Paul Matzko on the Hidden Cost of Tax Exemption

In theory, churches should make attractive neighbors. They are places of prayer, worship, and good works. When you see a sign pop up in an empty field announcing new church construction, you might think of the new families that will move to the neighborhood, the children who will attend the youth group, and the volunteers who will run the Vacation Bible School.

But that’s not how the suburban town of Stafford, Texas, responded. The city council instead instituted a review process to make it harder for churches to build there, preferring a factory or big-box retailer takes the space instead. When that didn’t work, the council instructed the city lawyer to see if he could find a way to keep churches out.

“I don’t hate God. I’m not against America and apple pie,” a city councilman told the Los Angeles Times in 2006. But, he insisted, churches were a problem. For one reason: They don’t pay their share of taxes.

“Zero revenue,” the councilman said. “Somebody’s got to pay for police, fire and schools.”

This feeling that churches don’t contribute to the common good is not uncommon in America. There are many municipalities that view churches as basically parasitical, receiving all the protection and benefits of local government without bearing their fair share of the financial burden. Cash-strapped towns have frequently tried to use zoning laws to block the development of new churches and are only stopped when the federal government enforces the religious land-use laws that Christian groups advocated for in 1993 and 2000.

These laws were framed as defenses of religious freedom, and there are indeed cases of hostile local governments wanting to limit religious expression because they find the preacher or theology of a church objectionable. But more often it is tax exemption itself that makes churches unwelcome neighbors. It is not the offense of the gospel that has made these churches toxic; it’s their tax-exempt status. Perhaps it is time to count the hidden costs of tax exemption.

The issue of church tax exemption has come up during the Democratic presidential primary, most notably at a town hall last October focused on LGBT issues. Former Texas congressman Beto O’Rourke was asked whether “religious institutions like colleges, churches, charities” should lose their tax-exempt status if they oppose same-sex marriage. O’Rourke’s answer was a straightforward “yes.” He elaborated that “there can be no reward, no benefit, no tax break for anyone, or any institution, any organization in America, that denies the full human rights and the full civil rights of every single one of us.”

O’Rourke’s comments provoked an immediate wave of criticism from conservatives. Evangelist and political activist Franklin Graham tweeted that he would “not bow down at the altar of the LGBTQ agenda nor worship their rainbow pride flag.” O’Rourke was critiqued by liberals as well. Presidential hopeful Pete Buttigieg, who is himself in a same-sex marriage, condemned O’Rourke’s recklessness, saying the congressman had not thought through the implications of his radical position.

A Contentious History

This is not a new debate, however. Church tax exemption in America dates back to the 18th century, an inheritance from the European tradition of state-supported (also known as “established”) denominations that were exempt from paying taxes and, in fact, were supported by taxes levied on the general public. The privileges of establishment came with a degree of government control over churches and had a stultifying effect on religious life. Evangelical dissenters from the established churches like Isaac Backus and John Leland joined with freethinkers like Thomas Jefferson to end religious establishments by separating church from state. When evangelicals were on the religious periphery looking in, they were opposed to special government favors for religious groups.

However, as membership in evangelical denominations swelled during the Second Great Awakening, evangelicals went from outsiders to insiders. At the same time, government taxing authority grew—with new forms of income, property, and corporate taxes—and churches were given favorable treatment. The result was a new form of religious establishment, albeit a more generalized version, with tax exemptions.

There were periodic attempts to limit the church tax exemption, like when President Ulysses S. Grant, in his 1875 State of the Union address, called for “correcting an evil that, if permitted to continue, will probably lead to great trouble in our land.” Grant argued that churches received “all the protection and benefits of Government without bearing [their] proportion of the burdens and expenses of the same.”

Many Christians today simply assume that the tax exemption is a natural prerogative, the potential loss of which should be either lamented or fought against with whatever political influence remains. They have become so used to tax-exempt status for churches that they struggle to imagine a world in which that status does not exist yet churches still do.

Christian apprehensions about the removal of tax-exempt status for religious organizations have been commonplace since the US Supreme Court’s decision in Bob Jones University v. United States (1983). The proximate issue in that case was not opposition to same-sex marriage, rather opposition to desegregation at religious institutions, especially fundamentalist high schools and colleges.

