Recently President Trump enacted a series of executive orders with the aim of extending religious liberty. This has gotten me to think about churches and tax policy. Just to be clear, in this post I will not discuss the details of Trump’s orders. I care about the broad concept here.
Churches in the United States are exempt from certain taxes due to their classification as charities. I have often been in favor of this designation. Taxes can easily serve as a way for the state to discriminate against groups subtly. I could easily imagine a tax that targets churches with kneeling pews (e.g. Catholic churches) and therefore disadvantages them relative to denominations that have less kneeling involved. I could also imagine a system, similar to some European countries, where the state collects the tithe on behalf of the church. This arrangement would favor larger, state recognized, churches at the expense of smaller start up denominations. In both cases taxes can be used by the state to effectively discriminate between churches.
Some time ago though it was pointed out to me that NOT taxing churches could also lead to discrimination against them. Take the case of property taxes. When urban planners draw up zones (residential, commercial, mixed use etc.) they effectively have the power to exclude churches from certain neighbors. Even without official census data it is not difficult to notice where certain religions sort within the city, and so a zealous planner could easily discriminate by denomination. When church property IS taxed there is a strong disincentive against this type of discrimination because it reduces potential city revenues. Even if a given planner may be willing to discriminate nonetheless, he would find himself fired by his tax-obsessed superiors. When church property ISN’T taxed this incentive is reversed. Since church property can’t be taxed cities lose out on potential tax revenue when they zone an area for a church over taxable property. A devout religious urban planner may easily be pressured to minimize the number of churches to maximize tax revenues. I suspect a Catholic urban planner would prefer to reduce the number of Protestant churches, so this is a scenario where minority denominations could easily find themselves zoned out of existence.
The current concern about whether churches should be allowed to be engaged in politics would be moot if they were taxed. The legal reason churches are limited in their political speech is that they are classified as charities. Certain crowds would be angry about allowing churches being involved in politics* anyway, but I suspect many politicians would be fine to look the other way in exchange for the increased tax revenues.
How can we balance the pros of taxing churched (helping them avoid being discriminated by zoning and gaining political speech) versus the cons (discrimination by taxation)? I think the answer is a georgist tax on land. It achieves the goal of taxing churches without discriminating against any given denomination.
*For the record I personally oppose my church, the Catholic Church, from getting involved in politics. I am fine with the priest lecturing against the evils of abortion, but I don’t want to hear his thoughts on the optimal income tax rate.