I don’t think churches should have tax-exempt status and I don’t think donations to churches should be tax-exempt. 
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I’m OK with small churches being tax exempt, but some (maybe all?) of the larger organizations have taken that privilege too far. We could start by taxing Scientology and any larger groups, then carefully work our way down the size ladder, taxing the worst actors; prosperity ministries, political actors, philatelists, etc…
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How would you go about justifying the taxing of religious tax-exempt organizations (whether Church of Scientology, The Salvation Army, or Roman Catholic Church, or the Mormon Church) while not taxing non-religious tax-exempt organizations (e.g., American Cancer Society, The Society for the Prevention of Cruelty to Animals, the Freedom from Religion Foundation)? How would you justify under the U.S. Constitution targeting only RELIGIOUS tax-exempt organizations? Seriously?
Also, if you mean eliminating the present tax-exemption of church which have never incorporated as 501c3 tax-exempt organizations (which in some ways operate much like non-religious 501c3 tax-exempt organizations for IRS purposes), then those unincorporated churches would simply incorporate and file for 501c3 tax exemption. How would that help?
Moreover, who determines “the worst actors”? How do you define a “worst actor”? The American Red Cross has a hugely bloated bureaucracy with very high-paid executives which I consider contrary to charitable operations (and which often blocks other charitable organizations from operating in their “turf”.) Is the American Red Cross a “bad actor” which would be taxed under your rationale? Or are only religion organizations singled out for “acting badly”? I could go on and list many non-religious tax-exempt organizations which do all sorts of outrageous and even illegal things—and which I believe are very bad for society. What about them? Or are only religious non-profits our biggest problem?
Is there something unique or especially damaging about religious “bad actor” tax-exempts versus non-religious bad actors? Or do you believe the government should do all within its power to curb religious organizations because they are bad—or at least when they are large as opposed to small?
Also, keep in mind that a religious 501-c3 religious tax-exempt organization subject to the taxation you are proposing could simply re-incorporate as an educational 501-c3 tax-exempt organization. How would that do anything to achieve whatever goal are you trying to achieve by singling out religious tax-exempts for taxation?
As for me, I am primarily opposed to particular kinds of local property tax exemptions for churches and non-profits organizations of many types. Why? Because those churches and organizations buy land and build buildings which require expensive government services like fire and police department services but pay no property taxes to support those services. When they are forever exempt, individuals and businesses in that area must pay much higher taxes to compensate. For example, I used to preach and lecture occasionally in a small town that was home to a theological seminary and many national and international religious organization/church headquarters. So something like 80% of the potentially property-tax assessable taxbase of that town was totally exempt from such taxes. Obviously, that meant that the owners of the 20% of the property in that town (both individual homeowners and small businesses) were paying huge property taxes to compensate. I think @Patrick would agree with me that that should be considered an unjust demand that each homeowner in that town subsidize all of those non-profit headquarters, church buildings, seminary classrooms, and a Christian conference center. (And keep in mind that many of those religious organizations only hired people who agreed with their religious mission, so it is not like local taxpayers are necessarily getting lucrative employment opportunities by hosting these organizations in their town.)
The aforementioned town was right next to a larger city which gradually began to grow around it. Indeed, without a posted sign, it was hard to tell where the city limits ended and that small town began. Nevertheless, the houses just inside that small town often sold for far less than houses of the same size a few yards away which were within the boundaries of the bigger city. Why? Everybody knew that the property taxes were much higher in that small town and so they were harder to sell. It was all because of the injustice of property tax exemptions. Thankfully, not all states allow this kind of property tax injustice. I believe we need a federal law to deal with this.
(If the law changed, I would be in favor of a “grandfather clause” for small churches in such places where the sudden imposition of property taxes would shut them down immediately. I believe that sort of hardship of “changing the rules” on them would violate Constitutional protections involving government interference in religion.)
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That might be a realistic compromise, but the devil is in the details.
I’m baffled by the discrimination between large and small. Are small churches more virtuous than large churches? Or are large churches more able to bear the burden of taxation than are small churches? Neither assumption makes any logical, economic, or legal sense. I don’t understand the justification at the distinction.
By the way, due to legal liability issues, it is not unusual nowadays for even a fairly typical church in a prosperous community consisting of several 501c3 tax-exempt organizations, to each function economically as separate corporations. Thus, if the church youth group goes to Six Flags Amusement Park and some child slips on a melting ice cream cone that somebody dropped on the pavement, the parents who sue the church for $5 million in pain and suffering won’t file a lien against the church property. Why? Because the First Church of Anytown Youth Ministry is only a tenant which rents the new Sunday School wing and gymnasium of First Church of Anytown Gospel Ministries for their activities. The Youth Ministry corporation may even have a Board of Directors entirely separate from the Board of Elders of the church 501c3.
