Churches Have A Controversial Role in the U.S. Tax System
Updated: Oct 18, 2021
The separation between church and state has been debated in the United States since the time of our Founding Fathers. The Constitution calls for a clear distinction between the church and state, but that has not stopped religious organizations from reaping tremendous amounts of benefit, including guaranteed tax breaks and support from politicians. Some say putting taxes on religion keeps the separation between church and state intact, while others see it as a violation of constitution. It is often questioned if religious organizations, which most consider to be private groups, are actually independent from the government.
The Constitution of the United States
The Constitution, the basis of all laws & policies in the U.S., calls for a clear separation between the church and state, meaning religion should not be involved with politics. For this reason, many see it is a burden to have to cover for the taxes that religious entities are not obligated to pay. However, the Constitution also calls for religious freedom, which some believe is upheld by not taxing religious organizations. This is because many consider that religious institutions get a majority of their funds from donations, and putting a tax on these donations would further incentivize people to not donate.
The First Amendment states that “Congress shall make no law respecting an establishment of religion.” However, the government’s ability to uphold this amendment has been questioned by many due to this well known policy. This is because the advancement of religion is included as charitable activity under American tax law, allowing religious institutions to be seen as non-profit organizations, and thus be tax exempt.
The Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) of the U.S. is a bureau of the Department of Treasury, which makes sure the necessary funds to run essential programs are collected through taxes. The IRS also decides which organizations are eligible for tax exemption, by requiring non-profits, not including religious entities, to file an “Application for Recognition of Exemption” to make sure there is no misinformation. A non-refundable fee of $450 – $850 is also charged based on the organization’s projected revenue. This fee is used to go through the process and get the application reviewed. Once approved, the organization must provide strict annual reports on their finances.
Although the system may seem foolproof, it is important to note that a Church is automatically exempt from taxes, without having to go through this process. Churches are exempt from federal, state, and local income and property taxes, meaning they do not pay sales tax, property tax, capital gains tax, or corporate income tax. Religious leaders such as priests and rabbis even get “parsonage exemptions,” allowing them to deduct mortgage payments, rent and other living expenses when paying taxes. However, if the church receives income from an unrelated business, the organization may be subject to taxation.
“The IRS may only initiate a Church tax inquiry if a high-ranking IRS official, reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for the exemption; or (b) may not be paying tax on unrelated business or other taxable activity.” This implies that rather than looking for reasons to give the privilege, the IRS only looks for reasons to take it away. However, it is important to note only religious organizations are given this benefit.
Tax exempt organizations must be transparent with their finances, while places of worship do not have to share any financial information. Because organizations receiving tax benefits are supported by public funds, they are also not allowed to support or oppose any candidate running for a public office, while religious organizations often support and oppose candidates or political views publicly. The IRS states a Church or 501(c)(3) organization cannot “intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Still, even with regulations in place, many have tried to push the limits, and the church has often given their opinion on politics.
Some overlook the role taxes play for the public. The government uses the money to build roads, bridges, schools, parks, as well as pay officials, defend the country from internal and external threats, support police and firefighters and much more. 3.46 trillion dollars were collected in taxes last year, and every citizen and organization is doing their part for the betterment and welfare of the country by paying and covering for themselves. In 2019, of the taxes collected, 23% went to Social Security while 25% went to Medicare, Medicaid, CHIP, and marketplace subsidies. Many say churches’ lack of contribution to taxes results in others having to make up for them, but others believe just like roads and schools, churches are also for the good of the public.
Besides being exempt from taxes, churches have also received many other advantages through the U.S. tax system. Donations to a church and other non-profit organizations are tax deductible. Some say this results in churches benefiting at the expense of the U.S. tax system because churches already get a lot of leeway from the us tax system. This is because more people are incentivized to donate to churches, while they would probably be less likely to donate if the tax break benefit did not exist.
Recently, places of worship have been making headlines for having received at least $7.3 billion in federal rescue package loans. The Paycheck Protection Program (PPP) is a business loan program funded by taxes to help relieve small businesses and organizations during the COVID-19 pandemic. Places of worship are not usually eligible for money from the U.S. Small Business Administration, but thousands of religious groups, some who have been involved with many scandals, received 88,411 PPP loans.
Nearly 10,000 Catholic churches received $1.4 billion in loans after lobbying to be eligible. Churches that publicly support President Trump received $17.3 million in loans that were intended to benefit small businesses and nonprofits. Although many people support the Paycheck Protection Program, they feel that the line between church and state is dwindling even more than it has in the past. This is especially considering the large sum of the money that was meant for small businesses and nonprofit organizations having gone to religious organizations.
Those in high ranking positions of the government have generally avoided the topic of taxation of religious organizations for fear of hurting religious sentiments. One of the last major statements on the topic came from President Grant in 1875. He wrote to the Senate and House of Representatives on December 7, 1875, where he said, “In 1850, I believe, the church property of the United States which paid no tax, municipal or State, amounted to about $83,000,000. In 1860 the amount had doubled; in 1875 it is about $1,000,000,000. By 1900, without check, it is safe to say this property will reach a sum exceeding $3,000,000,000.”
He went on to write that “In a growing country, where real estate enhances so rapidly with time as in the United States, there is scarcely a limit to the wealth that may be acquired by corporations, religious or otherwise, if allowed to retain real estate without taxation. The contemplation of so vast a property as here alluded to, without taxation, may lead to sequestration without constitutional authority and through blood.” He suggested that all property should be taxed equally, “whether church or corporation, exempting only the last resting place of the dead and possibly.”
Overall, the debate over the existence of a distinct separation between church and state is ongoing. Many believe that religions should not be taxed, while some find it important to recognize that if one does not cover their costs, others are left to make up for the deficits. Organizations that are exempt from paying taxes are expected to provide public benefits to others in society, and it leaves many questioning the following: do the services places of worship provide cover for the billions of dollars in taxes they don’t pay every year? Others continue to uphold the values of religious organizations to societal standards, and this argument, which has been going on for centuries, won’t be ending any time soon.
Through Teen Lenses: Places of worship are not required to pay any taxes, because they are considered a non-profit organization. Do you think the services they provide should give them the status of a 501(c)(3) nonprofit charitable organization, costing the U.S. billions in taxes every year? The constitution also calls for a separation between Church and State, do you think this is being upheld?
“I think that places of worship are similar to schools, in terms of being public services; however, they vary because of the separation of church and state. I believe that there should be a complete separation of church and state, and by granting places of worship the status of “non-profit” opposes that. Religion should not be given a bypass by the government in any way.” Sahiti Kota, 14, Rising Sophomore at Thomas Jefferson High school for Science and Technology, Chantilly, VA
“I do not think that they should automatically be considered a non-profit organization and benefit from it. They should have to apply and qualify for this based on the charity work/ services they are providing. It is clear, within our government, that Christianity has major advantages and is seen as almost the standard religion to practice in the US. An example of this is federal holidays, Christmas is the only religious holiday and no other religions are recognized. It is apparent that our government lacks separation of church and state.” Laura Church, 15, Rising Sophomore at Oakton High School, Oakton, VA
“Places of worship are institutions that provide significant, intangible benefits to their local communities. For the most part, the primary source of income for these institutions consists of donations from their patrons. If they were to be mandated by law to pay taxes on the money that they receive, it would only be a matter of time before the financial pressure causes the number of places of worship to dwindle to a fraction of the current amount. Religion is a fundamental right of all American citizens, and thus the institutions that allow these citizens to pursue this right should be provided certain protections for their continued prosperity.” Anonymous, Student at University of Pennsylvania