Tax Exemptions as Subsidies to Churches

Occasionally I hear people condemning the tax-exempt status of churches, on the grounds that the tax exemptions — both the exemptions from property and income taxes, and the tax deductions given to people who contribute to the church — are subsidies to the churches. This is especially common when a church says or does something bad; people ask, “Why are we subsidizing them?”

The answer is, generally speaking, that we “subsidize” a wide range of nonprofit entities this way, including churches. Private universities, private schools, public radio stations, advocacy groups (except those branches of advocacy groups that participate in electoral campaigns or do a substantial amount of lobbying), hospitals, soup kitchens, and so on all get tax-exempt status. Churches get slightly preferential treatment in certain circumstances (and I generally oppose such preferential treatment). But the bulk of the tax treatment that they get is the same treatment that is given to other nonprofit organizations, including speaking organizations such as universities, schools, and advocacy groups. And of course that tax treatment is likewise available to advocacy groups that advocate for bad ideas, just as it’s available to churches that teach bad doctrines.

Moreover, excluding churches from such generally available tax-exempt treatment would itself likely be unconstitutional, so long as similar secular groups keep getting such treatment. (It’s conceivable, under a very broad reading of Locke v. Davey, that such discrimination against religious institutions would be constitutionally permissible, though certainly not constitutionally mandated. But I doubt that Locke v. Davey would or should be read that way, especially given that case’s reliance on tradition, and the fact that here tradition cuts in favor of allowing tax exemptions.)

So if you oppose all tax exemptions for nonprofits (and for contributions to nonprofits), or for all nonprofits that specialize in speaking — such as advocacy groups, schools, universities, public radio stations, and churches — then churches would naturally be included in your opposition. But so long as charitable nonprofits, under a very generous standard of what constitutes a suitable charitable purpose, are tax-exempt, the same would cover churches.

I should note that there’s a separate debate about whether tax exemptions should be treated as tantamount to subsidies. But for purposes of this post, I assume that exemptions from generally imposed taxes are indeed subsidies — and there is indeed good economic reason to treat them this way — since I am arguing that even if the exemptions are a form of subsidy, churches should be as entitled to them as are other nonprofits.

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