Should churches have to pay income tax?
If you had asked me this question 5 years ago, I would have been probably gotten angry at you for daring to even ask it. “Of course Churches shouldn’t pay tax! How ridiculous!”
Of course, back then, I was on the church’s payroll, and I had a vested interest in a particular answer to the question. There is a certain bias that blinds you from seeing other possibilities if it affects your ability to make ends meet.
However, now that I’m no longer on the inside of the church system, I thought it worth revisiting the question. After all, it is a question that tends to drive people to the poles. Almost no one has a moderate opinion on the matter.
So, I want to present the arguments here for both sides of the coin. I’m going to reserve my personal opinion until I’ve spelled out the pros and cons because, to be honest, I might change my mind while I write!
A brief history of churches and tax exemption
Believe it or not, the first recorded tax exemption for churches was during the Roman Empire, when Constantine, Emperor of Rome from 306–337AD, granted the Christian church a complete exemption from all forms of taxation following his conversion to Christianity 312AD.
Fast forward almost two millennia, and today, in the USA, all churches are still exempt from paying income tax. This exemption became official in 1894, but even before then, it was the unofficial and widely accepted position in all 50 states. Moreover, all donations to churches are tax-deductible in the USA. Similarly, churches in other western countries such as the UK, Australia, Canada, and New Zealand also enjoy income tax exemptions — though not all of these countries allow tax-deductibility on donations.
Interestingly, many European countries, such as Germany, Italy, Austria, Finland, Sweden, and Denmark, take a rather different approach. The governments of these nations actually charge people who wish to be part of a church a “worship tax” to claim membership, with these funds then redirected back to state-recognized churches to cover their operating costs. Despite the secularization of Europe, a new report by Pew Research found the large majority of citizens still support this tradition of paying a ‘church tax.’
Regardless of how a nation chooses to structure its tax benefits, the point is that churches almost universally enjoy them and have done for a good portion of human history.
But is this just another archaic practice that should surrender itself to modern beliefs and sensibilities? Let’s take a look at some of the arguments for both sides of the debate:
The reasons why churches should be taxed
On the one hand, some argue strongly that the church should absolutely be taxed the same as any other corporation. Here are some of the most popular arguments in favor of taxing churches:
It is unconstitutional to subsidize religion
In the USA, at least, it is unconstitutional to subsidize religious activities. However, one could reasonably argue that both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. Or, to put it another way, a tax exemption has much the same effect as a cash grant equal to the amount of tax that a church would have to pay on its income if it were indeed taxed.
It forces people to support religion even if they are not religious
So people wish to worship their God? That’s fine with me, but why should I have to subsidize it if I have no interest in religion myself? If churches aren’t taxed, then governments need to make up the difference somewhere, right?
As Mark Twain once said: “no church property is taxed, and so the infidel and the atheist and the man without religion are taxed to make up the deficit in the public income thus caused.”
It is difficult to police legitimate churches from illegitimate “faiths”
What exactly constitutes a legitimate faith? In the latest Australian Census, over 50,000 Australians listed their religion as “Jedi.” So, if someone set up a Jedi Church, would that get tax exemption? Where is the line?
If I believe in the divinity of a goldfish that I keep in the pocket of my left trouser leg and can rally a group of people who believe the same, can I call it a church and claim a tax break?
According to ABC News, in 2010, Oklahoma awarded tax-exempt status to a Satanist Group. Meanwhile, The Church of Scientology, which TIME Magazine described as a “thriving cult of greed and power” and “a hugely profitable global racket,” was granted federal income tax exemption in 1993. The New York Times reported that this “saved the church tens of millions of dollars in taxes.”
Taxpayers are supporting the lifestyles of wealthy preachers
According to salary.com, the Median wage for pastors in the United States is $99,337, though some — particularly those who lead larger churches — would certainly be paid more than that.
According to Beliefnet, the highest-paid preachers in the USA have a net worth well into the tens of millions. For example, it is estimated that Joyce Meyer has a net worth of $8 million, Rick Warren has a net worth of $25 million, Joel Osteen has a net worth of $40 million, and Kenneth Copeland’s net worth is a staggering 750 million dollars.
Why should people of such wealth enjoy tax benefits?
