William C. Duncan: Government shouldn’t decide which churches ‘deserve’ a tax exemption

Leaving churches free from taxes allows them to provide many community services.

(Susan Walsh | AP photo) This March 22, 2013, photo shows the exterior of the Internal Revenue Service (IRS) building in Washington.

A recent Salt Lake Tribune story raised the question of whether the government policy of exempting churches from taxes ought to depend upon the amount of resources a church had. The implication of the story was that longstanding tax law regarding religion might need to be reconsidered if a church had significant resources.

But this thinking is flawed. The current tax policy regarding churches is justified by the legal principle of separation of church and state, the broad secular benefits that churches and religious practice produce for society and America’s deeply embedded classical liberal philosophy regarding an individual or community’s most fundamental beliefs.

It is instructive to note how and why entities with greater resources than churches are also exempt from taxes. The largest single landowner in the state of Utah is exempt from property tax. That owner is the United States government. The principle that the states cannot tax the federal government was confirmed early in the country’s history in a unanimous 1819 U.S. Supreme Court decision, McCulloch v. Maryland, where Chief Justice John Marshall famously said, “The power to tax is the power to destroy.” The idea that taxing an organization establishes government power over and – by extension – within that organization points to why courts have supported policies that exempt churches from taxes.

In 1970, an 8-1 Supreme Court majority upheld New York’s tax exemption for churches. One of the key factors the court identified as a justification for its decision was the need to avoid excessive entanglement between church and state. While giving “tax exemptions to churches necessarily operates to afford an indirect economic benefit,” creating such a benefit involves government in church affairs less than taxing churches would. “The hazards of churches supporting government are hardly less in their potential than the hazards of government supporting churches.”

Without a categorical exemption of churches, it is easy to imagine the risks of governments auditing church operations or determining which practices or property uses are sufficiently “religious” to justify an exemption based on religious or charitable purposes. Though the Supreme Court has not needed to decide whether an exemption is required by the First Amendment’s establishment clause, the current exemptions certainly advance the principle of keeping church and state from getting overly entangled.

While avoiding entanglement is probably the key legal reason for tax exemptions for churches, that policy also advances some important public (and secular) interests.

Churches and people of faith are at the forefront of efforts to meet some of the most compelling needs in our communities: needs such as relief for refugees, help for the unemployed and underemployed, addiction recovery and prevention, health care, education, services for the homeless, support for inmates and foster care.

The efforts of people of faith to secure recognition of their rights have established precedents that benefit society generally – including those who deny any belief in a divine being – not just those making specific claims. The efforts of religious people to secure their freedom has led to important precedents expanding rights of free speech, conscientious objection, parental rights and freedom of association.

Even where a church, or a particular church institution, is not directly involved in providing social services, religious teaching seems to spur charitable giving among the faithful. It has also been shown to strengthen family bonds between married spouses and between husbands/fathers and their families.

Our nation wisely does not require churches to justify their value to society in a way that government officials will find compelling. The need to protect the most fundamental beliefs of individuals, including the ways those beliefs are expressed in concert with other believers in organized churches, is compelling.

That, along with the incidental social benefits that people of faith and the churches that shape their lives provide, far outweighs the likely meager increases in government revenues that taxing churches would provide. As last week’s Tribune article explained, the exemption for churches is unlikely to go away. For the sake of freedom and the public good, that is fortunate.

William C. Duncan | The Sutherland Institute

William C. Duncan, J.D., is a senior fellow at Sutherland Institute.