Separation of Church and Tax
WHY YOU SHOULD CARE
It’s one thing to respect a fellow citizen’s religion; it’s quite another to subsidize it.
The release of Mitt Romney’s tax returns in the run-up to 2012’s presidential election raised a host of issues from investment income to spending habits, but no one questioned the donations that Mitt and his wife, Ann, made to the Church of Latter-day Saints (LDS). While Mitt was railing against the 47 percent, we should have been talking about the 10 percent: the tenth of the Romneys’ income ($2,600,000 in 2011) that they tithe to the LDS and then deduct from their taxable income.
Tax deductions in the U.S. tax code represent the ability to reduce one’s taxable income, meaning that the government is electing to forego otherwise taxable income because the taxed individual is putting that money toward a socially sanctioned course of action like charity or childcare.
It is estimated that churches’ tax-exempt status costs American taxpayers $71 billion per year.
As such, the government and other taxpayers are effectively subsidizing that spending decision. Tithes to qualified religious organizations are deductible events, because the tax code treats churches more like charities than membership organizations. And not just any charities — ones that are immune from the reporting requirements levied on other nonprofit charitable organizations.
Researchers at the University of Tampa estimate that churches’ tax-exempt status costs American taxpayers $71 billion per year, which, for example, is more than the controversial $55 billion in cuts to the military under sequestration. Even Italy, with its close affiliation with the Vatican, recently decided that it would stop foregoing millions of dollars in much-needed revenue and end the Roman Catholic Church’s exemption from paying property taxes. In contrast, only one U.S. religious organization, Bob Jones University, has ever lost its tax exemption (because of racially discriminatory admissions policies).
Do religious organizations deserve to receive special tax treatment? While churches engage in charitable activities, the funds allocated toward those activities typically constitute a fraction of their overall income, most of which goes to running the church itself. The LDS, for example, is estimated to have donated just 0.7 percent of its annual income to charitable causes between 1985 and 2008. By comparison, the far more transparent American Red Cross, which must make onerous tax filings like all other nonreligious 501(c)(3) groups, spends around 90.7 percent of its revenue on charitable-program-related expenses.
The lack of accountability also lends itself to abuse by con artists and others who establish ventures as “churches” for the favorable tax consequences and limited oversight. This ranges from the huge tax-free sums amassed by television evangelists to the 235 residents of Hardenburgh, N.Y., who were granted tax-exempt status after the owners declared their properties to be branches of the online Universal Life Church.
Has the time come to eliminate the deduction for tithes or make churches answerable to taxpayers like nonprofits and other charitable organizations? One thing’s for sure: Trusting religious organizations to do the right thing with their tax windfalls should no longer simply be a matter of faith.