The problem with a clumsy, kludgey mess like the tax structure of clergy compensation isn’t just that it’s inefficient and burdensome. Such systems also tend to become inequitable. Whatever it was they were originally patched together to do, they eventually wind up benefitting those who have mastered the art of exploiting them.
For an example of what that looks like in this case, here’s some background from Sarah Pulliam Bailey for Religion News Service:
The law’s tax exemption has been contested since a decade-old dispute between the IRS and California mega-church pastor Rick Warren. In 2002, the IRS attempted to charge Warren back taxes after he claimed a housing allowance of more than $70,000.
He eventually won the federal court case, and that led Congress to clarify the rules for housing allowances. The allowance is limited to one house, and is restricted to either the fair market rental value of the house or the money actually spent on housing.
Bailey notes that it’s not clear how this clarification of the rules applies to someone like the Rev. Steven Furtick:
The Southern Baptist pastor of one of the nation’s fastest-growing churches is building a 16,000-square-foot gated estate near Charlotte, N.C. The tax value on the 19-acre property owned by Steven Furtick of Elevation Church is estimated to be $1.6 million.
Both Furtick and Warren are Southern Baptist clergy, but neither one is a typical SBC cleric, so the denomination’s Russell Moore isn’t completely wrong when he argues that the housing-allowance exemption is particularly important to “clergy in small congregations of all sorts.” That’s how kludges tend to sort-of work. They become essentially vital to those with the fewest resources, while at the same time becoming extremely lucrative for those with the most resources who have learned to milk them for all they’re worth.
Russell Moore is completely wrong, though, in the full context of his remarks:
The allowance is neutral to all religions. Without it, clergy in small congregations of all sorts would be penalized and harmed.
This is doubly wrong. The allowance may be neutral among religions, but it is not neutral to religion. It privileges religion. The housing-allowance exemption may be available to Christian, Jewish and Muslim clergy alike, but it is not available to computer programmers or to plumbers or to nurses or to violinists. It is a tax advantage provided to clergy. And it is very hard for me to see how such an advantage does not constitute an unconstitutional establishment of religion.
For Moore’s talk of clergy being “penalized and harmed” by the removal of such an advantage to make any sense, then, it would have to be true that anyone not currently able to take advantage of this privilege is, at this very moment, being “penalized and harmed.” If Moore believes his own defense of clerical privilege, in other words, then he’s expressing a cruelly callous indifference toward the “penalty and harm” being suffered by laypeople “in small congregations of all sorts.” Moore is saying, in effect, that all Southern Baptists who are not clergy deserve to be penalized and harmed.
That’s a big screw-you to the pews. I hope he wouldn’t have said that if he’d thought this through. But since he hasn’t thought this through, that’s what he said.
One of the weirder aspects of this whole business is that the lawsuit challenging the housing-allowance tax privilege for clergy was filed by the Freedom From Religion Foundation. Their suit initially was denied because they lacked standing (legalese for “none of your business, this doesn’t affect you”). So the FRFF started treating its executives as though they were atheist clergy — paying them a housing allowance as well as a salary. The federal government responded by offering to treat these FRFF officers as “ministers of the gospel” — qualifying them for the housing-allowance exemption as well.
The fact that “ministers of the gospel” is the language of this particular tax rule underscores just how shaky the government’s case here is, and why it’s not surprising that U.S. District Judge Barbara Crabb would rule that a special tax privilege exclusively for ministers of the gospel “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.”
Creating a special sweet deal just for religious people isn’t constitutional, even if you broaden the deal a bit to also include a handful of atheists — magnanimously offering to rechristen them as “ministers of the gospel” too.
So the current system of clergy compensation is unconstitutional. But it’s still the current system of clergy compensation. It may be a kludgey, unconstitutional mess, but that mess is how things operate at the moment. You can’t knock out a bearing wall and then put in the new support beams to replace it. You’ve got to replace it first or you’ll wind up with an even bigger mess when the ceiling falls in.
Here’s some of the big picture of what this means, from Sarah Pulliam Bailey’s piece:
The clergy housing exemption applies to an estimated 44,000 ministers, priests, rabbis, imams and others. If the ruling stands, some clergy members could experience an estimated 5- to 10-percent cut in take-home pay.
… Churches routinely designate a portion of a pastor’s salary as a housing allowance. So, for example, a minister that earns an average of $50,000 may receive another third of income, or $16,000, as a tax-free housing allowance, essentially earning $66,000. Having to pay taxes on the additional $16,000 ($4,000 in this case), would mean a 6-percent cut in salary.
The exemption is worth about $700 million per year, according to the Joint Committee on Taxation’s Estimate of Federal Tax Expenditure.
Bailey’s reference to a “6-percent cut in salary” is misleading. Closing this tax loophole would mean that this hypothetical clergyman’s take-home pay would be 6 percent less that it is with the loophole in place, but that’s not a “cut in salary” — that’s just having to pay taxes just like laypeople do. Their salary isn’t getting cut, the federal tax expenditure being paid to them as a subsidy is being eliminated.
But that subsidy is the current system. Those 44,000 clergy entered into their current employment contracts under the rules of that system. It’s important, then, how we go about transitioning from the old system to the system that will replace it. That transition — if done abruptly or crudely — could end up causing the “penalty and harm” Russell Moore is worried about, even though the new system, in which clergy are in the same boat as the laypeople of their congregation, is in no way unfair or harmful to them.
Think of the home mortgage-interest deduction. That’s a much, much larger annual tax expenditure — $90.8 billion in 2010. It doesn’t violate the First Amendment the way the housing-allowance lagniappe for “ministers of the gospel” does, but one could make all sorts of arguments that this massive wealth transfer to homeowners is unfair, subsidizing property-owners at others’ expense, or that it creates dangerous distortions in the housing market. Yet even if you were utterly opposed to the mortgage-interest deduction, you couldn’t advocate just wiping it away overnight. Millions of people entered into contracts based on the existence of this deduction. Abolishing the mortgage-interest deduction would have the same effect as increasing everyone’s mortgage by something like “5- to 10-percent.”
A system without the mortgage-interest deduction might be more efficient and more fair than the current system, but unless the transition were done carefully, over time, a lot of people could get hurt by that falling ceiling.
Churches and their lawyers will no doubt spring into action to challenge this district court ruling. They will likely spend several years in court, arguing that a tax expenditure that “provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise” is somehow constitutional. Maybe they’ll even win — for now.
But those churches and their lawyers should also be hard at work on figuring out what the next system of clergy compensation will look like — the one without this special privilege just for clergy. And they should also be trying to figure out the best way to make a smooth transition from the current system to that new one.