Parsonages, paychecks and rendering unto Caesar (2)

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.

Photo snurched from the website of St. Petri Lutheran Church (ELCA) in Flanagan, Ill.

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.

  • Paul

    Of course, religious denominations WITHOUT professional clergy are also being discriminated against. So even the atheists get something we don’t! :)

  • https://pjevansgen.wordpress.com/ P J Evans

    The Methodist church I grew up in had replaced its old parsonage because it was considered too hazardous to live in. However, it was still being used for office and classroom space when the church moved to a new location. The parsonage they’d bought was an ordinary tract house, just like its neighbors; the idea of a gated mansion, or anything other than an ordinary house, would have had people staring at you like you’d just sprouted another head.

  • LL

    KInda surprised I haven’t yet gotten an outraged email from my mother about how Obama hates religion and wants pastors to starve or somesuch. Maybe it hasn’t been circulated to her yet on the fundy email chain.

    For the record, their pastor (they’re actually looking for another one; a pastor, that is; I wouldn’t recommend anybody who’s a regular here go to work for them, you’d probably be quite unhappy) lives in a relatively modest “parsonage” next to the church. Not a mansion.

  • rrhersh

    What? No mention here of Tony Perkins pitching a fit about how Christians are being persecuted? Fred has dropped the ball on this one!

  • drkrick

    “Bailey’s reference to a “6-percent cut in salary” is misleading.”

    Since he referred to “an estimated 5- to 10-percent cut in take-home pay’ in the first paragraph you quoted, it’s probably less a matter of being misleading and more a matter of trying to avoid redundancy. It’s important to make sure that distinction isn’t lost, but at the same time the effect is about the same in either case.

    In practical terms, if this ruling stands I would expect most congregations that are able to do so will increase their pastoral salaries to ensure their take home pay stays level. This will mean that the real impact will fall on whatever other services and programming might have to be cut to find the money shifted to the salary line item.

  • Fusina

    Meanwhile, I got to see the Navy Jazz Band, The Commodores, perform live tonight at my son’s school. He plays trombone in the school band, and part of his assignments is to attend performances like these.

    All I can say is, an altogether satisfying use of my tax dollars.

    edited for clarification

  • ChaplainJ

    No.

    Military members receive a 100% tax free housing allowance as a part of their pay, which is BETTER than the housing allowance exemption clergy enjoy.

    Railroad workers receive a housing allowance exemption of some kind, which I know literally nothing about other than that they get one.

    THIS IS NOT a benefit that only religious clergy members enjoy. IT IS NOT. To suggest so is simply untrue.

    I left a more substantive comment on the first half of this article. Mr. Clark, I do hope you address this because your argument is simply not true.

  • RebelSquirrel

    One of my early thoughts was that yeah, the law **AS WRITTEN** is pretty clearly unconstitutional due to that whole “ministers of the gospel” phrasing.

    (As I read it, this ruling doesn’t affect the case of clergy living in supplied housing (parsonage, etc) – just the cash allowance in lieu thereof. )

    So re-write the law, based on the parallel laws for military and other industry-specific housing allowances. If applying it to religious organizations makes you twitch, expand the allowances to any organization with (501c3?) non-profit status under the IRS and to mitigate abuse, put in a cap that it can be no more than the lesser of fair market value of the residence or blah blah percentage of the person’s salary.

    Whatever they end up doing, I really hope they make clergy taxes easier by the time I get through seminary and the credentialing process, because I won’t be able to afford an accountant at that point.

  • David S.

    Military members are employees of the government under special circumstances; among other things, they can be ordered to move at the government’s convenience.

    It is literally true that this is something that religious clergy members enjoy, since no one else is listed under that statue and both soldiers and railroad workers get different deals. It’s also rhetorically true; the military is under entirely different conditions, and whatever railroad workers get, they are a negligible part of the big picture here.

  • FearlessSon

    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.

    Should do so, yes, but power tends to stagnate in the status quo. Over and over again, the powerful seek to keep the current status quo, even when that status quo cannot stand forever, rather than seeking to adapt to new realities as they come up so they can maintain their power by other means.

    It leads to an endless waltz of peace, war, and revolution, to quote a source I am sure someone else here will quickly identify.

  • Baby_Raptor

    Yeah. When a pastor has to come to grips with the fact that they might die while preaching in their comfy little churches, and the fact that they’re going to miss years of their spouses/kids’ lives, then you can call this equal.

