Last updated on: 1/24/2023 | Author: ProCon.org

History of Churches and Taxes

Churches* in the United States have been unofficially federally tax-exempt since the country’s founding until they received an official federal income tax exemption in 1894. Additionally, all 50 U.S. states and D.C. exempt churches from paying property tax. Donations to churches are also tax-deductible.

The tax exemption for churches can be traced back to the Roman Empire, when Constantine, Emperor of Rome from 306-337, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity circa 312. Church property used for religious purposes was tax-exempt in medieval England, based on the rationale that the church relieved the state of some governmental functions, and therefore deserved a benefit in return. The English Statute of Charitable Uses of 1601, which included churches along with all other charitable institutions, formed the basis of America’s modern tax exemption for charities. Read more history…

*  The IRS Tax Guide for Churches and Religious Organizations uses the term church “in its generic sense as a place of worship including, for example, mosques and synagogues.” 

 

Pro & Con Arguments

Pro 1

Exempting churches from taxation is constitutional and maintains a long American tradition.

Exempting churches from taxation upholds the separation of church and state embodied by the Establishment Clause of the First Amendment of the U.S. Constitution. The U.S. Supreme Court, in the May 4, 1970 majority opinion written by Chief Justice Warren E. Burger in Walz v. Tax Commission of the City of New York, stated: “The exemption creates only a minimal and remote involvement between church and state, and far less than taxation of churches. It restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other.” [5]

Requiring churches to pay taxes would endanger the free expression of religion and violate the Free Exercise Clause of the First Amendment of the US Constitution. By taxing churches, the government would be empowered to penalize them if they default on their tax payments. The US Supreme Court confirmed this potential in McCulloch v. Maryland (1819) when it stated: “the power to tax involves the power to destroy.” [12] [13]

Further, a tax exemption for churches is not a subsidy to religion, and is therefore constitutional. As explained by Chief Justice Warren E. Burger, “The grant of a tax exemption is not sponsorship, since the government does not transfer part of its revenue to churches, but simply abstains from demanding that the church support the state. No one has ever suggested that tax exemption has converted libraries, art galleries, or hospitals into arms of the state or put employees ‘on the public payroll.’ There is no genuine nexus between tax exemption and establishment of religion.” [5]

The only constitutionally valid way of taxing churches would be to tax all nonprofits, which would place undue financial pressure on the public charities that aid and enrich society domestically and abroad. If only churches were taxed, government would be treating churches differently, purely because of their religious nature. [20][21]

Besides, American churches have been tax-exempt for over 200 years, yet there are no signs that America has become a theocracy. If the tax exemption were a serious threat to the separation of church and state, the US government would have succumbed to religious rule long ago. As the Supreme Court ruled in Walz v. Tax Commission of the City of New York, “freedom from taxation for two centuries has not led to an established church or religion, and, on the contrary, has helped to guarantee the free exercise of all forms of religious belief.” [18]

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Pro 2

Exempting churches from taxation contributes to the public good.

Churches earn their tax exemption by contributing to the public good through offering numerous social services to people in need, including soup kitchens, homeless shelters, afterschool programs for poor families, assistance to victims of domestic violence. These efforts relieve government of doing work it would otherwise be obliged to undertake. [14] [15]

Thus, poor and disadvantaged people relying on assistance from their local churches would suffer if churches were to lose their tax-exempt status. According to Vincent Becker, Monsignor of the Immaculate Conception Church in Wellsville, NY, the food and clothing programs his church offers would be threatened by a tax burden: “All of a sudden, we would be hit with something we haven’t had to face in the past…. We base all the things that we do on the fact that we do not have to pay taxes on the buildings.” Crucial services would either be eliminated or relegated to cash-strapped local governments if churches were to lose their tax exemptions. [17]

Samuel Spector, Rabbi at Salt Lake City’s Congregation Kol Ami, speaks to the controversy about a few churches that are incredibly wealthy and considered to be taking advantage of their tax-exempt status to get richer. He explains, “I completely support it [tax exempt status]…. If another synagogue somewhere else gets a $20 million donation, that’s wonderful. But that doesn’t have any impact on us whatsoever. Without that tax-exemption status, we would be unable to provide those services [food banks, shelter, etc.] because as it is, we have to struggle to survive. More power to Latter-day Saints and other faith groups that are right now doing financially very well, but that is not the situation of your average rural church or your average synagogue.” [73]

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Pro 3

Most churches follow the rules and would struggle to exist without the tax exemption. The IRS should enforce the rules rather than eliminating the tax exemption wholesale.

