Tuesday, February 8, 2011

The Legality of Tax Exemptions for Religion in the U.S.

“Tax the FUCK out of the churches!” - Frank Zappa

It is the first reaction of atheists and secularists to state that “Churches and the like should not be exempt from paying taxes like the rest of us. It’s a violation of the Constitution.” This is typical for many of us to say, but the reality of the law is much more complicated and many of us do not know how or why the exemptions came into place. Before I proceed let me state that it is my opinion that they should NOT be exempt from taxes. However due to the tax code, legislature of the Federal government and 50 State governments this is harder to argue than just mindlessly banging the First Amendment drum.  There are legal technicalities.  Of course there are technicalities.  

I am by no means a lawyer or an expert on taxes. I invite anyone who “knows better” to comment below. Also as another disclaimer; I spent hours upon hours reading up on the subject, and it is still very much an amateur and superficial review.  I’m not posting the complete argument here.  One could easily get lost in the prior cases and precedents that led up the last decision and current status quo.  The point of this post is simply to educate myself and my fellow atheists and secularists so we can make better arguments. An example of why this is necessary is Bill Maher. I (normally) like Bill, but he can be a blowhard and not really think through some of the things he says. Take the following:

“New rule: If churches don’t have to pay taxes, they also can’t call the fire department when they catch fire. ‘Sorry reverend, that’s one of those services that goes along with paying in. I’ll use the fire department I pay for. You can pray for rain.“ Bill Maher February 17, 2006

This is incorrect and would be illegal under the U.S. Constitution. Due the adoption of the 14th Amendment you cannot “...deny to any person within its jurisdiction the equal protection of the laws.” The fire department protects individual citizens and groups of citizens.  Not the institutions.  Again, I just point this out since we are operating under a legal system and the arguments have to be framed as such. We can’t just pop off random statements and call it an argument. That’s what the other side does. OK, let’s get on with it...

Just so we have it on hand for reference here is the First Amendment of the U.S. Constitution:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances. (emphasis added highlight the Religion Clauses).

First, it is important to state what is exempt from taxation under the governing tax code for non-profits.  Religious and non-religious institutions fall under the 501(c)(3) tax-exempt organizations:

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

For the remainder of the post I will refer to all institutions that are exempt as “churches” since that is the language in the legal decisions. This includes any religious organization that is currently exempt from paying US taxes.  

It is important to note that businesses owned by a religious organization and other for-profit entities do not fall under this category. Some of the activities that a church may conduct are not exempt and the church will have to pay taxes. It’s important to note since anything deemed “for-profit” is (supposed to be) non-exempt. The salaries of any employee of the church are also not exempt. Donations or tithings that a church collects for their expenses (rent/mortgage, utilities, etc.) or any charitable activity are not subject to taxes.  

The initial, intuitive reaction to tax exemption for churches is that it violates the First Amendment. As I noted above, the 501 (c)(3) groups include more than just churches.  These include museums, historical societies, charities, veteran's groups, etc. Churches are lumped in with these other groups since they can be defined as having the same socially beneficial activities at least some of the time.  In the eyes of the court they provide services and activities that fit the definition of the 501(c)(3) groups.

Legally, there are several arguments in support of protecting tax exemptions for churches. The Supreme Court case Walz v. Tax Commission of City of New York, 397 U.S. 664 (1970) outlines these arguments and set the precedent as the last major decision on the matter.  In 1970 the Court held that:

1. The First Amendment tolerates neither governmentally established religion nor governmental interference with religion. Pp. 667-672.

2. The legislative purpose of tax exemptions is not aimed at establishing, sponsoring, or supporting religion, and New York's legislation simply spares the exercise of religion from the burden of property taxation levied on private profit institutions. Pp. 672-674.

3. The tax exemption creates only a minimal and remote involvement between church and state, far less than taxation of churches would entail, and it restricts the fiscal relationship between them, thus tending to complement and reinforce the desired separation insulating each from the other. Pp. 674-676.

4. Freedom from taxation for two centuries has not led to an established church or religion, and, on the contrary, has helped to guarantee the free exercise of all forms of religious belief. Pp. 676-680.

The above held points include stated and underlying reasons within the decision that the Supreme Court considered in upholding tax exemptions for churches. These are 1) they are a benefit to society, 2) the tax exemptions do not violate the First Amendment, 3) the tax exemptions actually preserve the First Amendment, and 4) 200 years of history and precedent are reasons enough to preserve the  tradition. Discussions of these points and the critiques follow.  

