An increase from 7% to over 39% for your church.

The Revenue Tax Act of 1913 set a progressive tax rate of between 1 and 7 percent on all U.S. incomes.  The maximum tax rate applied to those who had an income of $500,000 was 7% of income; currently the top tax rate for that same income is 39.6%.

My point at the moment is not to argue for or against a progressive tax rate, but to point out that taxes are not apt to stay the same, and do have tendency to go up.   I doubt seriously that if in 1913 the advocates of The Revenue Tax Act had proposed a tax rate of over 1/3, the bill would have received much support.  Today, as we look at the possibility of taxes being levied against churches, I doubt there will be much support for an especially aggressive tax.  Part of what made The Revenue Tax Act of 1913 viable was that the upper rates applied to so few people.  In 1913, the average annual income was $800.  There was not going to be a popular resistance to a high tax rate of 7% for those who made $500,000.  We might see the same thing happen when it comes to taxing churches.  Proposed taxes on a very limited number of ministries, that are in popular in one way or another.  Without a ground swell of opposition the proverbial camel might get its nose in the tent.  

Three areas where we might see taxes proposed against churches are:

1) Tele-evangelist excesses

It has been a generation since the PTL scandal, but it has become part of the American consciousness.  While the facts of the PTL scandal are often obscured it has become useful fodder for those who wish to disparage the church.  In 2007, Senator Church Grassley of Iowa held hearings concerning the propriety of six ministries regarding whether their leadership was provided inappropriate benefits from the ministry.  These ministries, by and large, teach a prosperity Gospel.  While the results of the hearings were far from a blanket condemnation of these ministries, there has developed a perspective, rightly or wrongly, that the ministries are little more than moneymaking machines for their leadership.  In popular opinion many people feel that the tax exemptions given to churches and the benefits given to their leadership are unfair.  We might see that large ministries that draw large amounts of money might be a tempting target for those who want to begin taxing churches.

2) Lucrative mega churches

Most mega churches have very nice facilities.  Some sprawling campuses are jokingly called Six-Flags over Jesus.  These facilities are also often on very desirable real estate.  As such, they enjoy great visibility for guests and for those who might envy that property.   Large churches have large offerings; in some cases, a single Sunday offering might be larger than the entire annual budget for a small congregation.  Most folks who attend church in America do not attend a mega church.  We might find the proposal of a progressive tax on churches in which churches with larger offerings would be required to pay a higher tax.  This would be rationalized by arguing that larger churches require greater infrastructure and civil services such as fire and police protection.  Mega churches might be a place where advocates of taxing churches would ask that churches pay their “fair share.”

3) Gay marriage

Any legislative action to tax churches would become a great campaign topic for the next election.  Most elected officials would be very cautious about advocating taxing churches.  Any senator or congressman from the Bible belt would almost guarantee his next election defeat by voting for a tax on churches, but the untouchable court is another matter altogether. 

Here is an exchange between Justice Alito and Solicitor General Donald B. Verrilli Jr., arguing for the same-sex couples on behalf of the Obama administration.

Justice Alito: Well, in the Bob Jones case, the Court held that a college was not entitled to tax exempt status if it opposed interracial marriage or interracial dating.  So would the same apply to a 10 university or a college if it opposed same­-sex marriage?

General Verrilli:  You know, ­­I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. I don’t deny that. I don’t deny that, Justice Alito.  It is –it is going to be an issue (emphasis added).

Gay marriage is not the only place where the court could revoke the tax-exempt status of the church, but, it is at the moment, a hot button.  If your church refuses to comply with federal determined standards, your church will find itself without the benefits of specific tax breaks.  Currently, there is a lot of latitude for churches, but that can change.

Next week, we are going to discuss what your church can do to strengthen its position whether church taxation occurs or not.