Small churches, already struggling to survive, would be further endangered by a new tax burden. A 2020 survey by the Hartford Institute for Religion Research found that the median income for churches was $120,000, down from $150,000 in 2010. However, 46% of churches have annual revenues of $100,000 or less. If these churches were obliged to pay taxes, their existence would be threatened and government would thus be impeding religious expression. [75]

Withdrawing the “parsonage exemption” on ministers’ housing would cost American clergy members $2.3 billion over five years, which would be a major blow to modestly paid people who dedicate their lives to helping people in need. According to the National Association of Church Business Administration (NACBA), the average American pastor with a congregation of 300 people earns less than $28,000 per year. The NACBA also states that one in five pastors takes on a second job to earn extra income, and that only 5% of pastors earn more than $50,000. D. August Boto, Executive Vice President and General Counsel of the Executive Committee of the Southern Baptist Convention, explains, “the housing allowance is critically important for making ends meet—it is not a luxury.” [59] [60] [62]

Plus, the vast majority of churches refrain from political campaigning and should not be punished for the actions of the few that are political. The Internal Revenue Code (IRC) gives churches the freedom to either accept a tax benefit and refrain from political campaigning like all other nonprofit charities, or reject the exemption and speak freely about political candidates.

There are 450,000 churches in the US, yet only 500 pastors made political statements as part of Pulpit Freedom Sunday on Oct. 2, 2011. The tax exemption should remain in place to benefit the vast majority of churches, while the IRS should enforce the Johnson Amendment so churches not following the rules are no longer tax-exempt. [1] [23] [35] [58]

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Con 1

Exempting churches from taxation is unconstitutional.

Tax exemptions for churches violate the separation of church and state enshrined in the Establishment Clause of the First Amendment of the U.S. Constitution. By providing a financial benefit to religious institutions, government is supporting religion. Associate Justice of the U.S. Supreme Court, William O. Douglas, in his May 4, 1970 dissenting opinion in Walz v. Tax Commission of the City of New York, stated: “If believers are entitled to public financial support, so are nonbelievers. A believer and nonbeliever under the present law are treated differently because of the articles of their faith… I conclude that this tax exemption is unconstitutional.” [24]

The Constitution bars government from subsidizing religion. However, providing a tax exemption to churches subsidizes religion. William H. Rehnquist, Chief Justice of the U.S. Supreme Court, declared in 1983 on behalf of a unanimous court in Regan v. Taxation with Representation: “Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.” [27]

Further, the tax exemption means churches receive special treatment from the IRS beyond what other nonprofits receive and such favoritism is unconstitutional. While secular charities are compelled to report their income and financial structure to the IRS using Form 990 (Return of Organization Exempt From Income Tax), churches are granted automatic exemption from federal income tax without having to file a tax return every year. Even some who support tax exemption believe that churches should have to participate in the same financial transparency as other nonprofits. Reverend Frank Benson Jones of Stop The Prosperity Preachers argues that requiring churches to file a 990 requirement is a good step toward discovering and eliminating financial abuse, “I am calling upon all Americans to insist on full financial disclosure by churches and religious organizations, and the first step towards full disclosure is to insist that churches and religious organizations file an IRS form 990.” [1] [72]

And, finally, the tax break given to churches restricts their freedom of speech because it deters religious leaders from speaking out for or against political candidates. Carl Gregg, pastor of Maryland’s Broadview Church, argues “when Christians speak, we shouldn’t have to worry about whether we are biting the hand that feeds us because we shouldn’t be fed from Caesar/Uncle Sam in the first place.” [1] [37]

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Con 2

Exempting churches from taxation forces taxpayers to subsidize religion, while costing the government billions in tax revenue.