In such scenarios, having a particular “income ceiling” at which a church begins to be subject to taxation will only encourage further subdivision of the church into many sub-ministry corporations.
Furthermore, as along as a church (of whatever size) spends all of its annual income on its incorporated purpose (whether that be charitable projects or even huge salaries for their TV evangelists perhaps?), there are no retained earnings to tax. As a result, the imposition of federal taxes would serve no real economic purpose of benefit to other U.S. taxpayers.
@Dan_Eastwood, those are just a few of the reasons why I’m perplexed by your proposal.
I would prefer very targeted reforms, such as reasonable limits on church-owned parsonages. For example, a TV evangelism empire shouldn’t be able to buy five huge mansions scattered around the country and treat them all as ministry-owned and yet essentially private tax-exempt residences of a single mega-minister celebrity (tax exempt for both property taxes and federal income tax purposes). That perk should be treated similar to “excess executive compensation” classification for things like huge life insurance policies and luxury health insurance policies which even cover plastic surgery. (Those aren’t tax exempt compensation to the employee.) Also, the TV evangelical living in such mansions should have to treat the rental market value of those residences in his federal income tax for that year.
I am against a “grandfather clause” because in the case of small urban churches where they can’t pay a salary to the minister, the the tax exception for minister would be minor and result in zero tax for the minister and his family.
The real problem is the Christian megachurches. They provide hundred million dollar houses and estates to their ministers. The ministers and their families live in these luxurious mansions that are entirely paid for by the ministry. Then when the minister does his own taxes, he is exempt from taxes on “in kind” income -free housing at a mansion because he is a “minister of the Gospel”.
When FFRF, a non-religious nonprofit, did the same thing by providing its co-Presidents with a nice house in Wisconsin, the co-presidents couldn’t take the housing exception on their taxes because the weren’t “ministers of the Gospel” in the broadest usage of the statute as they were Atheists. So they sued. That is what the suit is about, Atheist not getting the housing exemption on their personal taxes like ministers do.
I see this as a high probability of a win at the 7th court of appeals and ultimately at the Supreme Court as the big money Christian Ministers are going to claim religious discrimination. But they are going to loss as the IRS has already stated that if the courts rule to give this exception to everybody, the IRS will get rid of the allowance completely. And that is what FFRF wants in the first place. So whatever way the courts rule, the housing exemptions for ministers of the Gospel is going to be gone.
@Patrick, It sounds like you are confusing the individual income taxes of the minister with what @Dan_Eastwood proposed: ending the tax exemptions for churches. The two are very different issues.
My reason for a grandfather clause for churches previously exempt from paying property taxes is that their sudden imposition would cause many ancient and struggling churches (with just a few old people left in them) to be sold off at auction to pay what would quickly become delinquent property tax bills. A government decision which would force the shutdown of churches and the sale of their buildings would be rejected under Constitutional law by many of our courts.
Again, don’t confuse church tax-exemptions (applying to federal, state, municipal level income, property, and even excise taxes) with whether individual ministers would be taxed differently.
And for the record, I also have reservations about the parsonage allowance (even though I benefited from it for years.) Of course, it exists because of a previous unfairness issue: ministers and military servicemen who owned their own homes versus those whose residences were provide by the church/military. That is why it is a called the “housing allowance”. It is very difficult getting rid of the minister’s parsonage allowance without also getting rid of the military housing allowance. (That’s a major reason why both Congress and court decisions have struggled with it. See 1955 court decision involving the IRS which has set the standard for tax treatment ever since.)
I used to know the details of all of these laws very well because I used to teach seminars on these topics. Those seminars were very popular with my seminary faculty colelagues and the young pastors in training because we all wanted to minimize our taxes.
I have no problems with that. When the key court decision was made in 1955, church provided parsonages were extremely common. They still exist today but very few ministers I know want to live in church-owned property. They want to profit from owning a residence of their own which increases in value (and is basically tax exempt on its capital gain!) [Thus, it is trading one tax-exemption meant for ministers for one that all home-owning Americans can get.]
As to the military housing allowance issue, I might think that they should have to lump it just like the ministers. However, some military bases have little to know on-base housing for families. So a change in the law could definitely hit married military personnel much harder than unmarried.
So, as always, the devil is in the details. It is also a reminder that a fair tax code and a simple tax code are mutually contradictory goals. You can’t have both to a significant degree. (Indeed, peer-reviewed journal articles have been published on that fundamental reality.)
