One of the problems with the various exemptions under state laws (as well as federal laws) for church properties is that it is hard to know when a church really exists. Now a wealthy Chicago-area banker says he has converted a portion of his $3 million home into a church, for which he is a minister (having earned his ministerial degree online) and for which a few employees and family members are the congregation. See Susan Kuczka, Lake Bluff Man Declares His Home a Church, Gets Tax Break, Chicago Tribune, July 16, 2008. (noted in TaxProf today)
This story seems rather suspicious, especially since the church hierarchy that the minister claims to be a part of hasn't got any record of the establishment of his church and the church that he used to attend still thinks he is a member of that church. We've made it awfully easy for people to claim they are ministers and that their homes are churches, and that's unfair to everybody else who carries a higher tax burden because of it.
I suspect I am in a minority, but I think the way we tax gifts to tax exempts, and the churches, and "not for profits" themselves, at the state and federal level is problematic. The charitable deduction combines with mostly capital gains income and foreign tax credits to give wealthy Americans too low a rate of income taxation. (When the charitable deduction limitation was removed after Katrina, it permitted many multimillionaires to pay no taxes, even though the charities supported need not have anything to do with Katrina and even though many were just accelerating (sometimes by one day) deductions they would have made anyway in order to get the tax reduction. See Kevin McCoy, They earn $200,000 and Pay No Taxes, ABCNews.com, June 15, 2008. For background, see New York times, Hurricane Tax Deduction, a Boon for Wealthy Donors. And there's Cheney's huge tax deduction for contributions that year?--see TaxProfBlog.) The wealthy are constantly finding ways to "give" their money away but keep control of it while getting gigantic tax deductions. See Wealthy Cash In On A Charity Tax Loophole, ABC News.com. 2005.
The charitable deduction, and the property tax exemptions at the state level, let those who have the most money determine what purposes are worth supporting. I'd rather see those multimillionaires paying over a good bit more in taxes and then have a decision within the legislatures about the best way to spend that money. (Of course, we need to eliminate the ability of lobbyists to buy elections, too.....) Anyway, if I could set tax policy at the federal level, I would eliminate the treatment of parson's housing (make it part of their compensation). If I could set it at state level, I would eliminate the property tax exemption for charitable organizations (make them pay their fair share). I'd also tax any businesses run by charities the same as any other business income is taxed--even if the business is "related" to the charitable purpose. Let the charities have the profits after-tax to use for their charitable purposes, but don't let them compete with businesses with the special advantage of the tax break. And I'd go back to permitting only 90% of the foreign tax credit for AMT purposes, combined with treating the charitable deduction in excess of a reasonable amount (say $20,000) as an AMT preference as well.
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