TGD – Tax Exempt Status

Ever since the 2008 elections in California, there’s been a small group of people loudly yelling for the removal of the tax exempt status of churches. I always thought that the Prop. 8 election in California was the genesis because lots of religious people donated to Prop. 8. But it appears that there’s an earlier genesis point because Dawkins brings it up in TGD. I don’t know if he’s the genesis point, but at a minimum this idea has been around since the book was published in 2006.

The issue is significant enough that I thought it was worth it’s own post.

Here’s my overall point, I don’t think these people know what they’re asking for. Churches pay property tax, they pay payroll tax, their employees pay income tax (and it’s deducted from their paychecks like everyone else), there’s really no tax that exists that the church itself doesn’t pay.

“What about corporate income tax?” someone may ask. By definition, there is none. Being a non-profit, they can’t have income. And in reality, they don’t. All the money that comes in, goes out to either administrative costs (which would include salaries, utilities, taxes and things like building costs) or goes to charities.

And let’s be perfectly clear, there’s nothing in the tax code that requires a corporate entity to be religious to be non-profit or even a charitable non-profit. I’m a member of a sailing club that is incorporated and we’re incorporated as a non-profit. We’re not a charitable non-profit, so any donations to our club are not tax deductible (make a note of this) but we don’t pay any income taxes despite the fact that collect tens of thousands of dollars each year in dues, regatta fees and other miscellaneous income. We can do this because every single dollar goes back out the door to our expenses.

Circling back to tax deductible donations, this is the one area where there is room for debate. It is true that a charitable non-profit does have an advantage over other non-profits, like my sailing club, and over profitable companies. When people donate to those charitable non-profits, THEY get to deduct that from their personal income tax. It’s a way for the government to encourage charity. But to be clear, the churches themselves don’t benefit in the tax code! Those who donate do.

Some would argue that this tax deductible donation incentive is the only reason people donate, but as the 40 million dollars that were donated to the ‘Yes on 8′ campaign (which is NOT tax deductible) demonstrates, I don’t think that is the case. They’ll donate either way.

Now, if there is a point to be made, it’s that some churches are not really charities, that they don’t take a significant portion of their money and give it back out in a charitable fashion, so the people who donate to them don’t deserve a tax deduction for donating. I won’t argue with that reality a bit. Dawkins points out a couple of televangelists who profit handsomely from their “ministry” and no doubt he’s right that there are “ministers” out there who fleece people of their money in the name of religion and/or charity and never deliver on anything. I have no defense of them.

Speaking as a Catholic, that same charge can not be leveled against us. We give out HUGE sums of money to charitable causes. In fact, here’s my challenge to all those who think that “churches should have their tax exempt status removed”:

I challenge you to come up with a policy for what constitutes a charitable non-profit that in no way references religion (either in the positive OR THE NEGATIVE) that would eliminate the Catholic Church from eligibility while still leaving 90% of existing secular charitable non-profits as eligible.

I submit it can not be done. I further submit that unless it can be done, particularly because most other large churches are similar to the Catholic Church in this regard, this is all much ado about nothing.

Comments are closed.