Report: US Tax Law Favors Churches over Secular Charity

The New York Times four part series ends with a look at tax-free minister housing, church exemption from unemployment taxes (to the detriment of laid-off staff), social security exemption for ministers, and sales tax exemptions for vaguely defined religious literature. 

Finishing up the investigative series on tax preferences for churches, Diana B. Henriques tells the story of the tax break for so-called pastor housing allowances, which exempt the costs of housing from federal income tax. 

The story is complicated:  there has long been a provision for exemption of certain housing costs for pastors, but the IRS tried to put limits on the amounts exempted.  Pastor Rick Warren ("Purpose Driven Life") used his considerable resources to challenge the IRS cap and prevailed in the Tax Court.  But the IRS appealed to the Ninth Circuit Court of Appeals in San Francisco in 2002.  Then all hell broke loose when that court raised the question of whether giving this exemption to churches alone was Constitutional (since many other charities would have just as good a case for it).  But then Congress stepped in, affirming the IRS cap on the exemption (but only from that point forward).  So the IRS dropped its appeal, sidestepping the Constitutional question.  So the exemption remains, with no one having the means or the standing to challenge its Constitutionality. 

The rest of the article deals with:

• Minister exemption from social security for reasons of conscience.   It should only apply to denominations that turn their back on the world, but in practice three out of ten ministers opt out, probably for purely financial reasons of avoiding the fifteen percent self-employment tax.  But of course that leaves the minister without any pension support later on.
• The exemption of churches from unemployment tax contributions in all but one state.  That saves the churches money, but when employees are laid off they can't collect unemployment.
• State exemption of religious literature from sales tax.  Here the courts have usually struck down the special treatment, but states continue to enact exemptions.  Among other issues, the problem here is that religious literature is poorly defined, which some bookstores limiting it to bibles and other scriptures, while others apply it broadly to books with religious subject matter. 

The lesson of these articles is that you get what you lobby for.  Churches are constantly pressing for special treatment and they get it.  Once enacted, it is difficult to challenge this special treatment on Constitutional grounds, because few have the resources or care to do it. 

Secular charities do not share the same focus on lobbying for special treatment.  Groups that supposedly represent the charity sector (like Independent Sector) are more likely to lobby for more regulation of the sector rather than exemptions and special treatment. 

For access to all four of the articles in the series, plus some graphics from a computerized analysis of tax breaks for churches, there is this portal page for the "In God's Name" series.