Constitution Watch: Taxing the Church

Chief Justice Marshall’s famous remark in 1819 that “the power to tax is the power to destroy” undoubtedly implies that the power to tax is also the power to do less than destroy. Coercion to modify conduct and coercion to limit one’s liberty of expression have always been familiar incidents of requirements to render unto Caesar.

In the United States, religion has enjoyed a large measure of exemption from tax laws. The scope of exemption, however, is today narrowing, with closer narrowing in prospect. Among many aspects of this, three are of special interest: property taxation, tax restrictions on political action by churches, and the possible tax pressures on single-sex schools.

New York City’s statute exempting religious properties from state or local taxation was challenged before the Supreme Court in 1969 as violating church–state separation. The Court held that it did not: The law exempted only those religious properties used exclusively for religious purposes; it did not single out one religious group or entangle government deeply with religion. All fifty states had long provided such exemption. Did the Court hold that churches have a right to be exempt from property taxes? It fuzzily skirted the important question of taxation as related to religious liberty, pausing only to note “latent dangers inherent in the imposition of property taxes.” Exemption, the Court said, does not depend on whether churches perform good works, as measured by someone’s “social welfare yard stick”—the inference being that they should have exemption solely for the nonutilitarian reason of their being religious.

While the exemption of churches appears not to depend on their secular utility, the exemption of the many church social organizations—schools, hospitals, welfare agencies—does. These, to be exempt in many states, must be “charitable”—that is, donate a “substantial” part of their services, without profit, for public purposes, thus relieving government of burdens for which taxpayers would otherwise have to pay. Therefore these church social organizations are not exempt because they are religious. It is the “substantiality” of their for-free public-interest “charity” that gets them off the tax hook.

In late 1996, the “latent dangers” to which the Supreme Court had referred have become considerably less latent, especially as to such organizations. While religious tax exemption was always the target of militant secularists, municipalities throughout the country today, complaining of decaying infrastructures and rising welfare costs, are now casting covetous eyes on the exempt properties of all nonprofit (including religious) organizations. Typically, state constitutions merely allow legislatures to exempt such properties, and the state assemblies, more and more, are yielding to widespread pressures to shrink, if not abolish, the allowances. Ingenious devices for trimming exemptions (widely feared by religious groups as a prelude to eliminating them) are being pushed in many states. In Pennsylvania a measure has been proposed that would require exempt nonprofits to pay fees “in lieu of taxes” (or to be at once exempt and nonexempt). But the principal area of tension involves the very nature of charity. As exemptions are increasingly challenged, courts are scanning with close particularity the payrolls of the “charities,” their expenditures for administrative and promotional purposes, and the bona fides of their efforts to serve those who cannot afford their services.

All of that brings to mind two ultimate questions: (1) If a Catholic social agency is so heavily government-funded and so intensely regulated by licensing as to be a virtual state agency, may it be justified as a ministry? (2) Are we now approaching the time when all social endeavors (education, health care, child care, care of the poor) will be appropriated by government? I spin these questions off, scarcely venturing answers, merely because they are vibrant ponderables to which the property tax exemption issue—perhaps providentially—brings us.

But taxation of another sort has to do not with the Church’s mission through her social agencies but with her freedom to bear witness in the political realm. The Internal Revenue Code bars, absolutely, tax-exempt status for any organization that participates in “any political campaign on behalf of any candidate for political office.” And such an organization may not devote any substantial part of its activities to “carrying on propaganda or otherwise attempting to influence legislation.” In most Catholic dioceses these restrictions have been interpreted to bar such things as distributing endorsements of pro-life candidates within church buildings, the use of church facilities by priests to support or oppose political candidates, using the words “vote pro-life” in parish bulletins. (It is a bit of an irony that the “carrying on propaganda” restriction was derived from a 1930 federal court decision denying federal tax exemption to the American Birth Control League.) The Supreme Court has held that tax exemption (and resulting tax deductibility) of churches and all non-profits are “a form of subsidy” and that the Congress may properly attach such restrictions as it chooses on the subsidies it grants.

As we consider the role of Church in influencing public policy, we must realize that the IRC restrictions, though applied, it is true, to all religious groups and, indeed, to all charitable organizations, pose a very severe restriction on their freedom of expression. This is particularly so in the case of churches, which, unlike secular charitable organizations, have a duty to bear witness in the political order, speak religious truth, praise virtue (and the virtuous), and condemn evil (and the evildoers). We should not be disturbed over images of overheated pastors making rash political judgments or calmed by counter-images of the Church—peaceful, quietly pursuing the sacred, serenely above the dirty battles of the political order. Profoundly involved here is the civil liberty of the Church to pursue her own judgments in these matters and to express those judgments to all the world. There is a profound peril implicit in the view that tax exemption amounts to subsidy. Government may control what it subsidizes and, under that view, is empowered to control exempt religious bodies totally.

A third disturbing aspect of taxation as related to religious bodies was suggested by Justice Antonin Scalia in his dissent in the Supreme Court’s June 26 decision that Virginia Military Institute, a public institution, violated the Constitution’s Equal Protection Clause by restricting admissions to men. Pointing to the multitude of private single-sex colleges in the nation, Scalia concluded that since they subsist, in part, on governmental aid and are now to be considered sexually discriminatory in violation of the Constitution, they also may no longer enjoy tax-exempt status, and donations to them may no longer be tax-deductible. In its Bob Jones University decision in 1983, the Supreme Court held that a private college deemed racially discriminatory—even one which does not accept governmental aid—must lose its tax exemption. Waiting in the wings, it’s plain to see, may be the tax-exempt status not only of the school which excludes from its enrollment girls or boys, but one that discriminates against practicing gays.

“Christ came to save us, not to exempt us” quipped a young Jesuit at a national meeting of diocesan attorneys some years ago. His cute remark pointed up his theme: that we should look with a skeptical eye on bishops who get exercised over dangers supposedly inherent in taxation or other governmental regulation of religious endeavor. But his theme served to emphasize a growing division within the Church. The division concerns, first, those Catholics who, supremely prizing the faith, believe that the Church’s schools, hospitals, and welfare agencies exist but to fulfill her mission to teach and heal in conformity to Christ’s will. That mission is hence to be zealously protected against governmental overreaching. But Catholics of a very different point of view appear predominant—showing a mix of idealism and sheer naivete about government and governmental power. Where intrusive governmental regulation is concerned and, especially, where public funding is involved, they desire non- confrontation, ardently seeking to “get along by going along.” As I suggest above, the former Catholics have some “ultimate problems” now to resolve with respect to defining ministry. The latter Catholics are problem-free: they will confidently place the Church and all its works in the hands of the caring state.


William Bentley Ball was one of the nation's foremost Catholic constitutional lawyers. He died in 2000.

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