Beneficial to Society

This reasoning held for the exemption has been established by the courts:

“[t]he State has an affirmative policy that considers these groups as beneficial and stabilizing influences in community life and finds this classification [tax exemption] useful, desirable, and in the public interest.” 397 U. S. 664

Most atheists and antitheists will automatically snicker at this reasoning (as well they should). Religious institutions and churches are included in the 501(c)(3) tax exempt groups for this aspect of their activities. However, do all churches do charity work? If, so how much? Is there a threshold or quota of what percentage of their work that is charity that should be established? No there is not. All these questions are in effect: moot. It does not matter based on the legislation. The definition of “charitable” in the 501(c)(3) legislation includes the “advancement of religion.”  

In the cases’ dissent, Justice Douglas discussed how “the financial support rendered here is to the church, the place of worship (397 U.S. 704).” Justice Douglas rightly points out that the services provided by the exempt institutions and groups afforded this benefit could conceivably be provided by the government and never violate the First Amendment.  In effect, the government could replace or subsidize an orphanage, a museum or a veteran’s group legally. The support of these institutions by way of tax exemptions is beneficial to society since it spares the government (and the people) from having to provide these services and charities themselves or via direct subsidies. This is not the case with churches. The government could not take over these institutions, provide their full slate of services, or directly subsidize them. It would be a clear and obvious violation of the First Amendment and therefore illegal.  

The Tax Exemptions Do Not Violate the First Amendment

The First Amendment obviously says nothing about churches and taxes. The tax exemptions are legislation as established by Congress. This specific legislation needs to be considered within the context of the First Amendment. As stated in Justice Burger’s decision regarding the First Amendment’s Religion Clauses:

...the basic purpose of these provisions, which is to insure that no religion be sponsored or favored, none commanded, and none inhibited. The general principle deducible from the First Amendment and all that has been said by the Court is this: that we will not tolerate either governmentally established religion or governmental interference with religion;... 397 U.S. 673

One thing to notice about this statement is that the protection and concern seemingly only goes one way: government cannot interfere with or establish a church. Nowhere does it state anything about protecting the government from churches or that churches cannot interfere with government.  Implicitly, however, I believe it does.  The government, in principle, is the agent of the people. The Establishment Clause (“...make no law respecting an establishment of religion...”) protects the people from a religion that is “sponsored or favored,...commanded” by the government. Decisions under the First Amendment are considered whether or not actions “are intended to establish or interfere with religious beliefs and practices or have the effect of doing so. Therefore, any allowed interference or influence by a religion or church in governmental affairs is also a violation of the First Amendment.  

Justice Burger continues with:

Adherents of particular faiths and individual churches frequently take strong positions on public issues, including, as this case reveals in the several briefs amici, vigorous advocacy of legal or constitutional positions. Of course, churches, as much as secular bodies and private citizens, have that right. No perfect or absolute separation is really possible; the very existence of the Religion Clauses is an involvement of sorts -- one that seeks to mark boundaries to avoid excessive entanglement;... 397 U.S. 673

However, Justice Burger’s own words illustrate the violation if these “particular faiths and individual churches” are basing their “strong positions on public issues” and “constitutional positions” on their religious beliefs and doctrines.  What they are trying to accomplish is an intentional establishment of “religious beliefs and practices or have the effect of doing so” within the government?  The government's financial support of churches establishes and empowers religion.  

This logic has a lot of applications in arguing many atheist/secularist causes: same-sex marriage, DADT, military chaplains, military “spiritual fitness tests,” etc.

The Tax Exemptions Actually Preserve First Amendment

It would seem that the main argument in support of tax exemption is that not taxing houses of worship preserves the First Amendment. This seems counter-intuitive, but there is actually some logic behind this. Whether or not you accept the logical premise is another argument. As held in Walz v. Tax Commission of City of New York, 397 U.S. 664 (1970):

The tax exemption creates only a minimal and remote involvement between church and state, far less than taxation of churches would entail, and it restricts the fiscal relationship between them, thus tending to complement and reinforce the desired separation insulating each from the other. 397 U. S. 674-676. (emphasis added)

Justice Burger in his opinion explains:

Elimination of exemption would tend to expand the involvement of government by giving rise to tax valuation of church property, tax liens, tax foreclosures, and the direct confrontations and conflicts that follow in the train of those legal processes.  397 U.S. 664

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. 397 U.S. 664

By the government not taxing a church for its operational costs and charitable activities it is not interfering or “...prohibiting the free exercise thereof;...”  What Justice Burger attempts to establish in his opinion is that the government’s tax free stance prevents entanglement. By taxing churches this would require the government to evaluate properties, establishing values and assessing levies on each particular church. So this logic is extended to make the case that these actions would create a deeper, more intricate relationship between the government and each church within the nation. This relationship would result in the “...prohibiting the free exercise thereof;...” and violate the First Amendment, but how so?  I believe this is merely smokescreen. At first glance it seems reasonable. It actually nearly had me convinced that taxing churches might end up being a bad thing.  Nearly.  

