the government services they use. At the very least, churches should be treated the same as other not-for-profit groups.
Churches are private organizations that exist to serve their own members. They should not get any special tax breaks. They should not be using government money, whether received directly or indirectly, to promote their religion or religious beliefs.
Churches will suffer some financial loss, but on the plus side, they will regain their freedom of speech. Taxing the churches will allow them to freely weigh in on political matters and end the hypocrisy that they are not already doing so.
Should the U.S. repeal tax exemptions for churches?
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2016 Catherine Giordano