Should Uncle Sam Tax Churches?

Rich Smith
Updated
Church stars
Church stars


Are America's churches preventing NASA from winning the space race?

Given SpaceX's recent completion of the first-ever privately run mission to the International Space Station, and NASA's wildly improbable and spectacularly successful landing on Mars, it actually looks like we're doing OK in space. And yet, if you haven't heard, there's a new photo that's been making waves on the Interwebs lately that argues the contrary:

Tax churches - Space program
Tax churches - Space program


No one's quite certain who thought it up, but the photo's footnotes suggest it probably originated with a June column in USA Today. That column, in turn, cited University of Tampa professor Ryan Cragun, who argued that if you add up the value of all the tax exemptions religious organizations receive -- on tithes, capital gains on church assets, and so on -- the IRS probably loses $71 billion in potential revenues. In other words, enough money to pay for 28.4 "Curiosity" missions to Mars annually.

Is it true?

Lord Knows...

Maybe, maybe not. The fact that most churches in the U.S. are tax exempt (as nonprofit organizations) tends to yield inexact calculations of assets and income numbers that, even if known, still wouldn't be taxed. (So why bother?) It leads, too, to some wild-eyed guesswork among pundits.

For example, in a Huffington Post column last year, former White House staffer Jeff Schweitzer made the broad assertion that church real estate assets in America could be worth anywhere from "$300 billion to $500 billion." With state property tax rates in the U.S. averaging about 1.5%, this suggests potential "lost" property tax revenues of $7.5 billion.

As for the rest of the taxable loot, most of it comes from tithes and offerings. While not all such donations are reported or taken as tax deductions by the givers, The New York Times puts the value of charitable donations to churches in 2009 at "about" $115 billion. Taxed at a 40% combined federal and state corporate tax rate, that's another $46 billion in revenue foregone by the tax man.

Result: These two items alone bring us within spitting distance of Prof. Cragun's "$71 billion." Add in tax exemptions for capital gains, "parsonage allowances," and individual tax deductions for charitable donations, and the professor's assertion looks close to the mark.

But the question remains: If we tap this treasure trove of potential tax revenues, what then? Will we really be able to turn Mars into a space-rover parking lot?

Taxing Church
Taxing Church

Be Careful What You Wish For

The money's there for the taxing, no doubt. Proponents of religious tax exemptions, however, warn that if you do tax the Church, the social consequences will be dire.

Charitable institutions, by definition, spend money on charitable works. Take the money away, and the charity goes away, too -- and the government might have to step right back in and use its new tax revenues to make up the difference.

So how does this argument stand up to examination?

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A 2009 study of church revenues and expenditures, conducted by NationalChristianPoll.com on behalf of Christianity Today International, found that salaries for church employees consumed approximately 38% of annual church revenues, with building maintenance eating up a further 12%. Add in a host of other expenses, though, and most churches were still able to allocate at least 17% of revenues to the categories of "ministries," "domestic missions," and "international missions," with further funds going to "Christian Education," "educational institutions," and "summer Bible school" -- all of which can broadly be defined as charitable work.

This broadly accords with a similar 2009 study reported on ChristianPost.com, which reported that on average, 14.3% of church revenues in America went toward charitable work.

Taking the more conservative of these numbers, this suggests American churches spend about $16 billion on charity. Even after you factor in spending by religious institutions from other faiths, though, the total's still nowhere near $71 billion -- and that's the real import of this research.


Two Things Are Certain: Taxes, and Death by Taxes

If the IRS were to siphon $71 billion from America's religious institutions, as Prof. Cragun (and the anonymous Internet poster-maker) urge, two effects seem certain:

  • First, church charitable work would be decimated. With 62% of annual tithes and offerings being diverted to the IRS, churches would be hard pressed to find funds for charity. (Government would step in to fill the gap, of course, but at the expense of at least a half-dozen of Prof. Cragun's rovers.)

  • Second, because after-tax income would no longer cover the bills, churches would need to seek money elsewhere to pay their expenses. Presumably, they would have to sell off church assets to raise funds. The result would be a smaller Church presence in America, and incidentally, less and less tax revenue for the IRS with each passing year.

In sum, Prof. Cragun is right that taxing the Church would generate money for the IRS -- but probably a lot less money than advocates of Church-taxation suggest, buying a lot fewer rovers than we were promised.

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