Joel Rainey is the Director of Missions at Mid-Maryland Baptist Association, an adjunct professor at Capital Bible Seminary and blogs at Themelios (Twitter - @joelrainey). This post was originally published at his site.
I’m not sure if I’ve ever used this site to address an issue having to do with the United States Tax Code, so this will, I believe, be a first. But before you browse on, or think you can use the following to put yourself to sleep, indulge me for just a bit, especially if you are a pastor or a church leader trying to make sense of a recent Federal ruling that could potentially affect the minister’s housing allowance.
Last Friday, Federal Judge Barbara Crabb of the western district of Wisconsin, ruled that the housing allowance is unconstitutional, on the grounds that it violates the establishment clause of the 1st amendment. The lawsuit, brought by the ever-annoying Freedom From Religion Foundation, charged that the U.S. government violated the so-called “separation of church and state” by granting this provision to ministers.
Though enforcement of this ruling has been stayed until all appeals are exhausted, this decision, if kept in place, will have a far-reaching impact on more than 40,000 religious leaders around the country, most of whom could see as much as a 10 percent reduction in their take-home income as a result of new taxes. Of course, in the midst of this a really good question is on the minds of a lot of people–including many Christians who simply don’t understand the rationale behind the housing allowance. Why should a pastor be allowed to exempt from his taxable income expenses related to housing when very few others in the public are allowed this same benefit? So, whether you are a pastor, a casual observer, or an involved church leader wondering what all of this could mean, I’d like to take a few paragraphs to explain why this measure was put in place to begin with, the complexity of ministerial income and taxes that make it necessary, and the reason I think Judge Crabb’s ruling itself may violate the First Amendment.
First a little history. Exemption of religious property from taxes has been a long-held standard among civilized nations for many centuries, and American expressions of this in our tax code are in many ways the legacy of these civilizations, which date all the way back to ancient Rome. Governments have historically seen a great benefit to society that comes from religious practice, and as a result have sought to lessen the financial burden on religious entities. For the United States, two significant moments serve as examples of this disposition; the first in the 1921 Revenue Act, which exempted church-owned property used to house ministers from income taxes. However, as the years passed, and fewer churches intentionally got into the housing business, they would instead provide a housing allowance to pastors, which could be used to secure private living space off church grounds. Recognizing the disparity between pastors who owned their own home who paid taxes on that income, and those living in church-owned housing who paid nothing, Congress amended the tax code in 1954 in a way that would allow ministers to exempt the portion of their income used for housing from federal income taxes. In short, the housing allowance emerged from the earlier practice of easing the burden of churches, who often struggle to compensate clergy properly.
Over the past 60 years, a few challenges have been brought to this exemption, and they tend to be ignited when a pastor seems to abuse the exemption. Most recently, Steven Furtick’s $1.6 million home caused quite a bit of outrage among Christians as well as non-Christians, and understandably, some asked what justification could be given for allowing that property to remain tax free. To be sure, the housing allowance can be abused, and when it is, pastors should pay the price for using the title “Reverend” to take advantage of others. But occasional abuses of a law don’t invalidate the law itself. More than six decades after the tax code was amended, the overwhelming majority of the 40,000 religious leaders in the United States still find themselves in similar economic circumstances.
So why should church leaders, and denominational leaders like me stand up for the minister’s housing allowance?
It serves to correct economic disparity. Nationwide, ministers of the Gospel are compensated at a level that is significantly lower than other professions which require the same level of education and expertise. (Most pastors possess, at a minimum, an undergraduate degree, and a 90-hour [three-year] Master of Divinity degree, or approximately 7 years of higher education) Certainly there are exceptions to this rule, and unfortunately, TV cameras seem to only catch those who enjoy great wealth. But on average, pastors are compensated 20% less than the average income of those with similar education and experience in other fields. I honestly don’t know anyone in my network who got into this for the money, but if you do, you should fire them for being stupid. Generally, there just isn’t a lot of money to be made in this line of work.