How does treating the church like every other institution and citizen prevent entanglement and the free exercise of religion? The claim is made that some churches would not be able to afford whatever levy imposed upon them. How is that a concern of a secular U.S. government? Should the government be in the habit of keeping churches viable? Is that not a subsidy? I chuckle at their lack of capitalistic integrity.  

Chief Justice Burger noted that the purpose of the exemption was not to single out churches for special favor; instead, the exemption applied to a broad category of associations having many common features and all dedicated to social betterment. Thus, churches as well as museums, hospitals, libraries, charitable organizations, professional associations, and the like, all non-profit, and all having a beneficial and stabilizing influence in community life, were to be encouraged by being treated specially in the tax laws. The primary effect of the exemptions was not to aid religion; the primary effect was secular and any assistance to religion was merely incidental. (emphasis added) Justia.com

Incidental assistance is still assistance.  

Justice Burger also made the following statement within his entanglement argument:

The grant of a tax exemption is not sponsorship, since the government does not transfer part of its revenue to churches, but simply abstains from demanding that the church support the state. No one has ever suggested that tax exemption has converted libraries, art galleries, or hospitals into arms of the state or put employees "on the public payroll."  397 U.S. 664

This statement is a straw man.
(1) tax exemption is not sponsorship of churches.  
(2) tax exemptions do not make other exempt organizations into state run institutions.  

This misrepresents the original position in that it does not answer the original question of sponsorship of churches, and more importantly, (2) implies that state run secular organizations would be wrong or illegal it were sponsorship.  It would not. The government could grant direct subsidies or even take over the administration, finances, etc. of a museum, hospital, veteran’s group, etc. and never violate the First Amendment. The imagined point (2) is at best an overstatement and at worst irrelevant to answering (1).   

Additionally, what is the difference between taxes collected and redistributed back to these institutions (a direct subsidy) and not collecting taxes that the general public must pay?  None. Either method of giving these institutions financial assistance is a fiscal sponsorship by the government. As stated above, if the secular institutions were directly subsidized or became “arms of the state” it would not violate the law.  The stance that exemptions are not the same as subsidies is the Court, in its attempt to uphold tradition, splitting hairs.  

“A page of history is worth a volume of logic.” OR  “We’ve been doing it for 200  years and no one has the stones to overturn it.”

Tax exemption, whether informal or formal, for churches have been around since the beginning of the Republic and predates the nation.  In the ruling opinion of Chief Justice Berger and the concurring opinion of Justice Brennan this is a major factor in the continuance of the tax exemptions. Both opinions quote Justice Holmes from an earlier decision in which he states: "a page of history is worth a volume of logic." A statement and premise I reject. If we cowed to history in the manner the Justices suggest then nothing would change. We would be static. Slavery, segregation, women’s rights, the establishment of the United States, etc. would forever be considered unworthy endeavors; forever out of reach due to history and precedent.

After several paragraphs outlining the history of exemptions Justice Holmes is again quoted by Justice Harlan (as well in the Justices Berger and Brennan’s opinions): “If a thing has been practised for two hundred years by common consent, it will need a strong case for the Fourteenth Amendment to affect it. . . .”  JACKMAN V. ROSENBAUM CO., 260 U. S. 22 (1922)

Basically the Court cedes to 200 plus years of tradition and “punts’ an actual valid argument in this regard. Justice Harlan, in his concurring statement even goes as far as saying so:

Whether direct aid or subsidies entail that degree of involvement that is prohibited by the Constitution is a question that must be reserved for a later case upon a record that fully develops all the pertinent considerations, such as the significance and character of subsidies in our political system and the role of the government in administering the subsidy in relation to the particular program aided.  397 U.S. 664

I think it would be interesting in the current political climate given the discussion of government funding and reach what this would result in. I am sure there are those who would, without thinking, make the statement that the government should stay out of church business and in the same breath say that the government shouldn’t be giving art museums and the like tax breaks.  

Justice Douglas’s Dissent
Justice Douglas, in his dissent, takes a different tact by establishing that the First and Fourteenth Amendments are violated by tax exemptions.

In Torcaso v. Watkins, 367 U.S. 488, we held that [p701] a State could not bar an atheist from public office in light of the freedom of belief and religion guaranteed by the First and Fourteenth Amendments. Neither the State nor the Federal Government, we said, can constitutionally pass laws or impose requirements which aid all religions as against nonbelievers, and neither can aid those religions based on a belief in the existence of God as against those religions founded on different beliefs.

