The Ethics & Religious Liberty Commission (ERLC) and GuideStone Financial Resources protested a Nov. 22 decision by federal Judge Barbara Crabb that struck down the portion of a 1954 federal law that allows clergy to exclude for federal income tax purposes a portion or all of their gross income as a housing allowance. Crabb ruled that the provision violates the First Amendment's prohibition on government establishment of religion.
Crabb, a judge in the Western District of Wisconsin, blocked enforcement of her opinion until the appeals process in the lawsuit is complete.
In a combined news release Nov. 23, ERLC and Guidestone officials expressed their solidarity in working to protect the housing allowance.
"The clergy housing allowance isn't a government establishment of religion, but just the reverse," ERLC President Russell D. Moore said. "The allowance is neutral to all religions. Without it, clergy in small congregations of all sorts would be penalized and harmed.
"We will continue to fight to protect the housing allowance, because we believe clergy are essential for flourishing, vibrant communities," Moore said.
GuideStone President O.S. Hawkins said, "Although this particular case does not have immediate impact, we know that pastors and others in ministry are facing challenges in our very own nation as never before. This decision, while not unanticipated, is sadly symptomatic of our culture today. We count it a privilege to be an advocate for those who have given their lives to ministry – and we will not forsake our mission to undergird those who so faithfully serve our churches and ministries."
At its website, GuideStone describes the housing allowance as "the most important tax benefit available to ministers. Section 107 of the Internal Revenue Code allows 'ministers of the gospel' to exclude some or all of their ministerial income designated by their church or church-related employer as a housing allowance from income for federal income tax purposes."
The allowance has been especially helpful to smaller congregations because their pastors or ministers -- who typically receive lower salaries -- benefit from part of their income being non-taxable.
A 2002 estimate offered by then-Rep. Jim Ramstad of Minnesota said the housing allowance would save ministers $2.3 billion in taxes during the following five years.
Crabb's decision came as no surprise. In 2010, she ruled the National Day of Prayer violates the establishment clause. A three-judge panel of the Seventh Circuit Court of Appeals in Chicago unanimously struck down Crabb's ruling the following year. The appeals court ruled the Freedom From Religion Foundation (FFRF) did not have standing to bring the lawsuit.
FFRF, which is based in Madison, Wis., was qualified to sue federal officials in the housing allowance case, Crabb ruled, and its co-presidents celebrated the judge's decision. "The rest of us should not pay more because clergy pay less," Laurie Gaylor and Dan Barker said.
Barry Lynn, executive director of Americans United for Separation of Church and State, said in a statement for Baptist Press, "The clergy housing allowance exemption is a special government subsidy extended only to religious leaders. On those grounds, it appears to be a violation of church-state separation.
"The exemption was crafted during a time when many congregations maintained parsonages and were structured much differently than they are now. I'm sure this decision will be appealed. Regardless of what happens, I hope America's religious and political leaders take this opportunity to consider revamping some old practices that may no longer make sense in the modern era."
Defenders of the housing allowance appeared hopeful the Seventh Circuit Court would again reverse Crabb.
In response to questions after the ruling, Thom S. Rainer, president of LifeWay Christian Resources of the Southern Baptist Convention, predicted in a Nov. 25 blog post that Crabb's decision "will eventually be overturned or reversed" but the housing allowance "will continue to be challenged."
Rainer advised ministers to be conservative as they deal with the issue. "If at all possible, do not be dependent on the tax benefits garnered from having a housing allowance," he wrote. "Look carefully at the tax benefits you gain with the housing allowance. Be prepared to know what to do if the benefit goes away."
In her opinion, Crabb said the housing allowance "provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise."
She wrote, "Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility."
If a law "imposed a tax solely against ministers (or granted an exemption to everyone except ministers) without a secular reason for doing so, that law would violate" the U.S. Constitution, Crabb said.
While she ruled the housing allowance breaches the establishment clause, "this does not mean that the government is powerless to enact tax exemptions that benefit religion" as long as they have a secular purpose, Crabb wrote.
The case is FFRF v. Lew and Werfel. Jacob Lew is secretary of the Treasury and Daniel Werfel is acting commissioner of the Internal Revenue Service.
Tom Strode is the Washington bureau chief for Baptist Press. With reporting by Martin King, director of communications for LifeWay Christian Resources.
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