By Madison S. Hughes (02.25.2011)

Abstract

It is time; nay it is long past time, to revoke the religious tax exemption. Granted, this proposition may instantly be viewed as yet another untouchable “third-rail” of politics; however, there are numerous economic arguments to be made against continuing this exemption. Past arguments against the religious tax exemption have largely fallen on deaf ears. Changing conditions, especially economic conditions, can place old arguments in a new light. The current government-funding crisis—at all governmental levels—is sufficiently dire, and it is long past time for a call to revoke the religious tax exemption. This paper will demonstrate that the religious tax exemption is responsible for considerable revenue loss, and has a negative impact on: school funding, public library funding, revenue generation, the U.S. Federal Budget Deficit, fairness, and equity. Additionally, the tax exemption: is not transparent, lends to corruption, does not hold persons or religious organizations accountable for corruption, and, therefore warrants a call to revoke the religious tax exemption.

Keywords: church, religious organizations, revocation of religious tax exemption

A Call to Revoke the Religious Tax Exemption

The religious tax exemption is arguably the most contentious of all tax exemptions. Indeed, eliminating the religious tax exemption afforded to religious organizations is a viable and necessary option available to increase revenue. The government raises revenues through taxation. Granting of the religious tax exemption poses a great loss to revenue generation. Most politicians are reluctant to raising taxes. Many obstacles, not the least of which is the religious tax exemption, need to be overcome in order to develop fair, equitable, and revenue generating tax policy. A transitory discussion of the technical and political aspects of budgeting needs to be addressed before a constructive argument can be made advocating for the revocation of the religious tax exemption.

The technical aspects of budgeting are extremely complex and multi-faceted; however, for simplicity’s sake they may be broken down to just two sides. From an objective viewpoint, there is the input side (revenues) and the output side (spending). When a government—or an individual for that matter—attempts to balance a budget, it has but three options: increase revenues, cut spending, or do both. The technical aspects of budgeting are dichotomous, i.e., black and red, if you will, where the political aspects of budgeting are not, which makes them of even greater complexity.

The technical aspects of budgeting are objective, and the political aspects of budgeting are subjective. Once subjectivity arises difficulty is sure to follow. Many times the complexity of even the simplest of problems increases exponentially once politics is introduced. This is especially true in our contemporary age of intense partisanship along the precipitous ideological divide. For example, one need only observe a familiar recurring assertion that giving the religious tax exemption will somehow equate to an increase in charitable, and social services. The charitable services rendered by secular non-profits have demonstrably proven this recurring mantra false, yet to claim otherwise for some politicians would prove to be political suicide.

Can the technical and political aspects of budgeting be reconciled? In theory they may, but in practice it is not likely. As long as our politicians see issues through the dichotomous lenses of either cutting spending, or raising revenues, these two aspects of budgeting are unlikely to be reconciled. Currently, because of the dire economic crisis, federal, state, and local governments alike are scrambling to find ways to raise revenue and cut spending. Notably, the reactionary right places a much greater emphasis on the latter than on the former. This paper will focus on the former.

This brings us to the topic at hand, the revocation of the religious tax exemption. It is no wonder that advocating for the revocation of the religious tax exemption is considered so taboo in the United States. Although the United States is a secular nation, it is paradoxically the most religious of all advanced industrialized economies, and even some not thought of as being advanced industrialized economies (Campbell, 2011). Sadly, for politicians, revocation of the religious tax exemption is not considered based on right or wrong; rather, it is calculated based on winning or losing the next election. Where in Matthew 22.21, the Bible commands, “Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s” the politician commands . . . not so much.

Simply revoking the non-transparent religious tax exemption blindly given to religious organizations can raise an enormous amount of tax revenue. There are numerous reasons why religious tax exemptions should be eliminated. The most obvious reason is the loss of revenue to local communities throughout the United States due to this tax exemption.