That principle should govern this case.

Justice Douglas makes the case that the Court is ignoring the “revolution” of the Fourteenth Amendment and then outlines how  it changed the application of law throughout the nation from its adoption in 1868 until the modern era. In what I think is his most damning line, Douglas cites Engel v. Vitale:

Those developments in the last 30 years have had unsettling effects. It was, for example, not until 1962 that state-sponsored, sectarian prayers were held to violate the Establishment Clause. Engel v. Vitale, 370 U.S. 421. That decision brought many protests, for the habit of putting one sect's prayer in public schools had long been practiced. Yet if the Catholics, controlling one school board, could put their prayer into one group of public schools, the Mormons, Baptists, Moslems, Presbyterians, and others could do the same once they got control. And so the seeds of Establishment would grow, and a secular institution would be used to serve a sectarian end. (emphasis added) 397 U.S. 673

In citing a prior (see: established) Court decision Douglas illustrates the decision by his Court to ignore the First Amendment applied by the Fourteenth Amendment.

Douglas continues by rejecting the “historical” argument by stating “If history be our guide, then tax exemption of church property in this country is indeed highly suspect, as it arose in the early days when the church was an agency of the state.” Not one to simply bust out one-liners, Douglas then cites the history of the early U.S. where the power of the church within State governments was systematically diminished by early legislation from the “Founding Fathers.”  

While discussing these early legal battles Justice Douglas makes another point that shows the violations to both the First and Fourteenth Amendments:

State aid to places of worship, whether, in the form of direct grants or tax exemption, takes us back to the Assessment Bill and the Remonstrance. The church qua church would not be entitled to that support from believers and from nonbelievers alike. Yet the church qua nonprofit charitable institution is one of many that receive a form of subsidy through tax exemption. 397 U.S. 673

Non-believers do not receive this aid from neither the government nor the church while non-believers must support the government and churches do not.    

What Would Happen if Tax Exemptions Were Revoked?

Of the four main arguments the only one I can agree with (logically...not in practice) is the “entanglement” argument. I understand the logic of “by not taxing churches the government stays separate and does not infringe on religion” which is required by the First Amendment.   However, as I outlined above it does not really hold up.  

As stated in the court decision: “Qualification for tax exemption is not perpetual or immutable; some tax exempt groups lose that status when their activities take them outside the classification...”  397 U.S. 673. A 501(c)(3) organization must not be involved in Political Campaign Intervention and has limits on Lobbying. I am not going to pretend that I am an expert in this. The intricacies of the IRS are arcane and punishing to read. However, it is common knowledge that churches and the like cannot partake in these activities, yet we all know they do to some extent.

There are recent stories of charities that lobby against equal rights for religious reasons and, more sinisterly, turn away people in need due to their sexuality.  

My problem with this justification for keeping the exemptions is that a) as I outlined in the First Amendment section churches should be staying out of governmental/legislative affairs anyway and b) churches and religions are heavily involved in politics. The 501(c)(3) restrictions are useless.  

The Walz v Tax Commission of NY decision makes clear that the tax exemptions are in place, in part, to assist in the pluralization of America, but how exactly does it equally assist this pluralization? It indirectly assists various religious groups to thrive over others to the by sheer numbers alone. Christians make up 76.0% of the population in the United States. The numbers of Christians in general coupled with some sects of Christianity mission to dominate the culture have an unfair advantage over other religions and the irreligious with much smaller populations.

It is my opinion based on the First Amendment, 501(c)(3) legislation, and the Walz v Tax Commission of NY case that the churches should be removed from the tax exempt category of organizations. Their exemption from taxes amounts to a subsidy of religion in the United States and establishes and assists religion (believers) to the detriment of non-believers and non-participating believers. The uncollected taxes are not just used for the maintenance of their churches and charity work, but for proselytizing and preaching. The church is technically not able to receive any obvious government assistance due to its religious activities, but the entire institution receives the financial benefit due to the potential for charitable activities. This, in effect, subsidizes the church and violates the First Amendment and the Fourteenth Amendment.  

All four Justices from the case cited here explained their arguments in greater detail with plenty of examples. As I stated in the beginning of the post I am only superficially describing the case. To do otherwise would require a book or a legal course. I mean only to outline the issues regarding the case and the justifications for the tax exemptions existence so we are educated in our arguments.  I, of course, added in my two cents.  

While challenging the current law and the very fervent proponents of it, it is imperative that we work within the confines of the law and the U.S. Constitution. Not only is that our most likely means of success, but the Bill of Rights protects people. We, as atheists, are still very much in the minority and very much hated. Failing to realize this would not only be disastrous for this cause, and could result in a greater backlash.