Churches and Religious Tax Exemption

3404 words (14 pages) Essay in Finance

08/02/20 Finance Reference this

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It used to be that when one thought of church, thoughts would automatically turn to God and salvation. Now days it seems that whenever people think of church the only thoughts that seem to come to mind is tax exemption and how to make money. Gone it seems are the small churches where the pastor knew every member of his congregation and drove a car that sometimes barely ran, instead all that seems to make the news are the mega-churches, ones that could double as a mall and the pastors have houses that could sleep a football team and cars that cost more then what most their congregation makes in a year. There was even one pastor that claimed that God wanted him to have a private jet worth about 68 million dollars. Each of these things is written off as a tax deduction for the church though no congregation member other then the pastor and their families use these things.  How is all this possible and when did this all happen, why are there still members struggling when the churches collect tithes that the members are told will help out the needy?  It is simple really; through tax exemption.

The very first example of tax exemption for a church can be traced to the Roman Empire after the Emperor Constantine supposedly converted to Christianity. When this happened, he gave the Christian church an utterly complete exemption status from all the forms of taxation. Not only was the church exempt but also all church property that was used for any religious purpose in England during medieval times. This was based on the idea that since the church relieved a few of the functions of the government it was entitled to a few benefits in return.

It became an official in 1894, but it had been unofficial since the founding of our country, with 9 of the original 13 colonies having some sort of tax relief given to churches. Not only are the churches exempt from paying taxes but donations to churches can be and are tax-deductible. Why though is this status so important to the religious organizations? Many of the proponents for tax exemption say that this makes sure that the government stays out of church affairs and finances, and this upholds the law of division of church and state. Many go on to say that all churches deserve tax breaks because of the social services that are provided though the church. If it has been working for 200 years, why would we want to change it?

The opponents of tax exemption argue that this is a violation of the separation of church and state and that exemptions are privileges not a constitutional guarantee. Its not hard to argue against the opponents when they are given breaks worth billions each year. This argument is not something new either, three presidents James Madison, James Garfield, and Ulysses S. Grant had opposition to the exemption status with Grant submitting a petition over 900 feet long with 35,000 signatures in 1875 to Congress. In it Grant asked that all ecclesiastical and church property to be no longer eligible for tax exemption, and that in 1850 these properties that paid no taxes either locally or state equaled to roughly $83 million, 1860 saw that amount doubled, 1875 $1 billion, and by 1900 over $3 billion. Now this is in the mid to late 19th and early 20th century, can you imagine how much that would be now with inflation?

Lyndon Johnson who was then a senator made and amendment to the Internal Revenue Code that states: To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization’s net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction. Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. (“Exemption Requirements Section 501(c)(3) Organizations | Internal Revenue Service,” 2018)

The bad thing though is that the IRS rarely goes about investigating churches if they did would there be so many mega churches with pastors asking for private jets such as the case of televangelist Jesse Duplantis, along with his wife founded Covenant Church in Destrehan La located just outside of New Orleans, asked his congregation to help him get another private jet, of which he has four, worth $54 million! Each of his planes had been paid for in the past by the cash all sent in from his followers. His excuse was that he didn’t see the Great Redeemer riding around on a donkey to spread the word of God. His reasoning comes from the prosperity gospel, which roughly says that God will show favor by rewarding faithful with riches on earth.[i]

Another such “man of God” Creflo Dollar started a campaign called “Project G65”. This aircraft is state of the art and has waiting list that consists of the worlds richest people and a time length of up to 3 years. His reasoning, that he needed the most luxurious of the private jets on the market to spread the “Gospel of Jesus Christ.” Now understand these jets aren’t just a few million dollars, a single G650 will set the buyer back $65 million. This is just the base line model and does not some of the bells and whistles that can add hundreds of thousands more to the price tag. Interiors can have any number of interiors that can be custom tailored to the buyer’s preferences.

Yet another prosperity gospel patron is Kenneth Copeland who appeared on television with Duplantis to announce that his “ministry” bought a Gulfstream V. While there was no mention of the actual price for a new one in their broadcast, according to Gulfstream.com under pre-owned, a used GV starts at $10,250,000. This is before the added upgrades that were told to his followers would be to the tune of another $2.5 million, plus the new hanger, special maintenance equipment, and the need to lengthen the runway. (Wootsen Jr, 2017)

Imagine the people that could be helped with the money that was spent on just one of those jets and upgrades. How many houses could be fixed, mouths fed, children clothed and given proper school supplies, how many people could receive medical attention? Instead these people want private jets, and not a single tax paid on them because it can be considered a tax write off or exemption.  And it is just not the private jets that their “donations” help to pay for, a pastor in North Carolina named Steven Furtick, built a 16,000 sqft $1.7 million-dollar home. The reasoning he told his congregation is that the house is a “gift from God.” This is on top of what he is paid by the church to be a pastor there, though his congregation refuses to say how much he is paid for his “services.” Why is this, if there is nothing to hide from the money coming in then why not say how much you make from your “job” that you do not have to pay taxes for?

