By Rabbi Steve Fox
and Michael Gan
Special tax treatment for religious institutions and clergy has been part of American society since colonial times, when each of the original thirteen colonies recognized a tax exemption for what is called ‘parsonage’ – religious property. It’s part of the unique way Americans treat religion, part of the way in which we are exceptional. Congress first codified this in 1921, when the federal tax code permitted ministers to exempt the rental value of their congregation-provided homes. Congress has amended that provision since then: in 1954, to allow clergy who do not live in a congregation-owned home to deduct their housing expenses, and in 2002, to cap the exclusion to the fair rental value of the home.
But legal challenges to these tax exclusions continue to come up in federal court. In a case recently filed in the U.S. District Court for the Western District of Wisconsin, the Freedom From Religion Foundation (FFRF) is challenging the constitutionality of clergy excluding their housing expenses from their gross income. This is the second time in less than five years that FFRF has attempted to eliminate this benefit for clergypersons and the communities they serve. Should this latest challenge to parsonage succeed, Jewish communities and congregations around the United States will suffer.
It is an oversimplification to frame the parsonage exclusion as a tax benefit enjoyed only by clergy. In reality, the exclusion benefits religious communities as a whole. Rabbis routinely use their homes to host congregants for Shabbat meals, study sessions, and other community events. The rabbi’s home is not just the place that he or she returns to after working all day at the synagogue. It is a central gathering place for the local Jewish community. The parsonage exclusion acknowledges this and helps rabbis maintain homes suitable for these communal purposes.
The parsonage exclusion makes it possible for small Jewish congregations without significant resources to afford a rabbi. Without the parsonage exclusion, many small congregations would not be able to adequately compensate their spiritual leaders. And for synagogues with buildings in costly locations, the parsonage exclusion provides a means to keep their rabbis living close to their congregations, when they might otherwise be priced out of the neighborhood.
It is important, however, not to overstate the financial benefit of the parsonage exclusion. The tax code treats clergy differently than secular employees. For example, clergy are required to pay 100 percent of their Social Security and Medicare taxes, while everyone else is only required to pay half their taxes (with employers paying the other half).
Parsonage is not actually a benefit to clergy denied to other citizens. It is instead an exclusion from special taxes that clergy receive as part of a different tax structure.
Many experts argue that, rather than creating a problem, the exclusion actually helps to further the First Amendment’s goal of disentangling the state from religion. The parsonage exclusion is designed to separate church and state through a policy of non-taxation.
Without the parsonage exclusion, the IRS would be forced to determine on a case-by-case basis whether functions and activities performed in the Rabbi’s home are an extension of the congregation’s business or qualify as another tax deduction or exclusion. The First Amendment was designed to protect against this very type of state intrusion into religion.
History matters here. The parsonage exclusion existed in the United States before, during, and after the drafting of the Constitution. Had the Founders believed parsonage exclusion violated the Constitution, Congress would have stuck it down many decades ago. But policymakers know that striking down the parsonage exclusion violates the Establishment Clause’s prohibition against hostility toward religion.
The federal tax code provides housing exemptions similar to the parsonage exclusion for a variety of secular employees and individuals, such as members of the Foreign Service; some members of military; people living in low-income housing; and certain employees who are required to live at their place of work. Singling out clergy for condemnation for receiving a housing benefit – simply because they are clergy – constitutes state hostility toward religion.
The parsonage exclusion plays an important role in the spiritual lives of rabbis and Jewish communities around the country. And while we believe the exclusion is constitutional, the courts will have the final say. All faith traditions should have an interest in what happens to the parsonage challenge – any change could dramatically impact their relationships, not only with their clergy but with our government as well.
Rabbi Steven Fox is the Chief Executive of the Central Conference of American Rabbis (CCAR), the rabbinic leadership organization of Reform Judaism in North America and worldwide.
Michael J. Gan is a partner at Peer, Gan & Gisler LLP in Washington, DC, where he practices labor and employment law. He has represented rabbis in employment contracts and other matters for more than 15 years.