Last Friday a Federal District Judge in Wisconsin ruled that the clergy housing allowance was unconstitutional. The order of US District Judge, Barbara B. Crabb included the following:
3. It is DECLARED that 26 U.S.C. § 107(2) violates the establishment clause of theFirst Amendment to the United States Constitution.
4. Defendants are ENJOINED from enforcing § 107(2). The injunction shall take effect at the conclusion of any appeals filed by defendants or the expiration of defendants’deadline for filing an appeal, whichever is later.
For those who don’t know, members of the clergy are currently not taxed on our housing expenses (i.e. a part of the salary package designated for housing, utilities, furnishings, etc.). While we DO pay SECA (Self-Employment Social Security Tax) on the whole salary package (including the fair rental value of a manse or parsonage), we are allowed to deduct a portion of our salary that we use to pay rent, the mortgage, utilities, furniture, etc. when we file our income taxes. For those of us who are paying mortgages, we also get to “double dip” by deducting the mortgage interest as well.
I’m not sure of the exact reason the tax code came into being. I believe it was, in part, an opportunity to ease the tax burden pastors have since we’re designated as self-employed and have to pay the employers portion of social security. A couple of other explanations are: 1) that the pastor is mandated to live in a particular house (or neighborhood) because of the nature of ministry and that the housing is, in affect, a work expense. If the pastor could choose where to live, he/she would often choose someplace cheaper because a pastor’s salary is not enough to cover the expenses the more expensive house or neighborhood. This is especially true in other denominations (Methodist or Episcopalian) in which the pastors are assigned. 2) there is an argument that the “minister of the gospel” is a role that benefits the larger community, thus it is in the best interest of the government to give a tax break to those who are in service to the local needs of the people.
The judge concluded
Although it is undoubtedly true that taxes impose a burden on ministers, the same is true for all taxpayers. Defendants do not identify any reason why a requirement on ministers to pay taxes on a housing allowance is more burdensome for them than for the many millions of others who must pay taxes on income used for housing expenses.
As a “minister of the gospel” I am wondering how Dwayne and I will re-order our finances in order to pay the extra taxes. (I am a relatively well-paid pastor with a spouse who is also well-paid, so the hardship will be bearable for us, though it does equal a substantial amount and will take some financial adjustments.) I wonder how the pastors who are getting salaries at or below our minimum requirements — how will they cope? As a Presbytery Leader, I am also very concerned about the affects this ruling will have on our congregations whose budgets are already scraping the bottom. They can’t afford to pay their pastor’s an increased salary to cover the tax burden.
As a citizen, though, I agree with the judge. I think as pastors we should bear the same responsibility as others in our community and nation. ”So give back to Caesar what is Caesar’s, and to God what is God’s.” (Matthew 22:21 NIV) The tax code, as it stands, does appear to violate the “establishment clause” of the first amendment to the Constitution of the United States which states: ”Congress shall make no law respecting an establishment of religion …” The idea of giving clergy or churches tax breaks clearly identifies the work of the Church as necessary for the well-being of our society. I don’t disagree, personally, but I do think it “establishes” a religious presence, and acknowledges an establishment of “respected” faith communities, denominations, and religious procedures. In a culture which is multi-faith and non-faith, in which the Church is increasingly non-denominational, in which atheists and others call out the abuse of religious establishments … is it really “right” to offer a tax break to pastors?
Of course, this decision will, likely, be appealed up to the Supreme Court. The expectation of many of us, though, is that the ruling will be upheld — if not this time, soon. While the financial impact is still years away, it is a real concern for the future. So we will have to think about ways to adjust and respond.
For more information here are some good blogs and articles I’ve read (I’ll add more as I come upon them):
In addition, I am in conversation with some about offering a workshop/seminar on the court case and the implications for clergy and congregations. I will let you know when we have specifics.