Bob Jones University claimed its ban on interracial dating was rooted in religious belief and, as such, ought to be protected by the First Amendment to the US Constitution. Internal Revenue Service (IRS) rules from the 1970s said organizations that discriminated on the basis of race were not entitled to tax exemptions. The school lost the case because the court found that an infringement on religious liberty could be justified when “necessary to accomplish an ‘overriding governmental interest’ ”—like ending racial segregation.

Historian Randall Balmer argues the evangelical backlash against the court’s ruling propelled the rise of the new Christian Right. Conservative political activist Paul Weyrich used the threat of losing tax-exempt status for segregated Christian schools—reframed, of course, as a matter of religious liberty—as the wedge issue to organize a conservative grassroots movement. He cofounded the Moral Majority with Jerry Falwell Sr., who was worried about the tax implications for Lynchburg Christian School, his segregated academy and the precursor to Liberty University.

Balmer’s thesis remains an open subject for debate among historians, but the Bob Jones case certainly deepened conservative Christians’ sense of cultural isolation. They perceived themselves to be victims of secular elites who disdained the faithful. As university president Bob Jones III put it at the time, once “there were a lot of people who felt the way we did. We were in the mainstream. Then liberalism came in and everyone turned away and those who didn’t looked like little islands in the stream.”

In the university chapel on the day of the court ruling, Jones said, “Our nation from this day forward is no better than Russia insofar as expecting the blessings of God is concerned. You no longer live in a nation that is religiously free.”

None of the conservatives involved at the time showed any concern about whether the blessings of God might instead be withheld from their religious institutions because they had fought so hard to defend the vestiges of a dying white supremacist order. It wasn’t until 2008 that Bob Jones University finally apologized for its racist policies. Other formerly segregated churches and schools haven’t done that much. Hyperbolic claims about the end of religious liberty have often been followed by deafening silence.

It is unlikely that many Christians today would sympathize with Bob Jones University’s fight to maintain racial segregation. Public opinion has shifted to the point where many Christians have forgotten that appeals to religious liberty were once a crucial buttress for Jim Crow segregation. But the rhetoric that conservative Christians used in the early 1980s is very similar to the rhetoric used today, albeit directed at same-sex marriage rather than interracial dating. As the Republican governor of Florida Rick Scott put it, Democrats “don’t care about religious liberty” and have “a complete disregard for the freedoms guaranteed in our constitution.” Ben Sasse, Republican senator from Nebraska, called O’Rourke’s answer “un-American.”

O’Rourke’s comments reveal the transformation of what seems politically possible, what political observers call a shift of the “Overton Window.” Secular views about same-sex marriage have changed dramatically over the past decade—much faster than views on segregation changed a generation ago. And it is not only secular views that are changing: Many young evangelicals say they are fine with same-sex civil marriage. Conservatives who fear they will be in the minority on the issue may well echo Bob Jones III’s complaints about being marooned on “little islands.” The tide is already coming in.

This dramatic shift is visible in recent court decisions. During oral arguments for Obergefell v. Hodges (2015), in which the Supreme Court invalidated state bans on same-sex marriage, Justice Samuel Alito asked whether the case at hand, combined with the precedent from BJU v. US, would empower the IRS to revoke the tax-exempt status of religious schools opposed to same-sex marriage. The government’s representative answered clearly: “It’s certainly going to be an issue.”

The tax-exempt status of churches opposed to same-sex marriage has not been challenged in court, but it may only be a matter of time. Ross Douthat, a conservative Catholic columnist at The New York Times, alluded to this in a prescient essay written a year before Obergefell. The title of Douthat’s article—“The Terms of Our Surrender”—communicates something of his mood at the time. Conservative Protestants and Catholics had lost the battle over same-sex marriage. All that remained was for the spoils from the culture war, among them tax exemption for churches, to be divvied among the victors, who would decide whether to be magnanimous or punitive to the defeated.

Douthat’s article represents a more dovish impulse within conservative Christianity. There is regret in Douthat’s words, a sense that Christians have fundamentally mistreated the LGBT community via law and culture and will now reap the whirlwind they had sown. This is in sharp contrast to the hawkish defiance of other conservative Christians, such as Graham.

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Source: Christianity Today