The Tax Threat to Religious Charities

The wide ranging assault on religious freedom occurring in America under the Obama Administration, and mirrored throughout the western world,currently focuses on the HHS contraceptive/abortifacient mandate, requiring religious institutions that are not houses of worship and businesses owned by objecting religious proprietors to supply goods that violate their consciences. But another area of assault, which may become a reality fairly soon, concerns the tax exempt status of religious and other charities.

Many years ago an educational institution, Bob Jones University, lost its tax exemption due to racial discrimination in its internal policies; now state neutrality is threatened more generally with respect to charities where traditional religious values conflict with liberal/left values. In particular, the idea of “public benefit” as a test for worthiness for tax exemption may be used to bring the ideological conflicts of the culture war concerning Christian faith and morals to bear on charities, of which approximately 300,000 are religious charities.

America’s ongoing and intensifying budget crisis has led to proposals to eliminate the charitable deduction, with Sen. Finance Committee Chairman Max Baucus and ranking Republican Orrin Hatch proposing that all charitable deductions be justified from the ground up, unless they aid economic growth, advance tax fairness, or promote other “important objectives.” While a “Faith & Giving Coalition” consisting of religiously diverse charities argued their members meet all three criteria, simply by opening the debate in the current highly charged religious/cultural environment Congressional leaders are raising the specter of religious charities having to toe the line of government mandated values and policies. Also noted in the same article was the fact that religious non-profits receive less government money, and thus will be more impacted by the possible elimination of the charitable deduction. Additionally, John Ashman of the Association of Gospel Rescue Missions noted that “if government had to take over what we do it would be twice as expensive and half as effective.”

Despite such claims to effectiveness, experience in the United Kingdom, where religious charities face aggressively secularist activist groups and a bureaucracy that responds to secularist opinion, may show what lies in store for the United States. In 2006, the U.K. Charities Act removed the presumption that religious charities are for the public benefit, requiring instead that they prove public benefit according to secular standards. Proposed changes in guidance concerning public benefit provided by the U.K. Charities Commission were analyzed by the Christian Institute legal service organization in Britain in 2008, and found to be open to interpretations of “harm” which would deny charitable status to religious organizations that maintain an opposition to homosexuality. Additional danger to religious charities in the U.K. was also shown by the 2008 Prospects case, in which a Christian charity for the disabled, Prospects, was told by Britain’s Employment Tribunal that it could not maintain a policy of hiring only Christians. The Barnabas Fund, a British charity that supports Christians persecuted in the Middle East, although ultimately exonerated, was accused of supporting “Islamophobia” and thus being unworthy of charitable status. More recently, the Charities Commission denied charitable status to the Plymouth Brethren, because of their religious doctrine and practice of giving Holy Communion only to church members.

Canada similarly is characterized by a social liberalism where hostility toward traditional Christian belief may manifest itself in an attack on charitable status. The Evangelical Fellowship of Canada recently discussed the situation there where “advancement of religion” continues to be defined as a public benefit, although challenged in various ways by secularists. As in the U.K., opposition to homosexuality is a key area of attack, with the leftist National Democratic Party calling for revocation of the charitable status of “ex-gay” ministries, a move that could potentially affect Christian charities generally. Similarly New Zealand acted to punish a charitable group, Family First NZ, for its opposition to homosexuality.

Secularist opposition to exemption for religious charities also exists in the United States, although it is not as evident from official bodies such as the U.K. Charities Commission. A study published by the Council for Secular Humanism claimed that $71 billion per year is lost in revenue due to the tax exemption of religious organizations, with the report’s author, Ryan Cragun, suggesting that tax exemptions to religious organizations only be given where the organization supplies a service the government would otherwise have to provide. This proposal would easily change the meaning of the deduction from an encouragement to charitable activity to a government grant to provide social services implementing the state’s social policy. This in turn raises the issue of whether evangelism may be part of charitable activity, and whether the religious charity so acting in lieu of the state may maintain its own employment practices, as was threatened in the Prospects case in the U.K. and the Christian Horizons charity for the disabled in Canada.

In the United States, Congressional proposals to limit or eliminate the charitable deduction are currently less ideological, but naturally establish an environment in which more ideological challenges can be made. The Senate Finance Committee reviewed ideas for changing the law with respect to charitable deductions in a summary document this year; another summary of proposals to change the charitable deduction was recently given by the Council of Non-Profits. The Wall Street Journal carried a proposal to end the charitable deduction, noting that the amount of giving doesn’t change regardless of government policy (about 2% of income), while a critical counterclaim to this was that $78 billion of the $218 in charitable giving would be lost. While the Obama Administration has repeatedly tried to cap the charitable deduction for large donors, Americans strongly oppose capping the charity deduction. 61% strongly supported keeping charity deduction, while only 9% want the charitable deduction capped or eliminated.

The charitable deduction encourages private activity, but taxation discourages it, as was noted by the Southern Baptist Ethics and Religious Liberty Commission in reviewing the possibility of a severe curtailment of the charitable exemption at the end of calendar year 2013. Specific benefits that churches provide communities were noted in another ERLC document. It reported that 91% of religious congregations in 6 metropolitan communities provided at least one social service, and that the presence of churches prompts people to “non-religious, moral acts.” Churches also contribute to social capital such as “volunteerism, mental and physical health, reduced deviance, increased education and civic awareness, and social networks.” In a truly free society, private charitable activity should be seen as part of society’s desired personal responsibility and self-reliance, and thus encouraged by tax exemption and the freedom to function by the operator’s own beliefs and values.