Paul L. Caron

Sunday, January 23, 2022

The Politics Of Religion And Taxation: Keeping Church And State Separate

Mary Ann Hofmann (Appalachian State; Google Scholar), The Politics of Religion and Taxation: Keeping Church and State Separate, 22 J. Mgmt. Pol'y & Prac. __ (2021):

This paper discusses tax laws and federal court decisions relating to the taxation or exemption of religious non-profit organizations. In a democracy characterized by separation of church and state, what role does the federal government play in regulating the activities and financial transactions of churches and other religious non-profit organizations? What are the federal statutory requirements regarding tax exemption for churches, tax deductibility of donations to churches, and political activity by churches, and are these requirements justified? Does this regulation interfere with the free exercise of religion, or does the federal government violate the establishment clause of the First Amendment by providing inappropriate tax benefits to churches and clergy?

The federal government has long struggled with balancing the protections of the Establishment clause with those of the Free Exercise clause. Federal judges and Supreme Court justices have differed on their interpretation and application of these First Amendment rights and how they should guide the interactions between church and state. Shifting political climates have altered basic assumptions regarding the rights of churches to tax exemption or to special tax benefits not afforded to other nonprofits. Federal courts have developed principles, tests, and doctrines to aid in analyzing laws that affect churches, but even those can be subjective and difficult to apply to specific situations. The Lemon test (Lemon v. Kurtzman, 1971) has been proven to be inadequate for judging the constitutionality of tax laws as they apply to churches and religions organizations. (Zelinsky, 2012) Anti-religious organizations are aggressively challenging preferences given to churches, even though they and their members would likely not benefit in any measurable way if those preferences were removed. 

It seems obvious that if churches and religious organizations were not treated any differently than other nonprofits, much of the controversy would subside. To take it one step further, if there were no tax exemption for nonprofits, and no tax deduction available for contributions to ยง501(c)(3) nonprofits, almost all of the controversies discussed in this paper would disappear. The government would have no reason to monitor the political or financial activities of nonprofits beyond the normal auditing of tax returns. The remaining question would be whether the government, by taxing churches, is placing itself above God. Many religious individuals and organizations would find that idea to be highly offensive. And further problems arise: would the non-profit sector survive without tax exemption or without the availability of tax deductions for donors? And what would be the political cost to legislators of introducing such changes to the tax law? There are no easy answers. The issues discussed in this paper are far from resolved, and there remains the potential for broad-reaching changes in the landscape of church-state relations in the future.

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