I briefly covered this story a few days ago, but it’s worth saying again: a federal judge in the Western District of Wisconsin ruled the clergy tax exemption on cash housing allowances to be unconstitutional. While this isn’t getting a lot of coverage from the mainstream media, it is getting a little bit of coverage in religious blogistan. Here’s the best so far:
David Badash: Breaking: Federal District Court Declares A Religious Income Tax Exemption Unconstitutional
U.S. District Court Judge Barbara B. Crabb of the Western District of Wisconsin ruled that the so-called “parish exemption,” which allows religious ministers to avoid paying taxes on the value of their housing granted to them by their religious employers, “violates the establishment clause” of the U.S. Constitution and must be discontinued.
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.
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.
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.
A federal judge has ruled that an Internal Revenue Service exemption that allows clergy to shield a portion of their salary from federal income taxes is unconstitutional.
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.
The suit was filed by the Wisconsin-based Freedom from Religion Foundation on grounds that the housing allowance violates the separation of church and state and the constitutional guarantee of equal protection. The group’s founders have said that if tax-exempt religious groups are allowed a housing subsidy, other tax-exempt groups, such as FFRF, should get one, too.
Noticeably, Congress excluded the minister and military housing allowances from the new, restricted Section 119. By enacting Section 107(2), Congress simply kept the existing tax treatment of all ministers by recognizing in the statute that their cash housing allowance was tax-free like the cash military housing allowance.
Before 1954, if a church owned a home (parsonage, rectory or manse), its ministers paid less in taxes than those ministers serving in churches that did not own a home. Section 107(1) dictated the form of compensation paid ministers and discriminated against churches that could not afford to own housing or that otherwise preferred minister-owned housing for reasons of polity.
Section 107(1) gave incentives for churches to own real estate and to exclude those residences from the local property tax rolls. Ministers in churches who did not own a home asked Congress for parity with their fellow ministers who lived in church-owned homes. We believe that the enactment of Section 107(2) added many ministers’ homes to the local property tax rolls.
If Section 107 is analyzed as part of the employer assisted housing tax exemption, it appears to be a reasonable accommodation to religious freedom and constitutional.
So no, I don’t have any problems with the FFRF or secular folks who say the PE is an unfair tax advantage. I agree. But I wonder if the same folks would also recognize the unfair tax burden that clergy have because of current IRS rules that state that ministers must be considered self-employed for the purposes of Social Security. The bad tax code became a countermeasure to another part of bad tax code because fixing the tax code would just suck.
Instead, my problem is with religious jerks. That’s right, I said it. I have no doubt that this remedial solution would have remained in place indefinitely if it weren’t for a bunch of religious jerks who have ruined it for the rest of us and galvanized public opinion and group activism against this law.