Efforts under way to save housing tax exemption for clergy
By Frederic J. Frommer
WASHINGTON -- A Minnesota congressman is trying to limit the housing tax exemption for members of the clergy -- in an effort to save it.
Republican Jim Ramstad hopes Congress passes his bill before a federal appeals court in California throws out the "parsonage exemption" altogether. That court was asked to settle a dispute on the size of the exemption, but decided to first review whether the exemption is constitutional.
Religious leaders say clergy rely on the 81-year-old exemption to make up for relatively low salaries and would face a huge tax increase if it's scrapped. The Congressional Joint Committee on Taxation has estimated that eliminating the exemption would cost pastors an additional $2.3 billion in taxes over five years.
"Talk about a classic case of judicial overreach," Ramstad said. "This case has been hijacked by a left-wing activist court in San Francisco."
Ramstad's bill would clarify that the exemption is limited to the fair market rental value of the pastor's house, which would resolve the issue in the California case on the side of the IRS and pre-empt an adverse court decision.
He said members of the tax-writing Ways &; Means Committee, on which he serves, gave him a positive reception Wednesday, and he hoped to have a House vote on the bill by the end of the month.
"Thousands of American clergy need our help to stop this travesty," Ramstad said. "Virtually every clergy member in every denomination relies on this exemption."
The Rev. Rolf Olson, senior pastor at All Saints Lutheran Church in Cottage Grove, Minn., said that when he started out as a young pastor 21 years ago making $18,000 a year, he couldn't have afforded a home without the exemption.
Now 47, Olson makes a little over $50,000 a year, and designates $14,000 for housing -- meaning he pays no federal income taxes on that amount (although he does pay state and Social Security taxes on it). The housing allowance pays for his mortgage, utilities and other housing expenses such as furniture and home repairs.
"The salary structure for clergy is significantly less than for those with equivalent educational levels," he said. "So it helps to balance out modestly the disparity between a pastor with eight years of post-high school education and a lawyer with seven years of post-high school education."
Olson also said that because pastors tend to move around a lot, it's more difficult for them to build up equity in a single house.
In the California case, the IRS challenged a $79,999 housing deduction that the Rev. Richard Warren, a Baptist minister, took on a house he purchased for $360,000 in 1992. The IRS said Warren was entitled to the "fair market rental value," which it said was $59,479.
A federal tax court sided with Warren. When the IRS appealed to the 9th U.S. Circuit Court of Appeals in San Francisco, it didn't challenge the constitutionality of the exemption -- that would amount to the government challenging its own laws. So the court enlisted a University of Southern California law professor, Erwin Chemerinsky, to file a brief in the case challenging the exemption. He has until May 3.
Chemerinsky acknowledged that the exemption is important in compensating pastors who don't make much money but said it's unfair if they're the only low-paid professionals who get it. That's what makes it unconstitutional, he said.
"We should do the same thing for teachers who receive little pay," he said. "The more it's claimed that this is necessary for the survival of churches, the clearer it becomes this is government subsidizing religion."
A law could be crafted to provide the exemption to people who have to live on or near where they work, he said, because that would not treat religious officials differently.
Ramstad's bill, Chemerinsky said, might get the California case dismissed, "but it doesn't get the constitutional issue resolved. It will come up in another case."
9th U.S. Circuit Court of Appeals: http://www.ca9.uscourts.gov/
Rep. Jim Ramstad: http://www.house.gov/ramstad/