Beto O’Rourke has a terrible idea. The Democratic presidential candidate and former Texas congressman wants the U.S. government to take away the tax-exempt status of religious organizations — including churches and mosques — that oppose same-sex marriage.
When asked about this last week, O’Rourke said: “There can be no reward, no benefit, no tax break for anyone or any institution or organization in America that denies the full human rights, and the full civil rights, of everyone in America.”
His proposal would be a blow to religious organizations and the American tradition of a healthy civil society, along with the separation of church and state. The magnitude of affected organizations would be large. To take an example close to my heart, there are more than 17,000 Catholic parishes and 76 million self-identified Catholics in the U.S.
Let’s step back. Why are religious organizations allowed to receive tax-deductible contributions in the U.S.?
Taxpayers have been able to deduct contributions to churches and other nonprofit organizations from their taxable income for over a century. A few years after the U.S. created an income tax, the top rate was increased significantly in order to provide revenue for World War I. There was concern at the time that such a high rate would dry up the funds available to nonprofits. So those contributions were made exempt from taxation.
An example of how this works: If you’re in the 37% individual income tax bracket, and you make a $100 contribution to a church, that $100 of income is not taxed. Instead of owing the government $37, you owe nothing. So the actual cost of the donation to you is $63, not $100. (You can deduct up to half of your adjusted gross income, and the deduction is only available to households that itemize.)
Religious organizations that qualify for the exemption must be organized and operated exclusively for religious purposes. None of their earnings can be used for the private benefit of an individual or shareholder. And they have to avoid lobbying or intervening in political campaigns. Religious organizations have been given wide latitude to govern themselves.
Because the deduction reduces the cost of a taxpayer’s philanthropy, economists believe it increases the amount of charitable giving in the U.S. Forthcoming research by economists and charitable-giving experts Jonathan Meer and Benjamin Priday finds that a 10% increase in the “price of giving” reduces philanthropy by a little over 10%. (The price of giving changes when Congress changes marginal income tax rates.) For households in the top tax bracket, eliminating the deduction entirely for religious organizations that oppose same-sex marriage — as O’Rourke says he would attempt to do if elected president — would increase the taxpayers’ cost of giving to those groups by 59%. This would cause their charitable contributions to plummet.
The fact that the deduction supports charitable giving is itself a strong argument in favor of keeping it in the tax code. In addition, income given away should not be taxed. A person who gives money to a house of worship has less money for consumption or saving, and should be taxed on that basis.
You might argue that charitable giving is a form of consumption. Certainty it is, to at least some degree. Large donors can get their names on buildings and programs. And donors experience the good feeling of having given to a cause or organization they support.
But the key point is that the value of donations is much greater for the church or organization receiving them than for the person making the donation. Curtailing charitable giving would hurt religious organizations, not donors.
Much of what religious organizations do — for example, offering aid and support to the poor, treating substance abuse, providing education, helping refugees, and the like — is of great social value. Many of these activities would require additional government resources in the absence of churches, synagogues and Islamic centers. The tax-exempt status of those organizations recognizes this complementary relationship between public and private social assistance provisions.
The issue touches the very foundations of U.S. civil society, which is supported by the nation’s tradition of charitable giving. Individual charitable contributions in the U.S. totaled $292 billion last year, according to Giving USA. (My American Enterprise Institute colleagues Alex Brill and Derrick Choe correctly predicted that this figure would be relatively smaller due to giving disincentives in the 2017 tax law. This is further evidence that charitable giving responds to tax changes.)
I would rather give $100 to my Catholic parish’s food pantry than give the government an extra $100 in taxes to support expanded nutritional assistance to the poor. The tax exemption for churches supports this American way of organizing society. Government is not the only institution to which Americans turn.
When the U.S.’s social ecology is healthy, religious organizations and the government enjoy a wide distance. O’Rourke’s plan would have the state put the church under a microscope, inspecting its theology and rituals to ensure that they support same-sex marriage, doling out tax breaks to some and not to others.
He would keep the tax exemptions for those churches, mosques and synagogues that subscribe to his preferred theology. Those that don’t would be required to provide financial support to the government.
He has the policy exactly backward. Rather than curtail the deduction for religious organizations, it should be expanded — for these groups and all traditionally eligible nonprofits — by extending it to households that use the standard deduction, rather than itemizing, when filing their taxes.
And eligibility should continue to be determined without theological tests. Politicians can pick their own places of worship based on their social views, but they should not use the power of government to push religious organizations to adopt them.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy.”