Tax policy exerts unhealthy pressures

Federal tax policies are exerting unhealthy pressures on our economy and other aspects of our society. Think about how you choose your investments. Surely you take into account how the proceeds will be treated by the IRS. Sometimes you may choose an investment with lower yield or less safety because it has favorable tax treatment.

In the consulting field where I work the relationship between a contract worker and his client is heavily influenced by the tax man. Most companies have a well-founded fear that the IRS will consider contractors as employees and impose all kinds of federal requirements on the relationship. This is in spite of whatever the contractor may do to show that he is independent of the client.

The result is that many independent contractors are forced to establish an essentially fictitious employment relationship with one of the client's "preferred vendor" recruiting companies. Inserting this middleman distorts the market by ensuring that the client pays much more for the consultant's services, while the consultant is paid much less. Without the IRS involvement, a market would quickly develop for independent contractors to work directly for clients at rates more favorable to both parties.

Worst of all is the growing IRS oversight of the preaching in our churches, and the speech of "non-profit" organizations in general. The First Amendment does not contain any exceptions to the guarantee of freedom of speech or religious practice. Yet because the federal government indirectly funds all "non-profit" activity through tax deductibility of contributions, the government presumes to regulate what these organizations can say to the public, and even to their own members.

In the run-up to this fall's congressional elections, IRS surveillance of churches has been increasing. According to an article in the September 29, 2006 AD Washington Post, "…the Internal Revenue Service warned that it would be scrutinizing churches to make sure they do not violate their tax- exempt status. Groups both liberal and conservative have responded by lodging numerous complaints against churches with the IRS."

Even before this ominous IRS announcement, the level of such government activity has been alarming. The Post article claimed that "In 2004, the IRS launched investigations of 110 organizations; of the 90 it completed, it found violations in about 70 percent of the cases. In 2005, the agency began audits of 70 churches and charities, which are still pending. It has 40 cases pending this year, a time when IRS officials have promised to redouble their scrutiny."

Whenever the IRS receives a complaint about a sermon or other material having political content, it may launch an investigation into whether there was an attempt to influence an election. If the speech in question is determined to violate IRS rules, the organization will be threatened with loss of tax exempt status. So far, only one church has actually lost its status: "…a church near Binghamton, N.Y., that was penalized in 1995 after running newspaper ads against Bill Clinton in 1992." Presumably the rest of the churches caved under the threat and changed what they preach.

The highest profile case right now involves a leftist church in California whose guest pastor delivered an anti-war sermon just before the 2004 election. Churches being investigated in the other cases span the political spectrum.

As a Lutheran Christian, I believe that churches should confine their public ministry to preaching Law and Gospel. If listeners are led to believe that Christianity is only for those with a particular political viewpoint with which they cannot agree, they may turn away in disappointment and their souls may be endangered.

Others, however, are entitled to disagree with this opinion about sermon topics. The First Amendment guarantees their right to preach about politics from the pulpit to their hearts' content. Indeed, when serious moral issues such as abortion or war are involved, a pastor may be obligated by his understanding of his church's doctrine to preach about it, and support or oppose candidates based on their stance on the moral issue. The point is that the decision about what to preach belongs rightfully to the church, not to the government.

Congress's intentional social engineering through taxation is the source of the problem of undue IRS influence. It is so pervasive in the innumerable pages of the tax code that I believe it could never be rooted out. We need to be looking for a new model of taxation that has minimum impact on economic, social or religious choices of Americans.