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Dust-Up

Why don't churches pay taxes?

Erik Stanley says the power to tax enables the government to destroy the free exercise of religion. Barry Lynn says that it isn't unreasonable for organizations that pay no taxes to accept some federal oversight.

September 23, 2008

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Today's question: Why should churches be tax exempt in the first place? Wouldn't it be a better approach to deny the tax exemption to all churches? Previously, Stanley and Lynn debated whether federal tax law chills free speech in churches.

Hands off our churches, IRS
Point: Erik Stanley

There is said to be an old Arabian proverb: "If the camel once gets his nose in the tent, his body will soon follow." This expression is especially pertinent in the tax exemption context. Churches are tax exempt under the principle that there is no surer way to destroy the free exercise of religion than to tax it. If the government is allowed to tax churches (or to condition a tax exemption on a church refraining from the free exercise of religion), the camel's nose is under the tent, and its body is sure to follow. But that's not just my opinion; it's the understanding of the U.S. Supreme Court.

In its 1970 opinion in Walz vs. Tax Commission of the City of New York, the high court stated that a tax exemption for churches "creates only a minimal and remote involvement between church and state and far less than taxation of churches. [An exemption] restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other." The Supreme Court also said that "the power to tax involves the power to destroy." Taxing churches breaks down the healthy separation of church and state and leads to the destruction of the free exercise of religion.

Barry, as someone who claims to be devoted to the separation of church and state, surely you can agree that exempting churches from taxes is a better way to separate state and church than taxing them. I agree with the Supreme Court that an exemption for churches from taxes tends to reinforce a very healthy separation between church and state.

That's why your opposition to the Pulpit Initiative doesn't square with your approach to church-state relations. Let's look at the facts: The 1954 federal Johnson Amendment prohibits a pastor from talking about candidates from the pulpit in light of Scripture. Thus, based on what a pastor says about an election from the pulpit, the tax code allows the government to tax a church. Consider that in light of the Internal Revenue Service's increasingly vague regulations, and you have a recipe for the censorship of religion. The IRS, through those vague regulations, reserves for itself tremendous discretion and power to decide which churches to punish for violations of the Johnson Amendment and which not to punish. Barry, I know you've seen this because you report a lot of churches to the IRS for alleged violations, but the IRS only acts on a minuscule portion of your complaints. What standard does it use? Who knows why it chooses to go after some churches and not others? When does a pastor's sermon somehow cross the line?

Conditioning tax exemption for churches on refraining from speaking about certain things is just as dangerous as taxing churches outright. Those conditions break down the healthy "wall of separation between state and church" articulated by Thomas Jefferson in his letter to the Danbury Baptists. The conditions allow the state, through its discretion and power, to punish disfavored views and to reward favored ones. The free exercise of religion cannot survive in such conditions. The camel has had its nose under the flaps of the church tent for far too long. It's time to push him outside, where he belongs.

Erik Stanley is senior legal counsel and head of the Pulpit Initiative for the Alliance Defense Fund, a legal alliance of Christian attorneys and like-minded organizations defending the right of people to freely live out their faith.

Tax exemption is a privilege, not a right
Counterpoint: Barry W. Lynn

Erik, here is a very current (I just dreamed it up) Barry Lynn proverb: "Sometimes when a camel sticks his nose in the tent, the camel smells unpleasant things." Your answer to today's question is breathtaking in two ways. First, it really suggests that our tax authorities must look away any time a religious institution asserts that what it is doing is based on its spiritual understanding. Second, you seem to believe that the Constitution somehow mandates that all religious institutions be tax exempt, even though the Constitution says no such thing.

When any group accepts a tax exemption, it agrees to play by certain rules and accept a certain degree of oversight. Federal law actually makes it more difficult for the IRS to audit churches than other charities. In addition to this modest "no electioneering" rule, for example, tax-exempt groups cannot collect money for a "charitable" purpose and then use it all for the personal benefit of the director and her family (or the pastor and his family). Do you seriously believe that the IRS and possibly even criminal investigative bodies have no right to try to scrutinize possible misbehavior?

Second, government at the local, state and federal level made a decision early in our history to grant tax exemptions to churches and other bodies. The Constitution does not mandate it; and indeed, even the decision you cite -- the Walz case -- doesn't say that tax exemptions are required by the 1st Amendment. In general, governments believed that churches along with other types of community groups enhanced and supplemented government services such as feeding the hungry, housing those in need of shelter and in general using private funds for public good. (Although this is a debate for another time, I note that more and more religious groups are now asking for a government bailout through the "faith-based initiative" and to keep their tax exemptions.)

I do concur with you, Erik, that the power to tax does have the potential power to destroy. However, I see no evidence that restricting the ability of a pastor to convert his church into a political action committee is intended to cause, or has caused, the destruction of religious enterprises. Although your effort this coming Sunday to have pastors flout the law against electioneering seems focused on pulpit rhetoric, why not have a few of them say, "And we are taking up a second collection today for the McCain-Palin ticket"? After all, the Supreme Court has frequently equated "speech" with "money" in rulings on campaign financing.

One of the principal jobs of the law is to draw lines about what is and isn't permissible. In my judgment, the IRS has gotten this piece of its work correct almost all of the time. More cases and guidelines help inform church leaders about what is and is not acceptable when it comes to exercising the privilege of a tax exemption. If a pastor wants to know whether something he or she is about to do will violate the prohibition against aid "in support of or in opposition to a candidate," the best start is to ask this question: Am I doing or saying this to help elect or defeat my favored candidate? If the answer is yes, then don't do it.

The Rev. Barry W. Lynn is executive director of Americans United for Separation of Church and State. He is an ordained minister in the United Church of Christ and a longtime civil liberties attorney.