In a telephonic interview with the Monterey County Tax Assessor’s Office in January of 2011, Chris Reynolds, the Information Technology Database Manager stated that there are 295 records of religious tax-exempt properties in Monterey County. The land value of these properties is $35.90 million. The structure value of the buildings on these properties is $120.80 million. The total value of properties and structures is $156.70 million (Reynolds, 2011). Because of California’s Proposition 13, these values are artificially low.

According to the California State Board of Equalization, which references Section 2 of Article XIII A of the California Constitution:

Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-1976 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or two percent, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.

Under Proposition 13, the property tax rate is fixed at one percent of assessed value plus amounts required to repay any assessment bonds approved by the voters (CA.gov, 2009).

Religious organizations rarely change ownership, and most church property values have not been reassessed since 1975. This is the case despite the great rise in property values during the real estate bubble of the late twentieth, and early twenty-first century. So, if we take the total property value of religious tax-exempt properties in Monterey County and multiply by the current property tax rate of 1% (City-Data.com), we find Monterey County’s total annual revenue loss due to religious tax exemptions to be $1.57 million. So we’ve arrived at a number, but what does this number represent? Just how does this number affect the citizens of Monterey County?

According to the County of Monterey Treasurer – Tax Collector Website, property tax dollars are proportioned as follows (County of Monterey Treasurer – Tax Collector, 2011):

Table 1

Annual Monterey County Revenue Loss Due to Religious Tax Exemption by Recipient (2009-10 Data)

Recipient, Percent of Total Property Tax Revenue Allocated to Recipient, Annual Revenue Lost to Monterey County Due to Religious Tax Exemption respectively:

Schools, 61%, $955,867
County of Monterey, 15%, $235,049
Special Districts, 8%, $125,356
Redevelopment Agencies, 8%, $125,356
Cities, 6%, $94,017
Water Resources & Community Service Areas, 1%, $15,700
County Library, 1%, $15,700

The imminent school closing of Monterey’s 88-year-old Bay View Elementary School may evidence the cost of this revenue loss. Bay View Elementary will close after the 2010-2011 school year in part due to budget cuts (Central Coast News, 2009). While it may not be concluded that the annual $955,867 school revenue loss (Table 1) due to the religious tax exemption would have prevented the closure, certainly it may be asserted the closure may have been adverted had the Monterey Unified School District received that lost revenue. Politicians should consider the economic crisis public schools face when deciding if the religious tax exemption should continue. The religious tax exemption adversely affects public schools, and therefore, should be considered for revocation.

Not only are the public schools adversely affected by the religious tax exemption, so too are the public libraries. Recently Pacific Grove’s public library encountered a setback due to budget constraints. Pacific Grove proposed a measure that would levy a special property tax to support Pacific Grove’s public library. Monterey Herald staff writer Kevin Howe (2010) states, “Measure Q would levy a tax of $90 per year on each individual land parcel and $45 annually for each apartment or condominium unit” (p. 1). While the $15,700 revenue loss (Table 1) due to the religious tax exemption would not have been enough to fund all of the monies needed, it would have raised an equivalent amount of revenue that Measure Q would have collected from 350 apartment residences. Politicians should consider the economic crisis public libraries face when deciding if the religious tax exemption should continue. The religious tax exemption adversely affects public libraries, and therefore, should be considered for revocation.

Austin Cline was a regional director for the Council for Secular Humanism and a former publicity coordinator for the Campus Freethought Alliance, in his article, Why Taxation of Religion Matters, Cline stated:

It is estimated that churches and other religious bodies may own anywhere between twenty and twenty-five percent of all of the land in the United States. This represents a huge portion of the possible tax base and billions of dollars in potential revenue, which could be used to fund schools, and other portions of the social infrastructure upon which the churches depend, just like the rest of us (Cline, 2011).

To get a sense of the magnitude of revenue loss caused by the religious tax exemption in the United States, consider using Monterey County as a benchmark. Understand that some counties in the United States will lose less tax revenue, and some will lose more tax revenue. If one were to consider the current benchmark data concerning the property tax revenue losses in Monterey, along with the fact that there are 3,140 counties in the United States, one could engage in some “back-of-napkin math” to calculate the following: The number of counties (3,140) in the United States multiplied the total revenue loss to Monterey County per year due to the religious tax exemption ($156.70 million) yields $492.04 billion. That is one-half trillion revenue dollars per year that the United States loses due to the religious tax exemption! Politicians should consider the negative economic impact on revenue generation when deciding if the religious tax exemption should continue. The religious tax exemption adversely affects revenue generation, and therefore, should be considered for revocation.

