It’s time to end the morally and fiscally disreputable tax-exempt status for nonprofits, secular and religious. We all pay more because they pay nothing. It’s unfair, fiscally irresponsible and socially harmful.
This situation is the result of the 1970 Supreme Court decision in Walz v. Tax Commission of the City of New York. The justices ruled that exempting churches from taxation was a benevolently neutral accommodation—although neutrality by definition can be neither benevolent nor malevolent. The ruling did not say (as many suppose) that churches must be tax exempt, only that they could not be denied tax exemption if secular nonprofits were exempt. States were free to tax or exempt all or none. The states chose to exempt all. It’s time to reverse that. However, since secular and religious nonprofits are joined in their desire to keep the tax exemptions, legislatures face formidable opposition when they attempt this.
Religions always lead this opposition, claiming First Amendment protection and that they are a moral influence on society. But families are not tax exempt, and they are the basic source of moral guidance. One of the original reasons for the religious tax exemption was that churches offered a support system for dealing with economic hardships. But it was overwhelmingly a system in which churches helped only their own members—and sparingly at that. For those who did not get this help, the dreaded alternative was "over the hill to the poor farm." Now we have government programs that are far more effective. Even the more significant religious charities are funded mainly from secular sources such as government programs, foundation grants and the United Way.
If churches paid at least property taxes, would that be a significant hardship? Apparently not, since many nonprofits lease their property and so they pay taxes indirectly as part of the rental price. Why would paying taxes be any worse for churches than for homeowners and ordinary citizens? Why should businesses pay income and property taxes on nursing homes, publishing houses and other enterprises, while churches that do the same thing are tax-free?
Tax exemptions have no secular justification. They have resulted in thousands of religious, charitable and educational nonprofits, some worthy, many questionable and none that could not afford to pay taxes. Why exempt any of them? If they can buy and maintain property, pay utility bills, and hire high-salaried CEOs, they can pay taxes. What if all nonprofit organizations were treated like any other business for tax purposes? Taxes would be based on ability to pay so small organizations would not suffer financial hardship while large ones would easily afford the extra expense. As with any business, a nonprofit would succeed or fail based on its ability to attract supporters. And those supporters would be able to contribute to the religious or secular nonprofit of their choice because their own tax burden would be eased.
It may be argued that there should be exceptions for nonprofits whose primary purpose is to provide a social service under contract with the government. However, many for-profit companies also provide goods or services to the government under contract, often as their primary activity. Such a contractual arrangement does not exempt them from taxes; neither should it exempt the nonprofit contractors.
Would taxing religious institutions violate their religious freedom? No more than taxing citizens in general or requiring secular nonprofits to file a 990 form. Does making newspapers pay taxes violate freedom of the press? Does making a privately owned meeting hall pay property taxes violate freedom of assembly? Does making lobbying firms pay income taxes violate the right to petition government for redress of grievances? No one’s religious freedom is jeopardized by an equitable tax system.
One of the tradeoffs for being tax exempt is that religious and secular nonprofits are not allowed to take political positions or endorse candidates, although they can discuss issues. Would that change if tax exemptions were removed? Of course, but would that be significantly different from what is already going on? Everyone knows where conservative and liberal nonprofit organizations stand politically. Better to treat all nonprofits like businesses, tax them accordingly, and let them engage in politics openly instead of carrying on these "non-political" charades.
Marie Alena Castle