Parsonages, paychecks and rendering unto Caesar (1)

I had a really cool part-time job back when I first started in seminary. I was a file clerk in a Baptist mission society library.

If that doesn’t sound amazingly cool to you, that’s only because you never got to see the stuff that was in those files, which contained nearly 200 years worth of treasures, starting with the handwritten letters and diaries of Adoniram Judson from 1810.

Sure, there was a lot of mundane detail filed away in all those cabinets containing two centuries’ worth of missionary correspondence, but there were also some really remarkable things: The minutes from the mission society meetings of 1844 and 1845, detailing the Baptist’s great schism over slavery; Calista Vinton’s letters from the early 1800s explaining that God had called her to preach and that therefore no man had the authority to tell her otherwise thankyouverymuch; testimonies from witnesses to the atrocities under King Leopold in the Congo; abolitionist newspapers from the 1850s; a first edition of the first English-Burmese dictionary; documents relating to the founding of Liberia; a report on local missionaries’ investigation of a resurrection attributed to Simon Kimbangu. And then there were the drawers filled with photographs, daguerrotypes, and the uncategorized figurines representing domestic gods and goddesses.

And filed along with all the rest of that in row upon row of battleship-gray cabinets were two centuries worth of financial records. That’s why those archives and the library itself were located within the financial department of the mission society. And that’s why the various financial and budget committees held their meetings there in the library, at a conference table nearby the desk where I sat carefully removing staples from decades-old onionskin pages.

Calista Vinton is Not Impressed with the notion that only ordained clergy with a taxpayer-subsidized housing allowance can be effective ministers.

Overhearing such meetings was my first introduction to the Rube Goldberg machine of clergy compensation. Consider what it means to be concerned with fair and equitable pay for a roster of missionaries serving in Japan, Zaire, Thailand and Haiti. But then consider that clergy pay is further complicated by the odd assortment of tax rules that have agglomerated over the years.

Like, for example, the housing-allowance exemption for clergy.

Church property is not taxed. That includes parsonages — the homes, usually adjacent to church buildings, where some clergy live. But since many houses of worship don’t have parsonages, that created a discrepancy in the way that various clergy were taxed and compensated. That seemed particularly unfair since it meant, in effect, that smaller congregations or those part of less wealthy, less propertied traditions were being taxed for something larger, wealthier churches were able to provide tax-free. So the IRS created a general housing-expense tax exemption for clergy whose churches did not own or provide a parsonage (the formal rule, I think, dates back to the 1950s, but the practice of exempting housing expenses for clergy predates that).

That rule, in turn, changed the way most clergy get paid. The effect on clergy compensation was similar to the effect many of us experience from employer-provided health insurance. Your employer can offer you compensation in the form of wages — on which you pay income taxes and payroll taxes, and on which they pay payroll taxes. But your employer can also offer part of your compensation in the form of health insurance — which doesn’t create a tax burden for either you or the employer. Those tax credits and tax breaks (about $250 billion a year) created a powerful incentive for employers to provide such health benefits (no, they didn’t do this out of altruism), but they also created an incentive for employers to shift more compensation toward health benefits and away from wages.

The exemption for a “housing allowance” for clergy, similarly, created an incentive for churches and other entities to shift more of the compensation for clergy into those allowances, reducing salary or wages accordingly. As Tobin Grant explains:

Over time, fewer churches owned parsonages and instead gave clergy housing allowances, which were also treated as tax-free. The difference, however, was that these were regular salaries that now had an exclusion. Part could be tax-free, part couldn’t. So, why not give a pastor a huge housing allowance, which is tax free?

This was a headache for the budgeteers at the mission society. They had missionaries in downtown Tokyo and missionaries in Cap-Haïtien and in rural Zaire — places where the cost of housing was radically different. They wanted the housing allowances they provided these missionaries to be adequate for the missionaries in Tokyo (unlikely) and not to be extravagant in a missiologically harmful manner in Haiti (very tricky). That was difficult enough even before the complicating factor of the housing allowance exemption, which tended to create a tax advantage for missionaries in Japan that far exceeded that enjoyed by missionaries in the developing world.

The housing-allowance exemption for clergy, in other words, is a mess. It’s a kludge — an inelegant work-around for one problem that has, in turn, created other problems for which other clumsy, inelegant work-arounds have had to be devised. It works, sort of, but it doesn’t work well. It’s the way things are done, at this point, but it’s not the way things would have been done or the way things would be done if we had the luxury of starting over from scratch with a clean slate to design a more logical and efficient system.

This particular kludge is in the news thanks to a ruling Friday by a federal judge who reached the unremarkable, unavoidable conclusion that a tax exemption on housing for clergy “provides a benefit to religious persons and no one else.”

