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Tax exemptions support the separation of church and state

Prime Minister Christopher Luxon seems to have opened the door to taxing the income of churches in New Zealand. It’s not the first time there have been rumblings on this front. While those were quickly quashed last year, the socially libertine ACT Party is squarely in favour of sending the taxman into the churches to grab the collection plate to shovel into the state.

The idea is populist and superficially straightforward but also quite ignorant.

The advancement of religion is charitable per se

For centuries, religious institutions have been shielded from tax impositions because the furtherance of religion has always been considered a charitable purpose. This is confusing for many people who are ignorant about charity law, who assume that charitable nature of churches (and other religious organisations) arises due to their involvement in almsgiving, education and so on.

This is not the case. The law has for centuries recognised the advancement of religion as being charitable in of itself. The basic definition of what is charitable goes all the way back to 1601.

To David Seymour, this is just “an archaic and outdated British law”. And there will always be people who are just fundamentally disinterested in in the historical context and cultural continuities that shape our laws. It’s like when Nick Clegg fobbed off the (English) Bill of Rights as “some law dating from 1689.”

We can, of course, change things

Now, we make the laws that we need. It is open for Parliament to restrict what is recognised as charity by law. But to do so would be deeply at odds with history.

Beyond legal tradition charity and religion have always been meshed together, with religious teachings often serving as the backbone for the social obligation of selfless giving for the benefit of strangers.

This principle is manifested through numerous Christian charities such as the Salvation Army and Catholic Relief Services. In the Islamic world, charity is a fundamental aspect of faith, encapsulated in the practice of Zakat, one of the Five Pillars of Islam. Across Asia, Buddhism significantly influences charitable practices, particularly through the concept of Dana, which refers to the virtue of generosity.

The intertwining remains strong today

And so on and so on, with each of these examples showcases how deeply charity is woven into the fabric of religious life and vice versa.

And it’s therefore no surprise that:

In study after study, religious practice is the behavioral variable with the strongest and most consistent association with generous giving. And people with religious motivations don’t give just to faith-based causes—they are also much likelier to give to secular causes than the nonreligious. Two thirds of people who worship at least twice a month give to secular causes, compared to less than half of non-attenders, and the average secular gift by a church attender is 20 percent bigger.

In theory, the religious impulse has nothing to do with the other recognised charitable purposes. In practice, the religious impulse is vital to their wellbeing.

There is another reason to keep the exemption

Something people often don’t think about, however, is what ending tax exemptions would mean for the separation of church and state.

The implications of this were thoroughly explored in the landmark 1970 American Supreme Court decision Walz v. Tax Commissioner of New York.

The case revolved around a challenge brought by Fred Walz, a real estate owner who objected to property tax exemptions granted to religious organisations. He argued that these were, in effect, a subsidy that constituted government support of religion, which is forbidden by the US Constitution.

The Supreme Court, in a decision written by Chief Justice Warren Burger, disagreed. And, in doing so, he made this very good point (my emphasis):

Determining that the legislative purpose of tax exemption is not aimed at establishing, sponsoring, or supporting religion does not end the inquiry, however. We must also be sure that the end result -- the effect -- is not an excessive government entanglement with religion. The test is inescapably one of degree. Either course, taxation of churches or exemption, occasions some degree of involvement with religion. Elimination of exemption would tend to expand the involvement of government by giving rise to tax valuation of church property, tax liens, tax foreclosures, and the direct confrontations and conflicts that follow in the train of those legal processes.

Granting tax exemptions to churches necessarily operates to afford an indirect economic benefit, and also gives rise to some, but yet a lesser, involvement than taxing them. In analyzing either alternative, the questions are whether the involvement is excessive and whether it is a continuing one calling for official and continuing surveillance leading to an impermissible degree of entanglement. Obviously a direct money subsidy would be a relationship pregnant with involvement and, as with most governmental grant programs, could encompass sustained and detailed administrative relationships for enforcement of statutory or administrative standards, but that is not this case. The hazards of churches supporting government are hardly less in their potential than the hazards of government supporting churches; each relationship carries some involvement, rather than the desired insulation and separation. We cannot ignore the instances in history when church support of government led to the kind of involvement we seek to avoid.

In other words, tax exemptions are the lesser evil when it comes to the entanglement of church and state. They protect churches from the state while keeping religious institutions from becoming entangled in governmental affairs as taxpayers.

The reciprocal nature of separation helps maintain a buffer that allows religious organisations to function independently of the state, reinforcing both the principle of religious freedom and secular government.

None of which means much to people who just don’t like churches

All of this is guaranteed to fall on deaf ears among those who are fundamentally opposed to or sceptical of religion. In the age of populism, where opinions are often driven more by emotion and personal likes and dislikes than by actual understanding, deep-seated antipathy towards religious institutions will usually overshadow rational debate.

For many, the mere existence of church property holdings is enough to disregard any legal or cultural justifications for long-standing tax exemptions. Any argument raised for the status quo is waved away as obfuscation or special pleading for churches. So there’s not actually a lot of room for reasonable conversation here.

That’s no excuse for the National Party though

It would be pretty foolish for the National Party to tap into this particular populist sentiment, though. Approximately 15% of New Zealanders regularly attend church services, and this demographic tends to disproportionately support the National. Alienating these constituents over what would be a piddling increase in state revenue would result in a significant electoral backlash for no meaningful impact on the government's actual fiscal challenges.

Would the government ever really kick such an own goal?