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September 28, 2008

TAKING ON THE I.R.S.: Thirty Churches to Endorse Presidential Candidate From Pulpit Today. I'd deal with this differently, and tax churches like any other business. I think that the "nonprofit" sector has grown out of all proportion because of its tax-exempt status, and we ought to consider eliminating tax exemptions for nonprofits entirely. Failing that, we ought to limit them to organizations that provide direct services to those in need, and only to the extent of such services. The rest is a big subsidy that has created a nonprofit bubble in the economy.

UPDATE: Reader Matthew Conlan emails: "Since the power to tax is the power to destroy, how would you mesh taxing religious institutions with the First Amendment?"

The religious tax exemptions are part of a general nonprofit exemption that is a matter of legislative grace, not First Amendment right. In fact, an exemption limited to religious groups would violate the Establishment Clause. And as this story suggests, the exemption hasn't exactly disentangled the IRS from religious expression. . . .

ANOTHER UPDATE: More on that entanglement here.

MORE: Reader Doug Levene writes:

Your comments on the growth of the non profit sector as a refuge from taxation are very important.
As part of my East Asian Studies M.A. at Yale many years ago, I studied a lot of pre-modern Chinese history and one fact that struck me then was the growth of tax-free "religious" institutions to the point where the tax base was severely eroded. Indeed, that was one of the major problems for the Chinese central government, such as it was. I wonder if that is happening in the US generally today? It obviously does happen locally - consider what percentage of the property in Cambridge, Massachusetts is tax exempt. What is the impact nationally? Have any economists or tax lawyers looked at this?

I don't know, but the nonprofit sector has had explosive growth in the past several decades.

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