Nettling questions over tax exemptions now enjoyed by religious agencies are being raised by their reliance on tax exempt income from “unrelated” business ventures in which churches compete against secular corporations on a preferential basis.
United States corporate income tax law since its 1909 inception has stipulated exemption for charitable, religious, and educational organizations (similar exemption being granted scientific organizations in 1913). In 1950, Congress focused attention on abuses of the exemption privilege by some organizations using accumulated income to acquire or finance business ventures. New York University, for example, acquired the Mueller Spaghetti Company’s stock and sought tax exemption for the firm on the ground that its net income would go to the University.
Congress then tightened the exemption privilege for educational purposes by ruling: 1. taxes shall be imposed on feeder corporations when trade or business is that corporation’s primary purpose, and 2. exemption is not jeopardized by pursuit of business activity, but tax exemption does not apply to substantially unrelated trade or business activity. Congress thus recognized that an organization may be exempt and yet have business income subject to tax if unrelated to the purpose of the exempt organization. But it did not impose this new restriction on religious organizations. Before that decision either a college or a religious agency could raise income through a tax exempt spaghetti factory in Brooklyn, a trolley line in St. Louis, a publishing house in Philadelphia, a commercial hotel in New York, or a building-block business in Phoenix. Today religious organizations remain free to venture into unrelated business activities, and (because they escape the 52 per cent corporation tax on gross income) compete inequitably with competitive firms. In such circumstances, a church-related business can show a net profit much higher than its competitors and sooner or later could obviously put competitors out of business.
There are some converging pressures on Congressmen to reconsider the existing religious income tax exemption in respect to unrelated business activity. Some government officials want to see this “tax loophole” plugged for treasury purposes. Some laymen, especially manufacturers, complain: “It’s not wrong for religious organizations to go into unrelated business if that seems discreet, but it is wrong for them not to pay taxes on such income.” Both Catholic and Protestant laymen are among critics of present exemption abuses, so that concern runs deeper than intersectarian rivalry. Some religious leaders chafe because discredit is brought upon the Christian cause by business projects under a “sacred front.” (Said one distinguished churchman: “In California a man can grow a beard, get a private religion, build a chapel and operate a business with a 52 per cent advantage!”) Others argue that discredit is brought on the churches generally when, for example, a winery enjoys income tax exemption because it is “church-related.” So the demand widens for a survey project to present facts and figures to the American public in the matter of religious organizations in unrelated commercial business.
Acquisition of real estate and buildings by church groups has provoked mounting protests over “land grabs,” especially in metropolitan and suburban areas. Taxes are rising while taxable property diminishes through its accumulation by exempt organizations. Nearly one-fifth of the total assessed real property in the United States is now owned by tax exempt activities (with government agencies probably holding considerably more than religious, educational, and charitable agencies). In New York City, property appraised at 10 billion dollars is now tax exempt, five per cent of it held by churches, synagogues, monasteries, convents, and seminaries. A few churchmen even fear that, unless the present situation is swiftly rectified, resentment and reaction may lead to state expropriation of church properties.
The use of some of this property for investment or income purposes is drawing special criticism. Some religious organizations have built or acquired office buildings which they rent in whole or part for non-religious uses; some have purchased or inherited business corporations; some rent out parking lots during the week—and so on. What are the implications for religious exemptions?
The mounting uneasiness over exemptions comes at a time when America is moving toward secularism. Any reaction could easily sweep beyond its original limited intention. Some champions of reform, churchmen among them, view the elimination of unrelated business tax exemption as a first step to a desirable—in their view—taxing of virtually all church and private school properties. (Critics have countered that, should this eventuate, only state educational and welfare agencies would ultimately remain untaxed. Private colleges already compete with tax supported universities. Does it attack the wrong danger, they ask, to encourage the taxing of religious enterprises?) Others stress that income taxes are a modern, post-Marxian innovation, and that the “tax bite” should be lessened rather than deepened. But even those who consider tax exemption a right of the churches, not a privilege suspended on governmental good will, quickly concede that some tax relationships may fall into the category of privilege rather than of moral right.
