Introduction
Tax exemption for religious organizations has been justified on the grounds of the good they do. There is a compelling case for the many good things religious institutions have done, from serving those in poverty to providing disaster relief and engaging in charity work. Although the government can do all that the institutions can, the exemption only serves to recognize that the power to tax is the power to destroy.
In the American context, a government with taxation power over religious organizations can potentially harm them (Hofmann). However, opinions have been divided over whether religious institutions should pay taxes and be exempt from them. Many of the conversations and debates surrounding the issue have neither yielded a resounding yes nor a resounding no, but rather a combination of the two.
Some religious institutions generate substantial revenue, with some pastors earning substantial incomes from their institutions. Sometimes, religious organizations do considerable charitable work relative to their income. In theory, churches, synagogues, and other religious organizations are nonprofit entities, and nonprofit groups are in the business of helping others (Walczak).
For these services, the government exempts them from paying taxes. However, there are special rules for churches that go beyond what other nonprofits can do. For example, religious institutions can discriminate in hiring as they wish. Additionally, most nonprofit groups are required to submit their yearly income, expenses, and staff salaries to the government, but religious organizations are exempt.
Financial Transparency, Accountability, and Public Concerns
There are some mega-churches where the pastors earn vast amounts of money; even the parishioners are left in the dark about the financial details. Generally, congregants would like to know how much goes into the pastors’ pockets and into charity work, but the institutions may not be entirely forthright (Mashau and Kgatle).
Such reasoning has led people to question the legitimacy of some religious organizations and the need to exempt them from paying taxes. Nevertheless, churches must follow specific rules in exchange for tax incentives, such as neutrality in political matters (Hofmann). In recent years, some religious organizations have also flaunted this rule, endorsing certain political candidates or imposing their ideas on their followers.
In theory, churches provide a social good to the community through activities such as charity work, food banks, and spiritual nourishment. However, there is a counterargument that taxing churches will increase social good, benefiting many people. If churches are taxed, the money could be allocated to a larger social good and strengthen the country’s social safety net, where everyone receives help regardless of their religious affiliation (den Dulk). However, this argument may be flawed, as churches often extend their charity work to the needy, regardless of their religious affiliation or membership. Additionally, churches are expected to offer moral and spiritual guidance, which is not tied to any business model or venture.
Several rising issues, such as LGBTQ and same-sex marriages, have generated a heated religious debate. Either side of the issue taken by the religious institutions has sparked controversy, with public debate over whether the church should intervene, support, or denounce it. Some people have used the issue to victimize religious institutions and argue that they should be forced to pay taxes if they cannot follow the Constitution (Subramaniam). Others think that religious organizations that do not adhere to the principles of the Constitution should lose their tax-exempt status. Still, they should not be forced to accept the gay lifestyle.
However, this raises a larger question: whether discrimination is involved, as well as moral issues that may be unrelated to tax exemption. The church predates the Constitution, with the idea that it helps the community and teaches morals. If religious institutions do not impose their principles and beliefs on the people, neither should they be compelled to adopt ideas that contradict their beliefs and moral standards. Therefore, churches should not discriminate against others who hold differing beliefs and practices.
Some aspects of religious institutions’ missions should be taxed, and some proponents agree. The argument is that tax exemptions are privileges, not a right. The legislature made a social policy determination that certain types of activities, including those of religious, educational, or hospital institutions, receive special tax treatment. If part of their property is used for a different purpose, they should be taxed in the same manner as others. The tax and services laws narrowly define religious space, and the distinction made by local tax assessors is based on personal interpretation (den Dulk).
For instance, the sanctuary, chapel, and monastery are exempt from taxation, but other locations, such as cafeterias and gift shops, are not. One may ask what religious mission is carried out in a cafeteria or a gift shop. It is about not distinguishing between worship and charity because the self-definition of a religious community is to determine how it raises funds. Therefore, how institutions run other businesses, such as bake sales, is not a viable way to raise funds for religious institutions.
The argument is that religious institutions have the right to self-determine what their charitable act are. For instance, a building on the church’s property that serves as an emergency shelter is part of the organization’s charitable endeavors. Therefore, places like cafeterias should not be used for traditional worship; rather, religious activities in these settings are the institution’s decision, not the government’s. However, there is a legitimate basis for arguing that gift shops, cafeterias, and maintenance shops are not used for religious purposes.