  • Beth

    Clergy also have to file as “self employed,” even hough we clearly are not self-employed (at least most of us), so we pay double the Social Security taxes of other regular employees – our share, and the typical employer share. I always figured the housing allowance rules balanced with the self-employment filing status to make it a wash – a benefit on one side, a penalty on the other, and I come out about even.

  • Emcee, cubed

    You are misunderstanding the ruling, and how the Establishment Clause works. Clergy cannot be singled out to get a benefit (or, for the flip side, a penalty) simply because they are clergy. This law very specifically says that clergy get a tax break on their housing allowance simply because they are clergy. If it was a generalized law that clergy took advantage of, that would be fine, but that’s not the case here. If a software company gave their employees a housing allowance, those employees would have to pay taxes on that.

    It doesn’t matter that there are other laws saying that military personnel and railroad workers get a tax benefit. We don’t have a separation of military and state, or of railroads and state. So while we can argue the merits of those laws, they are not unconstitutional.

    It is certainly possible for the law to be written in a way that is not unconstitutional – in a way that lets clergy take advantage of it, but doesn’t single them out specifically. Maybe something like, “Anyone in a profession that includes housing as part of their compensation, but isn’t actually given housing may receive a tax break on their housing allowance up to X amount” or something. (That’s just a quick off-the-top-of-my-head kind of thing that would actually be constitutional, but probably has too many loopholes that would cause other problems. But an example of how it could work.) But the way it is written now? There are definitely issues. Hardly insurmountable ones, though. Fred’s whole point is that it would be better to work on fixing them now rather than waiting, since that will just cause bigger problems later.

  • Emcee, cubed

    If applying it to religious organizations makes you twitch

    It doesn’t just make people twitch. Applying it specifically to religious organizations (actually, specifically to clergy – this law deals with individuals, not organizations) is the entire problem. Clergy cannot be singled out for either privilege nor penalty simply because they are clergy, unless it is to alleviate a special burden on religious exercise. Allowing it for all non-profits, or all housing allowances would probably work. (Though I think it would mean a lot more jobs get “housing allowances”. There might be some way of mitigating that, though.)

  • LoneWolf343

    Yeah, our tax code is kind of messed up.

  • Emcee, cubed

    My understanding is that clergy have to file as self-employed because their employer (the church) is exempt from paying Social Security for religious employees. So in order for clergy to receive their full benefits when they become eligible, they have to pay in the extra amount. The other options would be for clergy to only get partial benefits since only a partial amount was paid in for them, or require the churches from paying their share of SS for their clergy. Not sure anyone would be happy with either of those options, though. (Personally, I’d go for the last option, as that is putting the burden on the church, not the person actually having less money. But I could see it as being a strain on smaller churches, and the ones that could afford it would use their power to stop it from happening. So think we are stuck where we are at.)

    Or, you know, what LoneWolf said.

  • Carstonio

    I would have assumed that all religions organizations were free of any sort of taxation. My concern is about the commingling of charity activities and proselytizing ones, and how difficult this would be for taxing authorities to exempt the former but not the latter. That commingling would probably occur even if the religious exemption were lifted in all cases and religious charities were treated like secular ones.

  • spinetingler

    “the Navy Jazz Band, The Commodores”

    Did they do “Brick House”?

  • Lunch Meat

    Could you cap it at the average + X of all the housing values in the neighborhood the church is in?

  • Eric Boersma

    Finalist for understatement of the year right here.

  • Fusina

    I suggested they should jazz it up and do so, and Dr. Freeman said he gets asked that every year when they come. They did an awesome rendition of Alice in Wonderland.

  • Eric Boersma

    Yeah. Seeing how bad tying health care to employer compensation has gone, I can’t even imagine what kind of issues we’d have tying home payments to employer as well.

  • Eric Boersma

    I’m simultaneously excited and slightly embarrassed that I was able to recognize a quote from a Gundam Wing special that I last saw maybe ten years ago.

  • RebelSquirrel

    If I recall correctly (subject to correction by someone who actually does clergy taxes) the current law allows for the LESSER of a) actual housing expense; or b) median housing cost in the area; or c) amount designated by the contract / work agreement as “housing allowance.”

  • AnonaMiss

    I think you meant The Liar Tony Perkins?


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