My own association can serve as an example. In 2011 our staff conducted a compensation study (which we do every five years) which segregated pay scales by county (my association includes churches located in 7 counties and 2 states). The highest income levels for pastors were in Howard County Maryland, where I also live, and the mean income (salary and housing) for Senior Pastors in this area in 2011 was $58,463.00. For some, that sounds like a lot of money, until you realize that these men are working in the area designated in 2012 as having the second highest median income levels in the entire country–just over $108,000! Additionally, Lifeway’s compensation study is nationwide, and reveals an average income significantly less than the figure above.
Additionally, it is not uncommon in an area like ours–where a modest single-family home can’t be purchased for less than $400,000– for housing allowances to exceed $35,000. For an area like ours, a $35K housing allowance is really not that high. But with that allowance, the standard of living for pastors, while still not coming close to that of someone making over $100K, can be brought more in line with the rest of the population. Otherwise, most churches, because of their own financial constraints, are paying someone as much as 40% less than the average income in a given area. I’m guessing most people reading this, if they were making 40% less than the average income in their area, wouldn’t be able to live in that area–unless some special provision was made for them.
It eases the burden of complex tax regulations regarding ministers. While the housing allowance for ministers is currently free from federal income taxes, it is not exempt from Social Security taxes. Additionally, ministers are considered “self-employed” for the purposes of Social Security. So, while your employer is paying half of your Social Security and Medicare taxes, leaving you with only a 7.5% burden, pastors and other religious leaders pay the full 15%. Once you do the math on this, paying a $60,000 salary to a pastor means he is only taking home $45,000 after federal income taxes and Social Security taxes if the housing allowance is removed. And we haven’t started talking about state and local taxes yet. I’ve often heard the “tax break” line, even in churches, and its a myth. Once you have navigated through all the various regulations on ministers in the tax code, it becomes apparent that they get no significant tax advantages over anyone else.
The U.S. tax code is especially complex when it comes to ministers. I’d personally love to see it simplified one day, but in the mean time, I don’t think pastors should be penalized just because the way their compensation is viewed by the IRS isn’t well-understood by most. Stop looking at the TV preacher and thinking all pastors are in that situation. 99% are not.
It is fairly given to leaders of all faiths. Judge Crabb’s ruling was based on a single rationale–that it violates the establishment clause of the Constitution. Candidly, such a rationale makes me wonder how Judge Crabb passed 3rd grade reading comprehension, let alone graduated from law school and found her way to the federal bench. The First Amendment states that Congress is forbidden to pass a law that establishes a state religion. But when you consider that the ministerial housing allowance applies to Baptists, Presbyterians, Lutherans, Catholics, Buddhists, Jews, Muslims, and any other recognized religious leaders, it becomes apparent that Congress hasn’t “established” anything by providing a housing allowance in the tax code. Additionally, housing allowances are still allotted today for Peace Corps volunteers, members of the military, and those involved in foreign service to the country. Yes, even Atheist leaders can now be categorized as religious leaders. And let’s be honest, Atheism really is a faith position. So, where exactly is the establishment of religion to which Judge Crabb objects? Ironically, it may be in the ruling she handed down. Differences in denominational convictions relative to church and denomination-owned housing could mean that this ruling widens the disparity that existed between various expressions of faith prior to 1954. Joe Carter of the Ethics and Religious Liberty Commission says it well. “By her decision Judge Crabb has–albeit unintentionally–incorporated a form of denominational favoritism into the tax code. In her attempt to prevent an imaginary violation of the Establishment Clause she has inadvertently created a real infringement.”
99% of the more than 40,000 pastors in our country aren’t rich, and never will be. They work tirelessly and selflessly in the everyday mess of people’s lives for significantly less than they could make if they simply chose another line of work. They do this because they believe it is what they were created for and called by God to do, and the minister’s housing allowance isn’t an unfair advantage. For many pastors, its how they can afford to serve their communities, and bring their own standard of living up to everyone else’s.
Stand up for your pastor on this issue.
For a more thorough history and rationale of the Housing Allowance, see Joe Carter’s post here.