There are two items to this post.
1. Abbreviated history of Churches and taxation in America.
Perhaps the history helps explain our current situation. Nondiscrimination laws were nonexistent in the first century of the republic, and in colonial days. The jurisprudence that later developed around non-discriminaton laws (what republicans call "activism") to protect the minorities from majority rule, did not yet exist. Also, the First Amendment was not applied to the individual states until the end of the 19th century, so several states, including Mass and VA, had state-supported churches into the 1830s.
What was on their minds was what became John Marshall's dictum, "the power to tax is the power to destroy." So the way dreamed up to protect churches was to forbid taxation of them. When the modern income tax code was adopted in the 1940s the policy was left in tact.
Money changes everything, though.
If you look at who pays income taxes, you will see that the power of the personal deduction for charitable giving did not become salient until the 1970s. Also, churches were always political in many ways, but could easily avoid direct endorsement of a candidate. Until the 1980s when TV ads became the norm for even small campaigns, the cost of running most campaigns was so small that campaigning in churches consisted of candidates being invited to talk to the congregation, not congregations shopping for candidates with their money and volunteer base. The 1980s abortion politics began to intersect with church activism. Then, the 1990s saw a dramatic invasion into politics by right-wing "christian conservative" churches, esp. the Southern Baptists, became the organizing locus for volunteer and fundraising efforts for the GOP - particularly in the South.
So you now have a situation where one political party relies heavily on churches for organization and funds (the Republicans) and this stands largely at odds with a tax code that envisioned churches being largely non-political (being, at most cause-oriented rather than party-oriented).
Now that so many churches are so political, and the dollars matter, you get something like Liberty University kicking a political party off campus saying it is un-Christian. The tax exemption is no longer separating church and state, but interfering with church activities that they now define as including political action.
2. How Churches Operate
What's the "dollars and sense" reason for not taxing churches? Churches are not profit centers. I am the chairman of the board (title: senior warden of the "vestry") of my rather well-off parish in Los Angeles. We get about 1/3 of our income from endowments, 1/3 from member pledges, and 1/3 from rent of a portion of our property to a children's day school (the church orginally ran its own school on the property 40 years ago). We are, therefore, much much better off than most churches. Normally we can afford two full-time clergy and a full range of programs.
Even so, we run on a shoestring. About 11% of our income goes to the diocese for our fund of the "mission share" (divided between charity and administration), which feels like a substantial tax as it is. We have to maintain a very large physical structure - sort of like a mini-convention center, with a worship sanctuary, a fellowship hall, sunday school classrooms, office space for clergy, choir practice areas, and so forth. We do this without "sales" of any kind. Members are asked to pledge a percentage of their income, if they can (the norm is probably in the 3-4% range, but it's a bit tough to calculate). If the government took a third of our income in taxes, it would be like wiping out all of our pledges. To run the institution with $200K less would be crippling. I cannot imagine how a poorer church would survive. If we also had to pay property tax on the building - a big space in a downtown urban area - that would cost at least another $40K/year, raising our effective tax burden to about 40% of our total income. Ask yourself how easy it would be for you and your friends to pool enough money to buy and decorate a large space like this where the "business plan" is to give away as much as possible and rely on donations. We have something around $2K-$3K monthly in utilities, depending on weather and usage. These are big costs to spread around.
And, of course, if the donations to the church were not tax-deductible, the amount of pledge support would go down (we don't know by how much, but it would be a hit). Certainly, the larger donations to the church endowment (gifts in wills, for example) would evaporate.
The difference between this and 'entertainment' is that, among other things we don't charge admission and don't sell products. We want members to pledge a % of their income, but we don't do audits, and large numbers of people attend who do not join. A major unspoken function of the institution is to provide a nice 'theater set' for Christmas and Easter celebrations for the hoards of non-members to attend, where they ritually reaffirm some thin Christian identity and might explore the possibility of returning. This behavior varies, of course. Since Mormons do audit members and require a tithe, some of this does not apply to them. Unlike the Roman Catholics, we do not charge for most priestly services (weddings, funerals, baptisms). Jewish congregations typically charge for high holy days (it is something like selling seats at a stadium, with the "best" seats being mor eexpensive). These are all somewhat different fundraising mechanisms, but most American religious groups rely on the total-volunteer-donation model I have suggested.
I don't want to detail all the charitable activities the church also produces, but we give away something like a sixth or a seventh of our total income (including what goes to the diocese). For example, the Good Friday offerings always go to the church in Jerusalem (it's basically charitable support for Palestinians). None of this accounts for the large amount of free labor provided by parishioners.
All in all, it's a tight budget even at a relatively wealthy church. In poorer, rural areas it's even harder. Taxing churches would destroy the financial model that almost every church is built on. Most churches are not businesses, in other words. Perhaps some churches are like businesses and we should consider that. For example, perhaps the rent we charge for the school should be taxed at some rate. There is a reason why churches used to be tax-supported institutions - because running them on voluntary donations is really hard.
I should add that the average size of major-denomination parishes in this country is about 120 pledging members. For reasons relating to human interaction, it seems that a single pastor has a hard time growing an organization beyond that size without extra clergy support. Beyond that size, the relationships become too anonymous. Larger churches usually have a multiple-clergy model. What we normally do - two clergymembers - is the hardest financial model of all, because our membership is not much above the average. We can't afford the second one right now given the endowment's decline by nearly 1/3 in value and the hit that pledges are taking in this economic crisis, so we were lucky that the second pastor voluntarily got a new job (left the parish) just before the financial crash hit last year. Otherwise I just don't know how much more deferred maintenance on an aging 40-year-old building we can do.
I don't consider running the church operations itself to be a business. But where there are sales (e.g., rental property or running a school) perhaps those shoudl be taxed like the business enterprises they really are.
Monday, May 25, 2009
There are two items to this post.
Posted by The Law Talking Guy at 10:21 AM