The current U.S. Federal Budget Deficit is approximately $1.3 trillion dollars (US Debt Clock.org). Hypothetically, if the religious tax exemptions given to religious organizations were revoked and applied to the U.S. Federal Budget Deficit, the deficit would become a surplus in approximately three years without having to cut a single existing social program. Additionally, religious organizations would continue to operate with few, if any, that currently litter our landscape, having to close. Of course one could, and very likely would, argue these premises, as well they should. The beauty of that outcome is that the religious tax exemption would finally be considered for argument. Politicians should consider the negative economic impact on the U.S. Federal Budget Deficit when deciding if the religious tax exemption should continue. The religious tax exemption adversely affects U.S. Federal Budget Deficit, and therefore, should be considered for revocation.

The religious tax exemption is given to the few at the expense of the many. The well renowned journalist, editor and nonfiction author Alfred Balk stated it best when he penned, “There is little question that exemptions, in narrowing the tax base, necessitate compensatory ‘involuntary’ payments by non-exempt property owners” (Balk, 1971). Religious tax exemptions force all non-exempt property owners to pay higher property taxes. Cline echoed Balk’s observation when he claimed, “every dollar not paid by churches or other religious organizations must be made up from some other source,” and went one step farther when he quantifiably claimed, “when all tax exemptions are taken into account, it is estimated that the average family may pay up to $1,000 in extra taxes every year to make up for the lost revenue not received from churches and religious groups” (Cline, 2011). This involuntary tax imposition due to the religious tax exemption immediately raises two concerns. One, is the tax fair? Two, is the tax equitable?

In regards to the question of fairness, consider the non-exempt property owners that are religiously unaffiliated. The religiously unaffiliated, by their own volition, choose not to partake in the religious activities offered by the tax-exempt religious organizations. What’s more, the 16.1%, i.e., approximately 50 million, of the U.S. population that is “unaffiliated with any particular faith today” are forced to pay higher property taxes on their non-exempt properties because of those that do affiliate with a particular faith (Campbell, 2011). Proponents of the religious tax exemptions that may be inclined to rebut this argument with the old ‘I don’t use the public park, or the public library yet I still pay taxes that support those, what’s the difference?’ The difference is that both the public park, and the public library are secular, non-religious institutions, and we are, by Constitution, a secular, not religious, nation. Politicians should consider fairness when deciding if the religious tax exemption should continue. The religious tax exemption is unfair to non-exempt property owners, and therefore, should be considered for revocation.

Regarding the question of equity, the religious tax exemption that is given to the few at the expense of the many, is regressive. The regressive nature of the religious tax exemption has a proportionally greater negative economic impact on those that are least able to afford such an involuntary tax imposition. By definition, regressive taxes “take a larger percentage of income from low-income groups than from high-income groups,” and therefore cannot be considered equitable (IRS.gov). When an argument is made for a regressive tax you can be rest assured that any premise of equity upon which that argument is based is logically flawed at best, or downright fabricated at worst. Politicians should consider equity when deciding if the religious tax exemption should continue. The religious tax exemption is inequitable, and therefore, should be considered for revocation.

Under the IRS tax code, secular non-profit organizations, and religious organizations are both considered 501 (c) (3) organizations; however, unlike secular non-profit organizations, religious organizations are not legally obligated to demonstrate transparency, nor are they held accountable for their financial practices. According to the American Humanist Association, churches and religious organizations “don’t have to file annual IRS 990 financial disclosure forms, they get advance notice when the IRS plans an audit of their finances, they don’t have to report the identities of their major donors.” Roy Speckhardt, executive director of the American Humanist Association, addressed the issue of accountability when he stated, “when institutions of any kind aren’t held accountable there will be abuses. And when there’s no oversight of church finances we’re going to see lavish spending by some preachers” (American Humanist Association, 2011).

