5 reasons we should never tax churches, even if John Oliver is right (COMMENTARY)

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I love John Oliver. And his recent segment on the tax status of churches was brilliant and funny. That said, it’s not a justification to change how we exempt churches from taxation.

Oliver’s segment show just how easy it is to start a church in America. As I tell students: if you want to start your own religion with yourself as prophet or divine being, then you can do it. No questions asked.

In the parlance of economics, the result is as close to a free, unregulated market as you’ll find anywhere. Government doesn’t regulate the industry. It doesn’t pick favorites by providing subsidies to one church but not another. No one is taxed. Startups require no government approval. No civil rights laws affect hiring or services.Government does not audit churches. It does not keep a register of religious groups. There is no “U.S. Department of Religion” that subsidizes or regulates religion. Churches do not even file the same paperwork (Form 990’s) that other types of nonprofits submit as a means to provide transparency to the public.

READ ‘Megareverend’ John Oliver trolls televangelists with new tax-exempt church

As one would expect in any market like this, there are those who practice abusive or predatory actions.  Oliver’s segment lays out just how unseemly some religious groups can be as they pull in donations.

A reasonable reaction to such abuses is to call for regulations. At a minimum, some argue, churches should be taxed. This will never happen in our current political system. And it probably won’t ever happen.

Here are five reasons why churches should not be taxed:

1. Government can’t pick some churches to tax & regulate but not others.

Oliver focused on churches that preach the “Prosperity Gospel” and do so in a public way. His audience (myself included) laughed as he ridiculed some prominent TV preachers. Making pronouncements, giving blessings, and issuing calls for faithful giving is, well, something found in nearly every house of worship in America. Government can’t pick and choose which ones are silly and which ones are legitimate. It must practice “benevolent neutrality.” If you tax the TV evangelist you don’t like, then you also must tax the Unitarian/Universalist congregation, the synagogue, the Catholic parish, the Amish house church, and every other religious community.

READ Five things I teach foreign students about American religion & politics

2. If we tax churches, then we will need to tax all not-for-profit organizations.

Government may exempt churches from property taxes and other taxes so long as they do so for other charities. There are some who argue that, as in the case of religious groups on public campuses (Rosenberger v UVA), government can’t select just religious groups to tax while leaving all other organizations like schools, women shelters, soup kitchens, and fraternal organizations tax-exempt. 

3. To tax churches, government would need to have the (currently unconstitutional) authority to audit and regulate churches.

Income is revenue minus expenses. So, to tax revenue, the government has rules about what counts as legitimate business expenses and regulations on how businesses perform their accounting. The government may also audit organizations. To do this for churches means that the government would define what is and is not legitimate and then act to ensure compliance. This raises a constitutional issue as Congress cannot make laws that affect the free exercise of religion.

4. Taxation would benefit large churches and ministries and harm smaller ones.

As with any organization, larger is better. Big churches would have the resources to hire lawyers and accountants that would minimize their tax burden. Smaller churches that currently operate on shoestring budgets would face a relatively greater cost in order to comply with new regulations.

5. It wouldn’t solve the problem.

Most of the discussion of taxing churches offers so-called megachurches or television-based ministries as examples of abuse. But if we tax churches, then churches will do what other businesses do—they’ll increase expenditures in order to reduce taxable income. Again: income is revenue minus expenditures. The TV preacher’s million dollar income? That’s an expense. His clothes for his show? An expense. His jet to travel for business? Another expense. The cost of all those fundraising mailings? More expenses. By the end, there won’t be any income to tax.

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  • Larry

    A saner take on the subject of churches and taxation is to not give blanket tax exemption solely on their existence as churches. But to tax them where they engage in activities which do not fall under religious practice. Go by the activity rather than the entity performing it.

    Taxing church activities when they:
    -Act as PAC’s and campaign for political parties and candidates
    -Engage in open commerce, as opposed to charity
    -Act as commercial property managers where holdings are rented at market rates.

    I find nothing wrong with auditing churches to ensure they are disclosing relevant financial information to the IRS concerning non-religious activities.

  • Andrew

    The IRS wouldn’t have to audit churches. All they’d need to do is to send every church in America a sheet of paper with “Give back to Caesar that which is Caesar’s” written at the top and get them to nominate how much they’d like to give back, at the bottom. Then publish all the give-backs on their website. The American public could then judge for themselves which of the churches was obeying Jesus and which weren’t.

  • Luis Grangados

    Your points are invalid.
    1. All churches should be taxed, just like all other businesses. There need be no picking and choosing.
    2. There’s nothing wrong with taxing not-for-profit organizations in general. If there’s truly no “profit,” the tax will work out to zero. If there is a profit, it should be taxed.
    3. Government can, does and must regulate churches all the time. That’s how they just sent Pastor Jim Staley off to jail. You’re saying that’s unconstitutional?
    4. The same point applies to bigger businesses and richer individuals. Are you saying no businesses or individuals should be taxed either?
    5. “The problem” is not TV ministries, but the basic unfairness of treating churches more favorably than those who provide truly valuable services to society – people like grocers, plumbers, and nurses. Everybody benefits from government services, and everybody should pay for that benefit. Claiming you have a hotline to heaven shouldn’t merit you special treatment.

  • Larry

    1. Churches are not businesses. They are allegedly not set up to generate profit and income of its management.

    2. Income is taxed, not profit. Non-profits generate incomes but their purpose is not to do so for the personal enrichment of its owners. Excess income of a non-profit is meant to go towards providing charitable services.

    3. Government does not regulate what churches may preach or any activities of a purely religious nature. It doesn’t want the job and is not welcomed there. The 1st Amendment protects the integrity of both church and state by keeping them from being entangled.

    4. Taxation works on sliding scales depending on size and influence. I can see sectarian bigotry climbing in the part of setting the tax rates for churches. Advocates from large churches trying to get rates and exemptions favorable for them and crushing for smaller ones. Much like what they do with small business

    5. Adequate funding and staffing the IRS would solve most problems here.

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  • Byron

    Learn from the countries which do have some form of church taxes, e.g., Germany, Denmark, Switzerland, Iceland, Sweden, Finland.

    Not taxing churches favors citizens who belong to and arguably benefit from churches. It creates inequality for those who do not belong to nor believe in what churches stand for.

    Not exempting any organization or institution would be consistent both with the intent of America’s founding fathers – “All men are created equal” – and the professed belief of many if not most churches – “Give unto Caesar what is Caesar’s”.

  • Marie

    Constituents under government have to be treated equally, to provide financial benefit to one indicates the perspective that one particular constituent is more important than the other, which is not what modern government is founded on. The taxation is merely a benefit carried over from past practice during a time when the church also served as a state authority. The law has been changed for decades, state and religious powers are now separate and should be treated as such. Government should be treating religious believers and non-believers equally; this is the foundation of modern day government. If they are to be treated equally, to treat religious donations as non-taxable places preference on the believer over the non-believer and is an extension of the very same bias that the separation between church and state serves to eliminate.

  • Anonymous

    There’s a very important reason that churches should be taxed. Maybe they’ve always done this, I don’t know. But increasingly churches are becoming far more politically active. And if churches are going to preach to their flock how to vote, inserting themselves squarely into the middle of the political process, then they need to pay their entrance fee like everyone else.