Americas tax laws are designed to favor non-profit and charitable institutions which presumably benefit the community. The buildings of private schools and universities, for example, are exempt from property taxes. Donations to charities like the Red Cross are tax deductible. Organizations which engage in medical or scientific research can take advantage of favorable tax laws. Environmental groups can raise tax-free funds by selling books.
Churches, however, tend to benefit the most from the various tax exemptions available, in particular because they qualify for many of them automatically, whereas non-religious groups have to go through a more complicated application and approval process. Non-religious groups also have to be more accountable for where their money goes, while churches, in order to avoid possibly excessive entanglements between church and state, do not have to submit financial disclosure statements.
Tax benefits for religious organizations fall into three general categories: tax-free donations, tax-free land and tax-free commercial enterprises. The first two are much easier to defend and arguments against permitting them are much weaker. The latter, however, often creates problems.
Tax-free Donations: Donations to churches function just like the tax-free donations one might make to any non-profit organization or community group: whatever a person donates is subtracted from their total income before taxes are calculated. This is supposed to encourage people to give more and better support to such groups, which presumably are providing benefits to the community that the government now does not need to be responsible for.
Tax-Free Land: Exemptions from property taxes represent an even larger benefit to churches there may be as much as $100 billion dollars in untaxed church property in the United States. This creates a problem, according to some, because the tax exemption amounts to a gift of money to the churches at the expense of tax payers. For every dollar which the government cannot collect on church property, it must make up for by collecting it from citizens; thus all citizens are forced to indirectly support churches, even those they do not belong to and may even oppose.
Unfortunately, this indirect violation of the separation of church and state may be necessary in order to avoid a very direct violation of the free exercise of religion. The taxation of church property would put churches more directly at the mercy of the government because the power to tax is, in the long run, the power to control or even destroy.
By removing church property from the power of the state to tax, church property is also removed from the power of the state to directly interfere with. Thus, a hostile government would find it more difficult to interfere with an unpopular or minority religious group. Small local communities sometimes have bad track records with showing tolerance towards new and unusual religious groups; giving them more power over such groups would not be a good idea.
Nevertheless, none of that changes the fact that property tax exemptions are a problem. Not only are citizens forced to indirectly support religious organizations, but some groups benefit much more than others, resulting in problematic religious favoritism. Some institutions, like the Catholic and Mormon churches, have billions of dollars in property whereas others, like the Jehovahs Witnesses, own much, much less.
There is also, unfortunately, the real problem of fraud. Some people tired of high property taxes will send away for mail-order divinity diplomas and claim that, because they are now ministers, their personal property is exempt from taxes. The problem got to be enough that in 1981, New York State passed a law declaring mail-order religious exemptions to be illegal.
Even some religious leaders agree that the property tax exemptions are problematic. Eugene Carson Blake, a former head of the National Council of Churches, complained once that tax exemptions ended up putting a greater tax burden on the poor who could least afford it. He feared that one day, the people might turn against their wealthy churches and demand restitution.
The idea that wealthy churches have abandoned their true mission also bothered James Pike, a former Episcopal bishop in San Francisco. According to him, some churches have become much too involved with money and other worldly matters, blinding them to the spiritual calling which should be their focus.
Some groups, like the American Jewish Congress, have made donations to local governments in place of the taxes which they do not have to pay. This shows that they truly are concerned with the entire local community, not simply their own members or congregation, and that they are interested in supporting the government services which they use.