A tax break for churches forces all American taxpayers to support religion, even if they oppose some or all religious doctrines. As Mark Twain argued: “no church property is taxed and so the infidel and the atheist and the man without religion are taxed to make up the deficit in the public income thus caused.” [26]

Tax exemptions to secular nonprofits are justified because such organizations do work that would otherwise fall to government. Churches, while they may undertake charitable work, exist for religious worship and instruction, which the US government is constitutionally prevented from performing. [13]

Exempting churches from taxation costs federal, state, and local governments billions of dollars in lost revenue, which they cannot afford, especially in tough economic times. According to former White House senior policy analyst Jeff Schweitzer, American churches own $300-$500 billion in untaxed property. New York’s nonpartisan Independent Budget Office determined in July 2011 that New York City alone loses $627 million in property tax revenue. Lakewood Church, a “megachurch” in Houston, TX, earns $75 million in annual untaxed revenue, and the Church of Scientology’s annual income exceeds $500 million. [9] [11] [32] [33]

Even Jared Walczak, Vice President of State Projects at the Tax Foundation, working to debunk the viral meme that the government is missing out on $76 billion to $85 billion in tax revenue, estimates “$11.6 billion in taxable income (neglecting deductions or exemptions), which would generate $2.4 billion in federal tax liability.” [74]

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Con 3

Too many churches have taken advantage of the tax exemption by being politically active, being “sham” religions, or using the tax exemption to line the pockets of extravagantly wealthy faith leaders.

Despite the 1954 law banning political campaigning by tax-exempt groups, many churches are clearly political. Every fall, the Alliance Defense Fund, a Christian legal group, organizes “Pulpit Freedom Sunday,” encouraging pastors to endorse candidates from the pulpit and none have suffered consequences. Minnesota pastor Brad Brandon of Berean Bible Baptist Church endorsed several Republican candidates and dared the “liberal media” to file complaints with the IRS. Brandon later announced: “I’m going to explain to you what happened… Nothing happened.” [9] [34] [35]

The tax code makes no distinction between authentic religions and fraudulent startup “faiths.” In Mar. 2004, the IRS warned of an increase in schemes that “exploit legitimate laws to establish sham one-person, nonprofit religious corporations” charging $1,000 or more per person to attend “seminars.” [28] [29] [30]

American taxpayers are supporting the extravagant lifestyles of wealthy pastors, whose lavish “megachurches” accumulate millions of tax-free dollars every year. U.S. Senator Chuck Grassley, MA (R-IA) launched an investigation into these groups in Nov. 2007 after receiving complaints of church revenue being used to buy pastors private jets, Rolls Royce cars, multimillion-dollar homes, trips to Hawaii and Fiji, and in one case, a $23,000, marble-topped chest of drawers installed in the 150,000 square foot headquarters of Joyce Meyer Ministries in Fenton, Missouri. The average annual salary for senior pastors with congregations of 2,000 or more is $147,000, with some earning up to $400,000. In addition to the federal exemption on housing expenses enjoyed by these ministers, they often pay zero dollars in state property tax. Church leaders Creflo and Taffi Dollar of World Changers Church International had three tax-free parsonages: a million-dollar Georgia mansion, a two-million-dollar Georgia mansion, and a $2.5 million Manhattan apartment. Kenneth and Gloria Copeland, leaders of Kenneth Copeland Ministries in Fort Worth, TX, live in a church-owned, tax-free $6.2 million lakefront parsonage. [36] [61] [62] [64]

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Did You Know?
1. The first recorded tax exemption for churches was during the Roman Empire, when Constantine, Emperor of Rome from 306-337, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity circa 312. [2] [3] [4]
2. The law against churches intervening in political campaigns was passed by the U.S. Congress in 1954. [6] [7]
3. By the time of the American Revolution, nine of the 13 original colonies were giving some kind of tax relief to churches. In 1777, Virginia officially enacted an exemption from paying property tax to “houses for divine worship.” New York followed in 1799, and Congress exempted all churches in D.C. from paying property tax in 1870. [2] [5] [48]
4. In spring 2010, the state of Oklahoma awarded tax-exempt status to a Satanist group called The Church of the IV Majesties. [8]
5. The Church of Scientology battled the IRS for 25 years to regain its tax exemption after the IRS withdrew it 1967, claiming the organization was a commercial enterprise rather than a church. The IRS decision was upheld by numerous courts, despite Scientology and its members bringing 2,200 lawsuits against the IRS and its officials over the course of the dispute. [30] [54]

 
 

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