Saturday, 17 April 2010

Does tax exemption for churches directly cost taxpayers?

Ken Perrott wrote about several objections he had to religious charities, specifically churches, being tax exempt. This was in response to my thoughts on proposed tax law changes. Initially he made this unlikely (or perhaps hyperbolic) claim of how to significantly reduce the tax burden,
Remove the classification of religion as a charity. That is allow charitable tax exemption only for genuine charity. Not for teaching of supernatural dogma.
Given that most churches make little surplus money, and taxes are on the profits of a company, this revenue stream is going to be very small. Charities are not able to make large amounts of money and spend it as they wish, they must put the money back into the charity's cause.

Ken did also raise a related issue about the cost of charities being born by others. Philosophically I have sympathies with the potential issue he identifies; I object to both covering costs for other people that they should cover, and funding groups that promote ideology I disagree with. I can appreciate that an atheist would object to his money being used for Christian evangelism, much in the way that I object to my money being used to promote humanism. However I am not certain that churches are that costly.

Now tax exemption is not a direct cost, it is a refusal to tax. When Ken was asked what was the cost to him, his initial reply was twofold: religious charities were using publicly financed resources and they have a responsibility to share society's financial burden. Interestingly Ken was happy to subsidise genuine charities. Interesting in that I am not certain I support the use of government money in supporting any charities, religious or non-religious.

Ken's more detailed response can be read here. He covers several areas. His complaint is
  1. Religious organisations can get charity status and tax exemption but science, reason, or atheist organisations cannot register as charities;
  2. Churches do not pay rates, thus these services are covered by other people;
  3. Individuals can manipulate the system to their benefit;
  4. Charities offer fringe benefits;
  5. Charities have an unfair commercial advantage;
  6. Some religious people are morally corrupt; and
  7. Forced tithing has been important to the survival of the church.
I think the main issue is around item 2, but I will briefly address the others.

Item 1 is untrue. About 15% of the more than 25,000 charities in New Zealand are religious in nature. The criteria for charities are
  • the relief of poverty
  • the advancement of education
  • the advancement of religion
  • any other matters that are beneficial to the community.
There are plenty of charities in New Zealand that are involved in scientific research. Schools can be charities. Neither is tax exemption restricted to charities: some sports groups have tax exemption and some of them can also request charity status.

Item 3 is not unique to charities. Trusts can be misused, and some companies shift profit around the world to minimise tax. Simplifying tax law and minimising tax take are more likely to counter this problem.

Item 4 is irrelevant. Companies do this too. Individuals can allow people to stay with them and not charge board, though other people may have to. This is an issue of envy, not justice.

Item 5 could be a problem if true. It would need to be confirmed. Claims by business of unfair advantage may be an attempt to gain their own advantage, not necessarily because there is a legitimate unfair advantage. Offering my free services to any company, charity or not, is not an unfair commercial advantage, I am allowed to do what I want with my time.

Item 6 is true, but completely irrelevant.

Item 7 is irrelevant to New Zealand. It is more an issue in Europe. And I agree, forced tithing with money compulsory collected by the government and forwarded to the relevant church should not be compulsory based on your stated religion/ denomination. Preferably it should not be collected by the state at all. Some church organisations may struggle if this occurred, but that is not necessarily a bad thing.

Returning to the main issue, item 2: churches getting services that are paid for by others. This includes services that local and national government supply, the first via rates, the latter via taxes. Ken argues,
Churches, religious organisations, trusts, etc., are not paying their fare share of social costs - streets, rubbish, defense, health, emergency services, fire service, etc. Everything our taxes/rates are used for. The fair share my secular science and reasons organisation would have to pay.
Now I think that many of these things should be funded by the people using them. Rubbish does not need to be run by council, nor does water supply, or sewage. However the system is that these things are provided by council currently. So I agree that it is reasonable for the charities to pay towards these things, but let's review specifics.