Noting that such establishing of a privilege for religion is not constitutional, the District Court judge struck down the rule.

I don’t see any way around the fact that “a benefit to religious persons and no one else” is unlawful. Yet despite the clarity of the law here, the politics of this get far more muddled, and we’re likely to see this case take a very long journey all the way through the court system, with all sorts of strange bedfellows and unlikely alliances weighing in.

That gives us time, if we choose to use it, to consider what a non-kludgey system of clergy compensation might look like, and to set about transitioning from the current constitutional and financial mess to something more elegant, equitable and efficient.

  • Cathy W

    I almost hesitate to ask, because it may lead to persecuting Christians (and Muslims, and Hindus…): is the tax exemption for church-owned property also written into law in such a way that it provides a benefit to the religious and no one else? Or is there a blanket exemption for property owned by non-profits?

    Meanwhile – how does the tax code handle executives who get “the use of a company car”? A pastor living in a parsonage would appear to have “the use of a company house”, and if that’s taxable income to the pastor, then so be it…

  • Sarah Jane

    I am pretty sure that any nonprofit can file the paperwork for tax-exempt status, including property taxes. But since nonprofits other than churches typically don’t provide employee housing, there may not be a comparable exemption for housing allowances for employees of secular nonprofit organizations.

  • wendy

    Company cars, three-martini lunches and other perks of being high up the food chain are taxable. There are tax consequences (to both you and the company) if you use the company jet for anything other than company business. Even if you let someone hitch a ride to someplace you’re going anyway — when the automaker CEO’s all took their planes separately to Washington to testify before Congress (embarassing when the first question from a Democrat on the committee was “did you really each have to fly on your own plane? Couldn’t you at least planepool or something?”) it was totally legal and not taxable compensation — but if they’d let their wives ride along to go do some shopping while hub’s at the Capitol, that would have been problematic.

  • ReverendRef

    The housing-allowance exemption for clergy, in other words, is a mess.
    It’s a kludge — an inelegant work-around for one problem that has, in
    turn, created other problems for which other clumsy, inelegant
    work-arounds have had to be devised.

    And this is why, every February/March, I take all my stuff to my accountant and say, “Remember, I am not called to prison ministry.”

    I’m sort of in favor of the clergy housing allowance (since it’s one of the few perks of my job), but I also know how it’s been misused and abused by people who should be more ethical than that. And the abuses the mega-church, mega-million pastors who continually look for loopholes is rather annoying.

    I prefer a housing allowance stay in place (also preferring that it apply equally to clergy of all religions). Were it to go away, I would make adjustments and learn to live with it. It’s not like I’m going to find another career because I lost that benefit.

  • smrnda

    The main issue with churches versus other nonprofits is that other nonprofits are required to submit more details concerning their finances to the IRS. Many have complained that this is preferential treatment.

  • stardreamer42

    Why should clergy specifically be able to get a housing allowance that doesn’t apply to others who perform important social services, such as teachers or police/firefighters? This is a genuine question; I’m not being hostile, but I do wonder what the reasoning is here.

  • ReverendRef

    I honestly don’t know why clergy should now be singled out for that benefit.

    This might be in Fred’s original post (forgive me if I’m repeating), but my guess is that back when it was first given clergy were paid very poorly. The men who created the law probably all were Christians of one stripe or another, may have disagreed on many theological and doctrinal points, but could probably agree that their clergy were generally not well off and, gee, wouldn’t it be great if we could at least give them this benefit.

    With the advent of improved clergy salaries general and the extreme wealth of some high-profile clergy-types, this is a benefit that has probably outlived it original purpose.

    I think teachers are in the same place today that clergy were 50-150 years ago — poorly paid and expected to achieve unachievable goals. We could overhaul the tax system to give the housing benefit to teachers; that might have some positive effects.

    As a matter of fact . . . we should probably overhaul the whole tax code. But that’s beyond both the scope of this thread and my financial abilities.

  • Erp

    Nonprofits don’t provide a separate housing allowance because it is still taxable income for their employees (only religions get that break). I understand if the nonprofit provides housing on their property that the employee is required to live in as part of their job (e.g., a house master in a boarding school) the fair market value of that is not considered part of the employee’s income. This of course has to be documented.

  • Invisible Neutrino

    Churches also don’t pay property taxes. As a result, extremely large, wealthy churches whose congregation are well-heeled and can drop a lot in the collection plate can exist with no benefit to secular governance.

  • Invisible Neutrino

    Like they don’t try anyway. After all their wife is an unpaid consultant on the way to Bermuda.

  • ChaplainJ

    Sorry, but there’s a lot of half-true or categorically not-true information in this conversation.