For the record any thing that adjusts the tax code for churches should apply to all charities included secular charities.
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I’m sure I’m not the only reader to wonder if you had a traumatic experience with one of those worst-actor philatelists when you were a child!
Your joke reminds me of a Steve Allen Tonight Show segment which was actually the origin to the “man/woman on the street” interviews that David Letterman, Jay Leno, et al have played to great laughter. I think it was quite early in Steve Allen’s pioneering program (around 1955?) that he somehow managed to get the bulky camera gear of those days out on the street to where he could interview individual sidewalk passersby. There was a heated gubernatorial race going on at the time, so he would ask people their thoughts about the candidates. He started asking random persons, “What is your reaction to recent reports that Democratic candidate John Smith is a former thespian?” I’ll never forget the startled look on this one elderly man’s face. He paused for a bit and eventually blurted out with obvious frustration: “Well… we… uh… I just think that… that… whatever someone chooses to do in their private life shouldn’t be anyone else’s business!”
That was daring live television in those days!
I wonder if Ken Ham is alarmed at the growing number of philatelists and thespians in America today. (After all, their prevalence is no doubt caused by godless evolution theory!)
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LOLOLOLOLOLOTFL! 
I think there is worth in tax-exempt status for all non-profits, including churches. However, there needs to be safeguards put in place so non-profits don’t turn into tax shelters.
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OK, I did not think my comment would be opening such a big can of worms, but thank you for describing the full complexity of the problem. I think we agree there are some abuses, and that care is needed not to cause unintended harm.
From your description, it seems the problem is not necessarily with churches being tax exempt, but the whole tax system could use a rewrite to address these inequities. So the first thing to do is kill all the lawyers get serious about tax reform.
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It is worth remembering that the separation between church and state in the US Constitution goes both ways. There is a danger of the government entangling themselves in church finances, a situation that neither party wants. A possible compromise is non-governmental accreditation by entities that are transparent and accountable to all parties. The vast majority of churches want to and are financially sound and honest, so it seems like a good idea.
In fact, it sounds like such a good idea it made me wonder if they already exist, and they do:
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Another perfectly good Internet argument that might have gone on for days and days, ruined by a quick Google search. 
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This suit has nothing to do with tax exempt status of non-profits, churches, or military housing. These remain tax exempt. This has to do with the personal income taxes of the individual receiving the benefit of employer provided housing. If the person is a minister of the Gospel and gets employer provided free housing he doesn’t have to claim the free house as income. But if the person is the President of a non-profit entity and gets a free house he does have to claim it as income. Clearly an entanglement of Church and State and was deemed unconstitutional by district court. Appeals Court will uphold as well. The IRS has already said that no one gets to live in a employer provided house with out claiming it as income. Joel Ostean’s free mega mansion will be treated as in-kind income to him just like the Gaylor’s free house was treated as income every year except last year when they tried to claim the exception and was denied by IRS. The government is losing over $700 million in taxes revenue mainly from mega mansions of Evangelical Ministers.
Patrick, you are still misunderstanding some of my posts and confusing various taxation issues—but my previous posts did indeed agree with you on this problem of mega-ministry abuse of tax-exempt mansions. We are on the same side on that and so many of the other tax topics.
The U.S. tax code involves very tough and complex problems. As I mentioned, scholars determined long ago that these three objectives of an “ideal” tax system are always in opposition to one another:
(1) simplicity
(2) fairness
(3) effectiveness in raising sufficient tax revenue
In the classroom, I used to illustrate this with something simple like a capital asset. Should the cost of a new warehouse for a retailer be deductible in the year of purchase? If yes, that corporation may pay zero taxes that year. Indeed, if they expand rapidly and buy more warehouses and storefronts and other capital assets every year, they may go for many years without paying ANY income taxes. So, even though a tax system which allows this is simple, it fails in fairness to other taxpayers and effectiveness in raising tax revenue. Thus, Congress abandoned simplicity (#1) in favor of fairness (#2) and effectiveness (#3). Congress implemented complex depreciation schedules whereby the cost of the purchased warehouse is basically amortized over a 30 year period (for example) and thus the warehouse is written off gradually and the retailer pays income taxes each year accordingly (if they were otherwise operating profitably.)
Unfortunately, some capital assets (e.g., a computer) aren’t necessarily useful as long as other capital assets (e.g., a room full of file cabinets and office furniture.) So, the depreciation schedule for the computer failed #2: fairness. Thus, Congress introduced various Accelerated Depreciation Schedules for some classes of assets. As a result, a “simple” tax code becomes more and more complex and fails #1 (simplicity.)