The costs should only be those that relate directly to the organisation and its property, not the people in it. This is because the individuals who are paid by the charity pay their own tax at the normal rates. So health costs for a person who works for a charity are contributed to from his personal tax. The organisation does not have any health costs. Conversely, if a church calls the police about vandalism to their property, then they are using this service as an organisation. So fire, police, water, sewage, rubbish are real costs incurred by the charity which if not paid by the charity are then covered by others. Health, defence, social welfare, retirement, education, are not costs that a church incurs and are covered by the individual tax of its workers. I have left off roading as it is mixed, though on balance is a minimal cost, and almost certainly covered by fuel taxes.

Charities do pay rates. Yes it is reduced to a nominal amount and may not cover the full cost of amenities, but they contribute toward it.

Charities can claim sales tax, but if they hold an event that they charge for they have to pay sales tax.

So the legitimate costs of charities associated with their tax exempt status are small. These categories (such as water) are not significant costs to government.

But how much do religious charities save government? The amount of food, counselling, shelter given to people in- and outside the church is enormous. It would easily dwarf any savings they make from not having to pay their contribution to say policing, and probably decreases policing costs indirectly.

Not that I think churches shouldn't pay for water and rubbish. Ideally these would not be managed by the council anyway, and then everyone including the church would have to pay private providers who could choose whether or not they wished to discount charities. And everyone would pay the true cost, and likely pay much less. But the situation is that the direct costs of religious charities to the state is minor, and completely offset by the savings they provide.


  1. I don't see the argument for a few simple reasons:

    1) The employees of the church pay local, state and federal taxes in the US (maybe not in some countries, but they do here!)

    2) The average church sits on a plot of land not appreciably bigger than a few normal single family home lots for its area. The property tax losses here are not important.

    3) Religious families often already pay for secular public school services they don't use (because of private schooling or home schooling). Therefore, they are already paying for their church, so the atheists can go pound sand there.

    4) Religious charities tend to be run by volunteers which means that they have negligible payroll expenses compared to government bureaucracies; more money gets funneled directly to their recipients.

    5) The more charities, the lower the cost of government.

    6) Most charities that serve the poor are religious in nature and/or depend on the labor and contributions of the religious.

  2. Mike T, I will be writing at Open Parachute on this in more detail (your comments are wrong in NZ on several points). My family has some health crises at the moment so it might be a week or two, but keep an eye open for it.

    My previous posts on this include How to lower taxes, Taxation offense and Charity and linked data.

    You are welcome to comment there.

  3. So we are being forced to subsidise the promotion of the supernatural!

    That comment shows a lot about your thought process. You cannot differentiate between a subsidy and a shifted tax burden.

  4. Mike T - that argument has already been well put to bed at MandM and Open parachute (Avoiding tax - supernaturally).

  5. Well said MikeT, so much more succinct than I. The conversation we are having about this is where this article was cross posted at MandM.

  6. Mike, don't listen to Ken. You're correct on every single point - it's all the same here in NZ.

  7. Looks like the topic is almost burned out (indeed Scrubone has closed off discussion at his blog – at the very point when I thought we were coming to an agreement).

    However, I’ll put the proposition I put to Scrubone here as a solution to reconciling different interests:

    The government should be asked to amend the taxation law to remove a religion privilege (perceived or real) by either:

    1: Removing the advancement of religion as one of the sectors the application could be made under.


    2: Amend the “advancement of religion” to instead state “advancement of life stance” or “advancement of religious or other beliefs and life stance”

    or something to that effect.

    Now Scruboine indicated he was in agreement (I think with option 2. I am happy with either.

    Glenn was ?? (I thought he was opposed and then he told me I shouldn’t speak for him – come on Glenn – its a simple proposition. You need only say yes or no and that’s the end of it).

    So Bethyada – What about you? Would you support either of these options?

    Mike T - I realise you don't live in NZ so its perhaps not relevant for you.



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