I regularly hear from folks who think that the church should pay taxes. Despite the fact that the church is not exempt from all taxes (only property taxes and some sales taxes), the theory is that by removing churches’ tax exemption, local, state and federal government would receive an enormous increase in revenue. But is that true? My best answer is maybe, but probably not. Here’s why:
1) Many churches are operating at the edge of solvency. It’s sad, but it’s no secret that most churches were built before the long decline in attendance that we have seen for the last several decades. In our denomination, probably ten to twenty percent of our churches are struggling financially. Many of these small churches have a budget that is barely enough to pay the pastor and keep the lights on and yet occupy relatively large buildings. If these churches were told they had to pay an additional $5,000 to $10,000 per year in property taxes, they would simply lock the doors and go home.
2) Church income is a moving target (Part 1). In every church that I have served, we have had members who objected to our church sending money somewhere. Either they objected to sending money to overseas missions, or they objected to sending money to support the expenses of our district or conference offices, or they objected to paying to support denominational missionaries, or any number of other things. In many cases, these folks either withheld their gifts, or found ways to give gifts directly to the projects that they did support. If the church were subject to taxation, I have no doubt that a great deal of what appears to be “church income” would suddenly vanish.
3) Churches are a moving target. While my denomination (The United Methodist Church) has just under 800 churches in our East Ohio Conference, the majority of them are quite small. I don’t recall the exact figures but something like 60 percent of our churches have 40 or less in attendance. Nationally, half of all churches have 75 or less, and close to 70 to 80 percent have 100 or less. Those who favor taxing churches may not appreciate that churches are not like other “businesses.” While finding space for 100 people would be harder, finding room for forty (or twenty) would be easy. If these small churches were required to pay property taxes, a great many of them would simply abandon their buildings and meet in one another’s homes instead.
4) Church income is a moving target (Part 2). In my grandparents’ church, in order for the pastor to be paid, those in attendance had to specify that a part of their offering was to go to him (or her). If the offering was small, so was the pastor’s paycheck. In reality, this idea could be applied to almost everything in the church. The church exists as a corporation as a matter of convenience. It’s just easier for us to make a single donation to the church and have the treasurer pay the electric bill and the pastor’s salary, and all the other bills. But we don’t have to do it that way. If the church were taxed on the donations that it received, it wouldn’t take very long for most churches to make a different plan. Pastors are already considered to be self-employed by the IRS so it would make little difference if church members paid them directly instead of through the church account. Almost overnight, church “income” could go to zero. The hardest things to figure out would be the utility bills and the tax bills, which, as I already noted, would go away if the church decided to walk away from their buildings.
5) Taxing churches would increase suffering. When churches are doing what they are supposed to be doing (and admittedly, not all of them are), the benefits that they provide to the community may be more than any taxes that they would pay. Each church typically supports many other organizations, food pantries, homeless and battered women’s shelters, clothes closets, health clinics, prenatal care centers, others in poorer parts of the country such as Appalachia, Indian reservations, and the inner city, as well as giving generously toward the victims of natural disasters. Because this giving is not a fixed cost (like taxes) but comes from a church’s discretionary budget, any increase in taxes will necessarily take away funds that otherwise would have been given to these sorts of projects. And remember that taxes can’t be used to replace the funds lost by these organizations, because most of them are run by churches.
Overall, I just don’t see much benefit to the community from removing the tax exemption from local churches. It would hurt the poorest among us and in the end I don’t think it would generate that much money.