The legislature decided to give the church special tax treatment, and that privilege comes with responsibility (den Dulk). Therefore, it makes sense that organizations that receive tax preferences are scrutinized to ensure they are not receiving a subsidy (den Dulk). Nevertheless, the narrow understanding of the house of worship has led to the tax debate, as amenities such as the cafeteria and gift shop, integral to worship, are treated as profit-generating entities. The integral to religious worship is a meal, part of the founding principle that cannot be divided.
Religious organizations provide services that their members and the community appreciate. Sometimes, people running these groups receive excessive compensation, there is corruption within the organization, or they act more like a business than a nonprofit. It is essential to criticize these vices whenever they occur in religious organizations. Some people have issues with churches for having the benefits of nonprofit organizations with no accountability (den Dulk).
The government attempts to ensure the honesty of nonprofit groups by requiring them to complete Form 990. Form 990 is an annual report to the IRS that details an organization’s income, expenditures, and, in some cases, the compensation of top leaders (Hofmann). There are many mega-churches where the leading pastor’s salary is unknown, even to the congregation, and the public is unaware of how the money is being used. Part of the problem is that the IRS does not want to deal with the public backlash that would ensue if it revoked a church’s tax exemption, even for legitimate reasons.
Revisiting Tax Policy
The problem may not be that churches are tax-exempt, but rather that they are not playing by the same rules as everyone else. All tax-exempt groups should be held to the same standards to demonstrate fairness, transparency, and accountability. For instance, some argue that religious organizations should file Form 990, refrain from endorsing political candidates from the pulpit, and avoid involvement in corruption; otherwise, their tax exemption should be revoked (Walczak).
Revoking a church’s exemption has nothing to do with its beliefs, but rather with its actions. Nonetheless, many churches do good work and help people who believe; losing their tax-exempt status will cause significant suffering to those who depend on the ministry for social services. It may seem unjustified to withdraw tax exemption to penalize a wealthy preacher who flies around in a private jet.
Tax is essential for every citizen of a country. However, religious institutions do not have any net income or engage in any businesses because much of the money is donated (Walczak). It would be ambiguous to impose a tax on institutions, because that would mean other nonprofit organizations would have to pay it. Taxing all nonprofit organizations will limit social services, such as charity, potentially putting them out of business or forcing them to scale back their operations. However, the scandals and financial fraud that have plagued some religious organizations have initiated a discussion about regulating the church (Walczak).
Suppose religious institutions were required to be transparent about how they spend their money. In that case, once they do it properly, they will even improve transparency and public perception. For example, a religious organization that publishes its financial activities for public scrutiny and audits its finances using an outside group will give church leaders more power. Since the IRS does not impose stringent accountability on religious activities, churches that are open and honest like that are few and far between.
Conclusion
In conclusion, repealing tax exemptions for religious institutions has become a popular trend. People have advocated for the same thing based on progressive ideologies and wealthy preachers who have amassed their wealth through the church. Some conservative Christians have mistakenly advocated for tax exemption by saying religious institutions should pay taxes to allow the organizations to say whatever they want. However, this accepts an unconstitutional and non-biblical view of the relationship between the church and government.
Furthermore, those who think more government involvement in politics through taxation will lead to greater freedom may be underestimating the saying that the power to tax involves the power to destroy. Tax exemption creates far less involvement between the church and state than taxation, reinforcing the separation of the two entities. Nonetheless, religious organizations should conduct charity work in proportion to their revenue, complete Form 990 for accountability, and comply with all regulations governing nonprofit organizations.
Similarly, congregants should be aware of how their donations are helping the needy and the amount retained by the pastors for accountability and transparency. It entails accounting for donations through independent auditing and declaring the earnings of leaders for greater accountability.
Works Cited
den Dulk, Kevin. “Taxing the Church: Religion, Exemptions, Entanglement, and the Constitution. By Edward A. Zelinsky.” Journal of Church and State, vol. 60, no. 3, 2018, pp. 554–56.
Hofmann, Mary. “The Politics of Religion and Taxation: Keeping Church and State Separate.” Journal of Management Policy and Practice, vol. 22, no. 2021.
Mashau, Thinandavha D., and Mookgo S. Kgatle. “Prosperity Gospel and the Culture of Greed in Post-Colonial Africa: Constructing an Alternative African Christian Theology of Ubuntu.” Verbum et Ecclesia, vol. 40, no. 1, 2019, pp. 1–8.
Subramaniam, Tara. “Fact Check: O’Rourke Said He Would Support Removing Tax-Exemptions for Religious Institutions That Oppose Same Sex Marriage. Is That Legal? | CNN Politics.” CNN, 2019.
Walczak, Jared. “What If We Taxed Churches?” Tax Foundation, 2021.