Time to End Unnecessary Tax-Exemptions for Churches

tax-exemptSeveral prominent Catholic leaders have attracted media attention in recent months for extravagant spending and lavish lifestyles. The Vatican has recently suspended the duties of Bishop Franz-Peter Tebartz-van Elst-“The Bishop of Bling”- who spent a staggering $43 million on renovations to his personal residence. More recently, Archbishop John J. Myers of Newark, N.J., came under fire for a half-million dollar renovation to a 7,500-square-foot “retirement pad” that features an exercise pool for therapeutic use, an elevator and three gas fireplaces; pricey perks, paid for by taxpayer dollars. Churches earn millions in untaxed income, both through donations, tithes and offerings. In fact, religious exemptions cost the U.S. more than $83 billion annually. Amid economic hardship, many are engaged in a contentious debate over whether churches should continue to receive these protections.

The U.S Tax Code grants an array of benefits to churches- also defined as temples, mosques, synagogues, and so forth- that are not available to all other 501(c)(3) nonprofit organizations, such as awarding 501(c)(3) status without application, removing the requirement to file annual IRS reports (form 990), and providing insulation from auditing through the Church Audit Procedures Act. The Founding fathers were very specific that the reason for the Establishment Clause in the 1st Amendment was to erect a wall of separation between church and state; thus, in order to avoid the possibly excessive entanglements between church and state, churches and their “integrated auxiliaries” are neither required to paying taxes nor submit any financial disclosure statements. Essentially, churches have zero financial accountability, and it is extremely disconcerting given their vast accumulation of wealth.

The primary source of revenue to religions is personal donations, but corporations and trusts can donate as well. According to Giving USA, religions received $100.95 billion in donations in 2009, yet they paid zero dollars on personal donations, corporate donations or on donations given to them by trusts. In addition to tax-free donations, religious institutions pay no property taxes, costing the government billions of dollars in lost revenue, which it simply cannot afford. The Hartford Seminary estimates that there are 335,000 congregations. Using 47 churches from six different religions – Mormons, Episcopalians, Baptists, Methodists, Presbyterians, Pentecostals- in Tampa, Dr. Ryan Cragun of the Council of Secular Humanism, estimated that Florida subsidized religion to the tune of $2.2 billion in 2011, by not requiring religious institutions to pay property taxes for property worth billions of dollars. This creates an enormous revenue problem, especially in large cities where some of the prime real estate is littered with churches that do not contribute to the revenue base that funds important services such as firefighting and police, yet religious institutions rely on these services like everyone else. The additional revenue would have mostly prevented the $1.1 billion dollar cut to firefighter and police retirement plans and the $1.3 billion cut to public schools.

Similarly, the rise of tax-exempt properties in Des Moines, Iowa, has ballooned 38 percent from 10 years ago, leaving more than $1.3 billion off the tax rolls- a number that threatens to erode city services. Taking into account all tax-exempt properties, only 60 percent of the city’s properties generate taxes to pay for city services enjoyed by everyone. More churches are have taken root in Polk County, preventing the city of Des Moines from collecting thousands of dollars in property taxes. As a result, Des Moines has cut $30 million and 310 jobs over the past eight to ten years, and police and fire protection, taken on its own, accounts for 62 percent of Des Moines’ city budget. Polk County has the highest property tax rate because any time a church sprouts up and buys property, all  taxpaying homeowners and businesses in that community are burdened with higher taxes to make up for that loss.

However, church leaders insist that they engage in charitable work, providing critical services that the government doesn’t provide to its citizens; any taxation will hinder their ability to provide services to those who need it most. However, a new report by Dr. Ryan T. Cragun, offers two ways to think about religious “charity.” The first type of charity serves people’s physical needs, and the second type of charity addresses people’s spiritual concerns. Do churches engage in charitable work that addresses the needs of the poor? Indeed some do, but this is not their primary focus. In fact, they spend a relatively small percentage of their overall revenue on charitable work. For example, Daystar, a Christian television network, raked in $208 million for a 5-year period, but they gave only 5% of donor revenue to churches, hospitals, and the poor. Although the Mormon Church gave $1 billion to charitable causes between 1985 and 2008, those “charitable contributions” -over twenty- three years- amount to only 0.7 % of their annual income. In contrast, the American Red Cross, a secular nonprofit, spends 92.1 percent of its revenue directly addressing the physical needs of the people.

Spiritual “charity” – baptism, worship services, pastoral counseling- are not charitable. Charity is the “giving of something,” not the exchange of something for something else. Therefore, when a pastor performs a baptism, this is done “out of obligation and is what religious functionaries are paid to do.” Cragun insists that any church that spends a relatively small portion of their revenue on physical charity and a larger portion of their revenue addressing spiritual concerns, does not meet the criteria for what it means to be a charitable organization for tax purposes.

It is also becoming clear that the First Amendment religious protections are being exploited beyond acceptable measures. In November 2007, Senator Chuck Grassley of Iowa, initiated an investigation into allegations of financial abuse by six televangelists and their church organizations. However, none of them were legally obligated to respond or cooperate with his queries. Over three years later, the investigation was wrapped up without penalty or prosecution, even though four of the six televangelists refused to provide complete responses to the senator. Grassley’s report raises questions about the opulent lifestyles of the televangelists and their families, and the handpicked boards charged with governance. Grassley was accused of “oversight overstep” and even violating their religious freedoms, as they preach the “prosperity gospel,” which teaches that God blesses the faithful with earthly riches. But no church should be allowed to keep its finances hidden from reasonable oversight. Surely, donors are entitled to some assurance that their financial contributions are not misappropriated under the “cloak of religion.”

James G. Rodgers, a columnist for the Orlando Sentinel, states that tax exemptions don’t uphold, rather they violate the “separation of church and state” implied in the First Amendment of the U.S. Constitution, which states that “Congress shall not establish an official church.” Although tax exemptions do not directly establish a religion, tax savings give churches a huge economic advantage over taxable entities; thus, allowing them to quickly and easily “set up shop.” Furthermore, it violates other constitutional protections too. More Americans “living outside any religious tradition continues to grow; therefore, that underscores the unfairness of taxing all Americans to subsidize religious institutions that only some Americans utilize.”

Unfortunately, given their enormous influence in Washington, we don’t expect any radical changes to the U.S. Tax Code any time soon. But we can’t deny that unnecessary tax-exemptions have an unjustifiably high cost to the American taxpayer. A fairer tax policy would require the submission of financial disclosure statements and the taxation of non-charitable activities, which could deter fraud and possibly generate billions of dollars in tax revenue. Removing these special privileges does not threaten religious freedom. In fact, removing tax previleges will actually grant churches more freedom to express their political views, which they are prohibited from doing so, in order to maintain their tax-exempt status.  Courts have repeatedly held that 501(c)(3) status is a privilege, not a right to which churches are entitled. A fair tax system should at least require accountability from all organizations that are entrusted with the privileges of tax exemptions. If churches object to any oversight, they should forego all exemptions.













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