The value of tax exemptions: Trillions or billions?

What is the value of tax exemptions for churches and non-profits? Getting a handle on that would be interesting. In theory, churches lose tax exemptions if they become active enough, i.e., spend enough of their income to cross some murky threshold and/or engage in some other overtly political things, in politics. As usual, anything to do with taxes is blindingly complex and mostly grey. Loss of tax exempt status for churches would have the following theoretical consequences, among other things:

• Net income would be subject to federal and state income taxes
• Charitable donations would be taxed
• State unemployment, property and sales tax exemptions could be lost

Fungus in tree trunk

Mount Cuyamaca - February 2012

 As noted here before, tax exemptions for all of the myriad of non-profit organizations could be very high. For example one study estimated the value of tax exemptions at about $489 million for 27 hospitals in the Chicago area in a single year. There are about 2,900 non-profit hospitals in the U.S. If one extrapolates from the Chicago study and assumes that tax exemptions for each are worth about half as much, i.e., about $9 million per hospital/year, the total cost to taxpayers would be about $26 billion. If the value of services was half that per hospital compared to the Chicago study, those 2,900 hospitals would provide about $9.3 billion in services.

One study from the 1960s or 1970s (hard to tell when) estimated the value of church properties at about $118 billion. With inflation that might now be about $400 billion. All tax exempt properties would probably be worth about $500 billion to $1 trillion. From a legal point of view, the courts have held that tax exemptions for church properties are constitutional based on the argument that a property tax exemption (no tax collected) is not the same as an unconstitutional tax subsidy (owed/paid taxes returned or not collected in the first place, which would violate the Establishment clause).

Its is reasonable to conclude that governments could tax churches if they decided to do so. As one federal court put it in 1972, a "tax exemption is a privilege, a matter of grace rather than a right". Taxing churches arguably forces churches to support federal, state and local governments, but there is nothing inherently wrong with that, especially in view of the fact that U.S. governments have supported U.S. churches for centuries. That support includes sending untaxed U.S. dollars to religious entities outside the U.S. who may or may not be friendly toward the U.S.

The question remains, what is the value of tax exemptions and what is the value of the benefits the public interest gets in return. When it come to hospitals, the value of what is received can reasonably be estimated. From churches, much (most?) of the value is harder to pin down in terms of dollars. One can argue that there is only modest or little value in inculcating religion into people. Others would vigorously dispute that.

Given the problems with financing all levels of U.S. governments, it seems reasonable to consider how generous we want to continue to be and how generous we can afford to be. How much does our generosity cost? $1 trillion per year? $100 billion? As long as various tax exemptions for non-profits remain, they divert revenues from federal, state and/or local governments. Americans pay for their generosity, especially to the extent it is based on borrowed dollars or causes reductions to government functions, e.g., public school support.