I’ll not go into many other basic illustrations—but the same kinds of problems plague the IRS and Congress when they deal with non-profits. And with non-profits, they provide for the public good in many ways which save taxpayers money and enhance the quality of life of citizens (ideally.) So, there is a fourth objective of the tax system: encouraging non-profits and the public good by allowing them to function under rules which differ from for profits. Unfortunately, that means a “tax-exemption code” for non-profits which has become more and more complex—and many would say unfair and ineffective.
Lots of people like the idea of filing taxes on nothing more than a postcard. Unfortunately, it is impossible to do that and fulfill the three aforementioned objectives of a tax system.
Good Shakespeare quote, Dan. As to tax reform, politicians find it various easy to use demagoguery and scare tactics to shut down meaningful tax reform even though everybody seems to want it. Examples:
“My opponent wants to end the home mortgage interest deduction you as hard-working taxpayers deserve!”
[I believe the home mortgage interest deduction is unfair and also bad for the country. It actually _increases_ the cost of homes! It distorts the free market. And I would argue that it harms renters and low-income people. It also encourages larger homes and thereby harms the environment by contributing to climate change.]
“Call your Congressman today and tell them to stop their efforts to increase the tax burden on small businesses and thereby destroying the jobs of the people they employ! Tell Congressman _____ to keep his hands off Mainstreet USA and to stop sending all of our money to Washington!”
[That campaign was brought about by proposed depreciation schedule changes.]
“Don’t let the government shut down your church or synagogue. Don’t let Congress increases their tax burden by singling out pastors, priests, and rabbis! That’s unconstitutional! Tell Senator Smith to leave our clergy alone!”
These types of complexities are among the reasons America’s Founding Fathers struggled to find the right balance between a democracy and a representative democracy. Most voters have no understanding of the complexities of tax accounting.
The ECFA is a good idea—but it has definitely had its struggles and growing pains. Its original goal was basically to have evangelical ministries “self-police” in order to prevent the government coming down harshly and putting them under far more rigorous regulation. Thus, I was concerned that the ECFA would actually end up causing delays in meaningful reforms. {And it probably has.} I could cite a number of serious failures on their part. Some critics would even say that the ECFA made some problems worse and caused donors to have a false sense of safety and security. It has been another good excuse for Congress not to make important changes in the law.
Also, keep in mind that the ECFA is evangelical. So the ECFA can’t be expected to address problems found in fundamentalist ministries, Pentecostal and Word of Faith televangelism empires, and Roman Catholic charities, to name a few other categories. (Thus, the ECFA is irrelevant to outrageous mega-ministries known for the greatest abuses and rampant self-enrichment, such as with Benny Hinn and Peter Popoff.)
Nevertheless, I believe the ECFA has come a long way and done a lot of good things. They also help to educate ministry administrators and ministry donors on good practices. So I support the ECFA in a general sense and wish them well. However, they are far from an adequate solution to these problems. (Indeed, ECFA leaders would probably agree with me that much more needs to be done—because they are a voluntary organization and have limited “enforcement” powers over their members. Yes, they occasionally kick out a ministry that is breaking the rules. But they can’t change IRS guidelines and the laws.)
Any proposed taxation of churches inevitably brings up other complex tax issues of fairness which many people don’t understand. For example, consider this controversial question: Does it make sense to tax corporations at all? After all, is it fair for a corporation to pay heavy taxes on its profits—and then when those taxes are payed out to taxpayers as dividends, the taxpayer pays a SECOND TAX on those profits. That is double taxation on the same profits! Doesn’t that harm the working man whose retirement income depends upon pension funds and personal investments in the stock market? Would it be much more fair if corporations only paid corporate income taxes on retained earnings which they failed to pay out as dividends? Or would that encourage the corporation to excessively invest in additional capital assets as a “tax dodge”?
These are all reasons why the tax code inevitably grows more complex with time. (And I haven’t even touched on the campaign donation abuse whereby individual members of Congress propose changes which give tax breaks to particular corporations----even avoiding naming them and yet wording the law so that only a corporation in a particular city with a particular range of employees and incorporated in a particular year gets the tax break!)
Welcome to the pitfalls of a representative democracy.
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I have tangential experience with several auditing agencies and processes, and in my poorly informed opinion the most obvious need is salaried staff. Independence and accountability to government agencies is another need. I also suspect that the ECFA knows this and are striving to meet these goals. Finding salary for full time auditors is going to be tough, but I bet they could find some wealthy donors to get them started.