In 2007 U.S. Senator Charles Grassley (R-Iowa) investigated six television ministries suspected of corruption. Author, and executive director of Americans United for Separation of Church and State, Reverend Barry Lynn noted that the investigation got under way because of allegations that several high-profile television preachers were abusing non-profit status by living lavishly while raking in millions tax-free every year. A staff memo delivered to Grassley in January 2011 reported the findings, including lack of cooperation from four of the six ministries being examined (Americans United for Separation of Church and State, 2011). Politicians should consider transparency, accountability, and corruption when deciding if the religious tax exemption should continue. The religious tax exemption is not transparent, which lends to corruption, and those who are corrupt are ultimately not held accountable for said corruption, therefore, the religious tax exemption should be considered for revocation.

Conclusion

It has been shown that a call to revoke the religious tax exemption is long overdue. It would be an understatement to state that such a call is disputative; however, especially with the current government-funding crisis, it is unreasonable to disregard such a call simply because of political sensibilities. Our politicians must continually strive to reconcile the technical and political aspects of budgeting. This paper presented evidence to show that the religious tax exemption is detrimental to school funding, public library funding, revenue generation, the U.S. Federal Budget Deficit, fairness, and equity. Additionally, this paper demonstrated that the religious tax exemption is not transparent, lends to corruption, and does not hold persons or religious organizations accountable for corruption. Therefore, this paper serves as a resolute courageous call to revoke the religious tax exemption.

References

American Humanist Association. (2011). Retrieved February 25, 2011, from American           Humanist Association: http://www.americanhumanist.org/news/details/2011-01-grassley-   report- highlights- need-to-remove-church-exe

Americans United for Separation of Church and State. (2011, January 7). Retrieved        February 25, 2011, from Americans United for Separation of Church and State:  http://www.au.org/media/press-releases/archives/2011/grassley-investigation-of-tv.html

Balk, A. (1971). The Free List. Russell Sage Foundation.

CA.gov. (2009). Retrieved February 23, 2011, from CA.gov:    http://www.boe.ca.gov/proptaxes/faqs/caproptaxprop.htm

Campbell, D. (2011, January 7). Pew Research Center Publications. Retrieved February  21, 2011, from Pew Forum on Religion & Public Life:  http://pewresearch.org/pubs/1847/how-religion-divides-and-unites-us-david-campbell-    conversation-transcript

Central Coast News KION Right Now. (2009, December 10). Retrieved February 22, 2011,  from Central Coast News KION Right Now:  http://www.kionrightnow.com/global/story.asp?s=11659963

City-Data.com. (n.d.). Retrieved February 24, 2011, from City-Data.com: http://www.city-  data.com/us-cities/The-West/Monterey-Economy.html

Cline, A. (2011). About.com Agnosticism/Atheism. Retrieved February 25, 2011, from  About.com: http://atheism.about.com/od/churchestaxexemptions/a/whyitmatters.htm

County of Monterey Treasurer – Tax Collector. (2011, January 10). Retrieved February 23,    2011, from County of Monterey Treasurer – Tax Collector:    http://www.co.monterey.ca.us/taxcollector/Where_taxes_go_chart.html

Howe, K. (2010, November 10). Monterey Herald. Retrieved February 22, 2011, from    Monterey Herald: http://www.montereyherald.com/local/ci_16509937?nclick_check=1

IRS.gov. (2011). Retrieved February 24, 2011, from IRS.gov:  http://www.irs.gov/app/understandingTaxes/student/whys_thm03_les02.jsp

Reynolds, C. (2011, January). Information Technology Database Manager. (M. S. Hughes,  Interviewer) Monterey, CA, US.

The Pew Research Center. (2007, August 13). Retrieved February 23, 2011, from The Pew  Research Center: http://religions.pewforum.org/reports

US Debt Clock.org. (2011, February 21). Retrieved February 21, 2011, from US Debt  Clock.org: http://www.usdebtclock.org/