Tuesday, January 25, 2011

Taxing the Church

Scott blogs about a court decision that finds an online religious group doesn't qualify for tax exemption under IRS rules.

As neither a lawyer nor an expert in virtual churches, I can't speak directly to the substance of the specific issue. But my first reaction was to raise a question I've had many times over the year when the issue of churches and tax law comes up -- most often in the context of whether churches can or should endorse political candidates.

Now I happen to think it is almost always a bad idea to make such specific endorsements from the pulpit. (I hedge only to cover the possibility that if I were a preacher and an Adolf Hitler was running for president, the the temptation would be too great not to stand up and declare my opposition. [Uh-oh, did I just set a Godwin's Law record?])

But I've long wondered whether it wouldn't be better to abolish the tax exemption on churches on grounds that to permit it (and then to have to police it) involves excessive entanglement of state with church.

If I were a graduate student in economics or perhaps public policy, I think there might be an interesting paper in examining what the actual impact would be on churches if they were taxed as regular corporations are. After all, much of their expenses would be deductible anyway (as operational expenses, salaries, etc.); probably the real impact would be at the local level, in the realm of property taxes, and aren't there some churches that voluntarily pay a property-tax equivalent to offset service costs from their local municipalities?


Steve Caldwell, in a comment to the original Scott Wells post that triggered my musing here, suggests what might be an easier solution: No separate category for churches vs. other non-profits.


  1. Sounds like a way to kill churches and undermine the First Amendment and the public good that (some) churches do.

  2. A serious question: How does this undermine the First amendment?

    Doesn't it undermine the First Amendment by having a government agency sit in judgment about whether this or that group is a church and whether this or that activities or said church do or don't fall within the IRS regulations?

  3. As for killing churches... The most serious challenge might be on the issue of property taxes, and I don't deny that that requires a great deal more thought (hence the "Idea Oven" category here). But on income taxes... An awful lot of church income would be operational expenses or contributions to charity, and thus not taxed anyway.

    And a bit tangentially... oddly enough for someone who considers myself firmly to the left of center, I'm willing to entertain the notion of no corporate taxes, on the theory that there's some accuracy to the right-wing argument that all corporate taxes ultimately get passed on to consumers anyway. Of course, I'd couple that with a much more progressive tax structure that really hit wealth a lot harder. But all that's another topic...


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