Despite this range of opinion, however, those who view the tax situation reflectively think both the Church and the State would be derelict simply to drift with the tide. The present open-end opportunity for ecclesiastical involvement in untaxed business activities, it is said, tends to entangle the Church in economic administration to the detriment of her principal task. Moreover, institutional reliance on sources of business income discourages voluntary financial support from church members. Futhermore, it invites morally unjustifiable arrangements for financial advantage to churches, some brokers having actually “pitched” investment opportunities on the possibility of a religious tie-in to preclude tax obligations. In these circumstances, religious agencies are tempted to dissolve their spiritual objectives while promoting their institutional objectives. Despite the monetary temptations to which ecclesiastical movements remain vulnerable, it may be argued that virtue ceases to be virtue if its motivation and performance are no longer voluntary. Yet one fact remains. An increasing number of church leaders and lay workers think no religious organization should be exempt from corporate income tax on profits when a business it owns or operates is unrelated to the spiritual purpose or program of the organization. Why, they ask, should such business not be subject to the same corporate income tax that the law imposes upon its competitors?
The time is propitious for sweeping study of the principle on which taxation and tax exemption rest. A shift in Federal policy would be detrimental, and could even be disastrous in its spiritual implications, if the churches avoid raising this issue to prominence. The most readily available rationale for tax reforms may deserve to be challenged even if some reforms are needed. Some social reformers are motivated mainly by a secular notion of equality (“tax equity”?) that could lead on to an elimination of all religious exemptions. Others justify exemption as a reward for voluntary fulfillment of a mission which otherwise would be carried by the State (a concept which serves proponents of state education and state welfare better than it serves the cause of separation of Church and State). Others justify exemption on the ground of the special purpose of a particular institution or organization, and insist that once this purpose (whether religion, education, charity, science) is approved, every contributory source of income should be regarded as tax exempt only if devoted to the purpose or mission for which the organization received its original exemption. What is needed, some spokesmen say, is a sharper definition of church-relatedness. Is the productive source of income, as well as the use to which it is put, related to the mission of the Church?
Such considerations indicate that the intention of Congress in the provision of tax exemptions needs to be scrutinized, and the lively pursuit of exemptions by religious organizations needs to be restudied by their sponsors as well as critics. Simultaneously, it will be well for tax reformers to keep an eye on the perils of statism, on our vanishing concern for limited government, and on the fact that Church-State separation is at the heart of the American tradition. The Church should not engage in secular business, and the State should keep its hands off the Church.
TREMENDOUS ODDS FRUSTRATE DEGAULLE BID FOR NEW ALGERIA
President DeGaulle’s bold bid to settle the long-standing Algerian problem by creating a measurably self-governing nation has raised the Western world’s regard for his moral leadership of France.
Recent bloody riots highlight the difficulties. Rightists want Algeria entirely assimilated by France. Leftists would like to see complete Arab autonomy. Centrists, with DeGaulle, want limited democratic European-Arab autonomy. The strong Arab nationalist movement and the Algerian Communist bloc, who would sever all ties with France, are complicating factors. Race and religion multiply the confusion. In the conflict Muslim and Christian fanatics clash, as do overzealous dark-skinned Arabs with whites.
Russia, China and the Afro-Asian bloc in the United Nations are determined to make Algeria’s future a world issue, hoping to break its bond with the West. Continental African ferment is unconducive to an Algerian settlement in calm sanity.
One wishes an effective Algerian Christian Church, deeply concerned for evangelism and education, might relate human rights to human responsibilities under God. A new indigenous and balanced leadership might then emerge. The DeGaulle program leaves much to be desired, but it appears to move toward effective Algerian solution by providing Algerian home rule and the eventual right of the new nation to cut ties to France.
I Believe …
Christianity has all the necessary resources to win today’s battle for the minds of men and to overrule the world’s power contest. By its revelation of the mind and will of God, the Gospel challenges human speculation about truth and right. It discloses Jesus Christ as the true Lord of history; as Conqueror of sin, of Satan, and of death itself. He is able to remake the wicked into the image of holiness or to doom them forever. To us are offered both the mass idea for victory and its consummating dynamic.
IT’S TIME RACKETEERS ARE K.O.’D IN THE BOXING RING SCANDALS
Like a lamprey eel attaching itself to its victim, and sucking away its very life, the underworld character attaches himself to many phases of American life, debauching whatever he touches. Disclosures of racketeering in the boxing world supply the latest example.