One of the most famous cases of tax exemption gone awry is with the Church of Scientology. A survey done by the ARIS (American Religious Identification Survey) estimated that there were only around 25,000 people in America that would consider themselves Scientologist, even though many Scientology websites say their numbers are in the millions. In a documentary that was released on HBO titled Going Clear discussed their tax exemption status that was granted from the IRS in 1993. [ii] According to one blog called The Scientology Money Project, there is about $1.75 billion on the books and of that $1.5 billion is in real estate, mainly at the headquarters in California and Florida, even though other properties are in Seattle, New York, and London. (Matthews, 2015)

Blog author Jeffery Augustine has given estimates of around $200 million annually that the church collects, and from conversations with former members and officials who have left, say that about $125 million of that comes from “auditing” that it offers its members. That leaves the rest coming from donations, so around $375 million is made from its members! (“Scientology Money Project,” n.d.) But where does all that money go too, many think that most of it ends up paying for legal defenses and salaries of upper members.

The question of tax-exempt status for religious institutions also comes in to play when there are bogus religions that are made just for the sole purpose of tax evasion through tax exemption. One such case was a brothel that was a church on the outside, but in side was nothing but prostitution. When detectives gathered all the evidence it was said that the “members’ were simply preforming sex acts and accepted donations for these acts. How might this have happened? Well quite simply, it fell under the term “Neo Tantric”, which is considered a healing therapy. While they were busted and rightly so, what if it had not come out that it was a brothel? These people could have been raking in the money. (Coleman, n.d.)

There are other actual churches, such as one in Wisconsin, that has hotels, parking lots that require pay, communion wafer bakeries, and farms that are all considered tax exempt. This coms to a total of about $4.2 billion dollars in exempt religious properties in just that state. In the case of the brothel, this is costing tax-payer money to uncover all these shady tax-exempt religions. Some of these organizations are among the richest of world organizations, in 1971 real-estate and personal property owned by just American churches was about $110 billion. 1989 in New York City this was $3 billion, and a 1986 survey showed that the income from religious organizations alone for that year totaled $100 billion. This is well over 5x the amount of the largest of the major corporations in the US. This was just in 1986, imagine what the amount is over 20 years later.

So, if this is all revenue that churches bring in annually how much is the government loosing out on? University of Tampa assistant professor of sociology Ryan Cragum along with 2 student assistants looked at the US tax laws for religious institutions on lands, donations, business dealings, capital gains and “parsonage allowances,” which permit clergy to deduct housing costs. From this examination they deduced that the government is losing $71 billion each year, with states loosing $26.2 billion by not requiring them to pay property taxes. Add to this the federal tax exemption laws with a look at their home state of Florida they found that the capital gain tax is around $41 million, and the US could claim $1.2 billion in exemptions from the parsonage allowance alone. (“If churches paid taxes, would it be enough to pay for all the food stamps for every person on welfare? – Ethics Alerts,” 2014)

One of the major claims is that if religious institutions were taxed would it be enough to

to pay food stamps for all the people on welfare? Professor Cragum and his associates estimate that the annual subsidy the government gives religion is $71 billion this comes from; federal income tax, state income tax, property tax, investment tax, parsonage subsidy, and something called a Faith-Based initiatives subsidy. Now looking at the SNAP program (The Supplemental Nutrition Assistance Program) which was formerly known as Food Stamps has an actual diagram of all its monthly costs, and if you add these all up the total cost is roughly $76 billion that would pay all the food stamps for the people on welfare. Basically, if religious institutions were taxed on all its holdings, investments, donations etc., the government would only have to pay out $5 billion instead of the $76 billion. This is just one program that could benefit from taxation of churches, and if churches are all classified as NPO or non-profit organizations why shouldn’t they pay the same taxes as other NPO’s? Many argue that if churches were taxed then charitable contributions would drop, maybe, maybe not but government revenue would rise tremendously.

 Take for instance all the institutions in New Your City alone that are located on Fifth Avenue, imagine if those were taxed, and if the churches or synagogues, or mosques couldn’t pay them then they could be sold off to people who could pay them. This would bring the city quiet a chuck of change in tax revenue just on that one street. The reasons for taxing churches can be broken down into 10 reasons: other entities shoulder the burden of the omitted tax, these exemptions can indirectly force faith on everyone, it can restrict other progressive social elements, it violates church and state by forcing the IRS to determine what is in fact a religion, churches no longer exist solely provide for the disadvantaged citizens; the government does, most churches are not solely non-profit, it creates economic cost, in the case of Scientology it is an inventive for abuse, if ironed out taxation of churches could be done properly, and finally the main reason for church tax-exemption is no longer needed; meaning the primary reason that churches have not been taxed is because they have been interpreted from a legal standpoint to be non-profit and this no longer applies. (Anderson, 2015)

 Taking all this information into consideration one can see why the idea of taxing churches is starting to grow steam. If in just one year $71 billion can be made and with a deficit in the trillions maybe be should start looking at places where money can be made and stop squeezing every hard-working person to death on income taxes each year. Let each state have the annual taxes from their churches, then let the federal taxes come out each year. Children could get fed, homeless could be clothed and housed, roads better taken care of, the list is almost endless. Instead of all these mega- corporation churches getting richer let them do what churches of the past did; help the communities they say every Sunday that they are there for.

Bibliography

References


[i] This idea is the Holy Spirit is a power to be used for whatever the believer wills. Paul and other apostles warned against this in 1 Timothy 6:5, 9-11, that their desire for riches that was a trap and brought them to ruin

[ii] There are quiet a few allegations made about the underhanded tactics that was used to get this status that I didn’t want to get into in this paper

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