An old-now-new question: Should churches and other religious non-profits be tax-exempt?


Once in a while I’ll see someone comment online about how taxing churches could help with some of the nation’s financial problems. Would taxing churches help or hurt? How do other countries handle their churches and taxes?


Governments always want more cash. However, a unanimous U.S. Supreme Court warned in 1819 (in McCulloch v. Maryland) that “the power to tax involves the power to destroy,” so policy-makers need to weigh societal benefits churches provide, often not available otherwise (more on this below).

Those are political and economic calculations. But there’s the far more fundamental issue of fairness.

The United States has always recognized the natural and inherent right to exemption for groups that operate on a not-for-profit basis, whether schools, hospitals, and secular charities or -- treated equally -- churches (or synagogues, mosques, ashrams) and religious charities and organizations.

However, a 2016 report from the U.S. Commission on Civil Rights stated that all sorts of religious exemptions should be designed “narrowly” so they do not “unduly burden non-discrimination laws and policies” for instance on gay matters. (Religious groups through history have hired employees who share their beliefs and moral tenets.) Weeks after that, a petition from Christian conservatives declared that tactics such as removal of tax exemption due to gay and transgender policies “threaten basic freedoms of religion, conscience, speech, and association.”

One reason for such concerns was the oral arguments prior to the Supreme Court’s Obergefell v. Hodges ruling that legalized same-sex marriage nationwide.

Justice Samuel Alito asked Solicitor General Donald Verrilli, the Obama justice department’s head litigator, whether legalization would require, for instance, that a religious college should lose tax exemption due to a belief in traditional marriage. Verrilli replied that “it’s certainly going to be an issue. I don’t deny that.”

The question and answer were far from theoretical. Alito referred specifically to the court’s crucial Bob Jones University v. United States ruling (1983, text here). The court decided that the I.R.S. acted properly within its authority when it abolished that schools’s tax exemption. The reason was that its religious freedom claim of opposition to interracial dating and marriage (later eliminated by the school) was “contrary to established public policy.” That demand could now be applied to marriage law.

Future Chief Justice William Rehnquist, the sole dissenter in Bob Jones, objected because Congress had not legislated this standard.

A second line of attack is that even though secular non-profits are exempt, churches should be denied exemptions because this creates an “establishment of religion” by government, which the Constitution forbids. Federal courts have continually struggled over how to define wrongful “establishment.”

This argument was pursued by liberal Justice William O. Douglas in his lone dissent in the Supreme Court’s Walz v. New York City Tax Commission decision (1970, text here). In his view, although tax exemption is not a direct payment, it still amounts to a government subsidy for creedal organizations, favors believers over non-believers and thus should be outlawed.

However, the other justices decided exemption is not “sponsorship,” and in addition upholds the “establishment” ban by avoiding an “excessive entanglement” between church and state that would occur under taxation (that legal test originated with this ruling.) The court reasoned that the American Framers wanted a “benevolent neutrality” where government permits religious activity “without sponsorship and without interference.”

In addition, it said, “few concepts are more deeply embedded in the fabric of our national life” during the past few centuries. The nation was said to have always considered non-profits, both religious and secular, to be “beneficial and stabiliziung influences in community life” so their exemptions are “in the public interest.”

That brings us back to the first paragraph above.

Continue reading "Should churches be tax-exempt?", by Richard Ostling.

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