Does not much of the blame rest squarely on judges, courts, juries, and law enforcement agencies which for too long have merely slapped the wrists of criminals rather than meting out due punishment for crime?
Government “inquiry” into the present scandal concealed the identity of a well-known boxer prior to the hearing, for fear that the witness “might receive bodily harm” from underworld characters. We wonder if the acme of law enforcement futility has not been reached when the federal government admits that its star witnesses may be subject to dangerous reprisals, and for protection relies on anonymity rather than on other measures, such as capture of these shady characters.
Our laws, courts, and procedures were never intended to do more than guarantee a fair trial to criminals. That they now shelter the enemies of society is even more disturbing than evidence of racketeering in a particular sport.
SETTING FOR INAUGURAL: A WORLD IN TROUBLE
Inauguration of a new U.S. president again dramatizes the important roles of power, justice and unity in national life.
These next years may decide the free world’s destiny in post-Christian times. Waning confidence in democratic processes calls for a political morality to inspire wavering nations flirting with bondage. Sound government requires the recognition of the righteous judgments of God. Sooner or later expedience topples great powers to ruin and rubble. Let president and people remember, “there is no power but of God.”
THE FATE OF CHRISTIANITY: IS THE WORLD WINNING?
Is Christianity in retreat? The Rt. Rev. James A. Pike, Bishop of the Episcopal Diocese of California, says that it is—in an article in Look magazine (Dec. 20 issue). Indications of a religious upsurge are superficial, he maintains. Statistics show that church membership increase is not keeping pace with population increase. In Communist countries, “virtually all chance for further development has been cut off.” In other lands, Christianity is overshadowed by the new nationalisms. In so-called Christian countries, the church has become “largely complacent and irrelevant.” Delinquency, vice, neuroticism are on the increase. In business and government the old ethical standards are being dropped. Within the church itself, profession and practice do not tally. “The church, instead of being a goad, is by and large at peace with society.” Segregation and other forms of disunity disrupt its fellowship. Its religion has become man-centered rather than God-centered, offering religion as a nostrum or a shot in the arm to alleviate the tensions of contemporary life. “Today,” the Bishop admonishes us, “unless the Christian looks once again to Christ, the world might well overturn the movement.”
Now, all this is very true. The situation is indeed alarming, and a jeremiad such as Bishop Pike has uttered is by no means out of place. But two further considerations need special emphasis, since they are often overlooked by churchmen who incline to the idea that church mergers and social planning are the royal route to Christian greatness. First of all, the church is always in dire jeopardy, either of liquidation by persecution or of emasculation by indifference. Its enemies, moreover, come from within as well as from without. Its survival is always cause for astonishment. Even the church of the New Testament was crippled and menaced by divisions and disorders and heresies (see, for example, Paul’s First Epistle to the Corinthians), which threatened its survival far more seriously than the hatred or the apathy of the state.
In the second place, it is God’s church. God is sovereign both in his church and over the whole of human history. However invincible the powers of darkness may appear to be, however desperate the prospects of the survival of Christianity, God’s purposes for and through his church can never be frustrated. Those who now wickedly reject Jesus Christ as Saviour will inevitably stand before him as Judge. This age has an appointed end, and Christ when he returns will bring with him the realization of the new heavens and the new earth in which righteousness dwells. Genuine Christianity is never in retreat, but ever marches forward in the triumphal procession of its glorified Master.
But these considerations (with which Bishop Pike may also be in full agreement) do not release the Christian from urgent responsibility. They provide no excuse for unconcern. The Christian cannot but be vexed at the inroads of evil. He may not be of the world, but he is in it—and his involvement implies also his responsibility. We share Bishop Pike’s concern. We catch the sound of Martin Luther’s challenge to the succeeding generations to keep God’s little lantern alight. We turn again with earnest attention to the apostolic injunction: “Take heed unto yourselves, and to all the flock, in the which the Holy Ghost hath made you bishops, to feed the church of God, which he purchased with his own blood. I know that after my departing grievous wolves shall enter in among you, not sparing the flock; and from among your own selves shall men arise, speaking perverse things, to draw away the disciples after them. Wherefore watch … and remember.…”