Tax breaks hinder the prophetic voice of the church
Never bite the hand that feeds you. It was a concept that I learned early on when I was a church worker. If you offend the people who put their money in the offering plate, they will stop putting their money in the offering plate.
The same can be said at a macro level. There are times when churches must speak out against injustices instigated by their own governments. In fact, holding government to account is part of a healthy democracy. However, if the church is worried about losing some financial benefit, how can it raise its voice against injustice?
According to Reverend Carl Gregg, “When Christians speak, we shouldn’t have to worry about whether we are biting the hand that feeds us because Caesar/Uncle Sam shouldn’t feed us in the first place.”
Churches are not required to report
Secular charities require a high level of transparency when it comes to their finances. They have to report their financial activities annually — including their income and expenditure.
However, no such stipulation exists for churches. According to the National Study of Congregations’ Economic Practices, almost one-third of all charitable giving in the U.S.A. is directed to church congregations in the form of donations, tithes, and offerings. However, very little is known about what is done with these donated funds. While many churches are self-reporting, there is no legal requirement to do so.
. . .
The reasons why churches shouldn’t be taxed
Now, on the other hand, others argue just as strongly that churches ought to continue to be exempt from paying income tax. Here are a few of the most common arguments to this end:
Churches earn tax exemption by contributing to the public good
The most common and arguably compelling reason that churches shouldn’t be taxed is that, whether you like the church or not, you have to concede that many of the charitable services that exist in the West are church-based organizations.
Tax breaks are afforded to the church to acknowledge their contribution to the public good and assist them in remaining viable. If churches were burdened with tax requirements, it is argued, it would reduce their ability to provide charitable services.
In fact, according to Anne Robinson, a leading expert on charity law, “If the church closed up shop and didn’t provide the schools, the hospitals, the social welfare infrastructure — society would go bankrupt, basically. It would cause the kind of social disruption that would bring governments down. They could not fund these social goods without the contribution of the church.”
Churches are not businesses
Another argument for why churches ought not to be taxed like businesses is because they aren’t actually businesses. The goal of a business is to make a profit. However, the goal of a church is not. How do you tax a not-for-profit organization if, by definition, it doesn’t make a profit? Whether you like it or not, the activities of the church do lie largely outside the taxable economy.
Plenty of organizations (like sporting clubs, historical societies, conservation groups, art galleries) and plenty of transactions involving money (inheritance, gifts, lottery wins, children’s pocket money) don’t get taxed. It’s not because these things are afforded any kind of “special government privileges.” It’s more that they are interactions that the government neither deserves nor expects a cut from.
It upholds the separation of church and state
The argument goes that not taxing churches nor demanding financial accountability limits state involvement in churches, thereby upholding the separation of church and state.
In fact, the US Supreme Court stated way back in 1970 that “The exemption creates only a minimal and remote involvement between church and state, and far less than taxation of churches. It restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other.”
Double taxation
Donations given to churches come from donors’ post-tax income. Therefore, taxing churches would amount to ‘double taxation and would effectively discourage people from devoting time, money, and energy to organizations that contribute to the building up of society.
All non-profits would need to be taxed
The only constitutionally valid and fair way of taxing churches would be to tax all not-for-profits, which would place undue financial pressure on the entire public service sector that builds and assists the community.
You cannot merely tax churches. That would be tantamount to penalizing them due to the religious purpose and nature of their work.
. . .
The bottom-dollar
As I’ve researched the pros and cons of taxing the church, my personal opinion has swung back and forth several times.
So, where have I landed?
Well, personally, I believe that the church should receive tax exemptions for charitable purposes. This is a reasonable acknowledgment of the positive contribution that the church makes to society from a social justice and philanthropic perspective.
However, it is also true that not every church activity could reasonably be defined as a charitable activity. And so I think a line needs to be drawn. Exactly where that line ought to be is another question altogether. Is providing religious services a charitable exercise? Should churches be exempt from paying property tax? I have my doubts. And let’s say a church offers a ‘user-pays’ service, should they be taxed on that? Perhaps they should.
Above all, churches ought to be subject to the same level of financial scrutiny as other not-for-profits. If churches are enjoying the tax benefits afforded to not-for-profits, they should be subject to full disclosure of their finances.
It is a polarizing debate, I’ll admit, but, at the end of the day, it was Jesus Christ himself who said, “You cannot serve both God and money.”
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This post was previously published on Backyard Church.
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