While the U.S. does, not all national governments give churches tax-exempt status. Exempting churches from taxes has been a part of American tradition since the inception of the country, although tax exemption for religious organizations did not officially become law until 1894.
The original reasons for granting churches tax-exempt status have not changed significantly over time, even though the ins and outs of applying the tax exemption have certainly become more complicated. Here is a short, non-exhaustive list of reasons why churches have enjoyed tax exemption:
1. Churches have historically played a significant role in alleviating society’s burdens and lessening the need for government involvement. A majority of hospitals still have names tied to a church, even if the church itself is no longer involved: Baptist Medical Center, St. Luke’s Hospital, etc. Even many hospitals with “secular” names were originally founded by a religious organization. Throughout much of modern history, churches were the only entities providing public education. Churches have also historically been at the forefront of programs to feed the poor, clothe and shelter the homeless, care for orphans, etc. Because the church’s work has alleviated the government’s implicit obligation to meet these needs, governments have rewarded the church with tax-exempt status, encouraging the church’s ongoing service to the community.
2. The American people also hold to freedom of religious belief and practice as a foundational, God-given right, and that freedom is protected in the U.S. Constitution. If churches were not tax exempt, many of them would go “out of business”—or their community activity would be severely curtailed—simply due to the tax burden they would face. The closing of churches would present a serious impairment to the citizens’ ability to practice their religion freely.
3. The tax-exempt status given to churches allows people donating to them to do so tax-free, or at least tax-discounted. Tax exemption thus incentivizes more and larger donations. With donations being the lifeblood of the church (financially speaking), it’s easy to imagine the hardship it would pose for churches if donors were obligated to pay taxes on their gifts. Many people would stop their charitable giving altogether, and the work of the church would suffer as a result.
4. The U.S. has developed significant case law involving the separation of church and state. While some argue that giving churches tax-exempt status is tantamount to government funding of religion, the more common position is that a) taxation of churches would create an unconstitutional financial entanglement between churches and the government, and b) separation of church and state mandates financial separation as well as institutional separation.
Americans give hundreds of billions of dollars to churches and other religious organizations. Their generosity is facilitated and, in a small way, rewarded by the tax-exempt status that churches enjoy. There are good reasons why governments extend tax exemption to churches; when God’s people are freer to do God’s work, all of society benefits (see Galatians 6:10).