    Typically, the reason that clergy have been allowed to have tax free housing or housing allowances is due to the itinerant nature of their work, not the religious nature of it. The three most well-known work fields that enjoy this benefit are military families, railroad workers and clergy. The reason has to do with the reality that individuals in these fields don’t live where they ‘want’ to, they live where they are ‘assigned’ to, and their living conditions are often temporary which makes it sometimes difficult to establish home ownership and equity. Military and railroad folks still have tax-exempt housing and I would not be surprised if this ruling is overturned for that reason. Does this mean that a mega-church pastor who lives in one million-dollar mansion for 20 years (that he/she owns) is basically getting away with something this law didn’t intend for that pastor to get away with? Yes. Does this law mean a LOT to a rural Methodist minister who moves from parsonage to parsonage every 2 years when the district president says so? Yes.

    It’s also worth noting (and it destroys the argument of this article and the judicial ruling this article comments upon) that the clerical housing allowance tax exemption only applies to federal income taxes. That housing allowance is still subject to payroll (social security/Medicare/etc) taxes, which is NOT the case w military family housing allowances. Military housing allowances are 100% tax free. So, not only do military families enjoy this exact same tax break, they actually enjoy a BETTER VERSION of this exact same tax break. Suggesting that religious clergy enjoy a benefit that no one else has access to is categorically untrue. Just look at my taxes, as a chaplain in the armed forces, I’m quite familiar with how my housing allowance tax exemption got BETTER once I became an officer in the armed forces.

    I’m not a constitutional scholar, nor did I stay at a Holiday Inn Express last night, but the fact that 1.) the law applies equally (even more favorably actually) to military members suggests that the law does not provide religious clergy a benefit that no one else in the country receives. Also, 2.) the law treats all religious clergy equally which keeps the law on the right side of the constitution–as the 1st amendment says that congress will not pass a law that establishes a religion (as in, a PARTICULAR religion). As long as the law doesn’t say ‘Lutheran pastors get tax breaks while mega church pastors have to pay triple taxes,’ it’s constitutional.

    I’d be really surprised to see this not get overturned.

  • Hawker40

    They went to Bermuda and brought the wife? They usually brought the “Secretary” (wink, wink).
    Seriously, when the USN had a airbase on Bermuda, there were regular Admiral meetings where the Admirals brought thier Yeoman (navy for secretary), and it was amazing how many of the Admirals had female Yeoman on thier staffs. And if the Admiral brought one member of thier staff, it was the female Yeoman.

  • David S.

    The military is made up of employees of the federal government who can be moved against their will to where the federal government wants them. The nature of their contract is unique and quite unlike clergy; clergy are immune to the whims of the federal government and have a right to decline to move anywhere they don’t want to.

    Railroad workers are railroad workers; the tangled mess of federal regulations treating them specially fortunately applies now to only a small group of people.

    I fail to see any evidence that ministers are or were exceptionally well-traveled. I seriously doubt at the current time, that ministers move more often then computer programmers or professors.

  • David S.

    Note also that “the law treats all religious clergy equally” seems too broad; so would a law that said that “clergy own a tax of $110,000 annually” or “clergy may not be stopped for traffic offenses.”

  • ChaplainJ

    I encourage you to meet more Methodists. And Catholics. Because, seriously man.

  • ChaplainJ

    Also, my point is less about the frequency at which professionals move and more about the nature by which professionals move. Military members, railroad workers and clergy *tend* to move because they are directed to do so by the organizations they work for. All the time? No. Loopholes? Yes. Professors and computer programmers can get told by their larger organizations to uproot their families, and I’m willing to entertain a conversation about how that is or is not different than with clergy. But I would suggest that it is different.

    However, my point is still this: the judicial ruling, and Mr. Clark’s article, both suggest this is an unfair advantage afforded to clergy and clergy only. I disagree strongly.

  • Invisible Neutrino

    Also, in Canada, some self-employed individuals are purposely instructed to abuse the tax system with wanton abandon, and rarely, if ever, get their fingies smacked over it.

  • PepperjackCandy

    Professors and computer programmers can get told by their larger organizations to uproot their families, and I’m willing to entertain a conversation about how that is or is not different than with clergy.

    Because the programmer or professor or archaeologist or other member of a profession that requires its employee to move at its whim, can find a job with another organization that allows them to stay where they are.

    At least in the United Methodist Church, if you refuse to go where the district tells you to go, they reserve the right to fire you and no longer employ you in the district (I do know some who had enough “pull” to refuse to move and get away with it, for a time, at any rate). Since districts are geographical in nature, you either go where the district tells you, or you have to move to take a position with another district. Either way, you have less say over where you end up than those in most other peripatetic professions.