Germany’s Church Tax

A couple days ago, the Wall Street Journal highlighted (subscription required[fn1]) the accelerating loss of members certain churches in Germany are facing. The popular press is placing the blame at least partly on the new administration of Germany’s Church Tax.

What? you ask. A church tax? What’s that?

So glad you asked.

Roots of Germany’s Church Tax

Germany’s Church Tax finds its roots in the Reformation. In the broadest strokes:[fn2] Some Germanic cities accepted Lutheran ideas; if a city council liked Lutheran ideas enough, it seized property belonging to the Catholic church. Deprived of its property—including productive property from which the church earned money—Catholic churches in Germany faced real problems supporting themselves. Finally, in the Religious Peace of Ausburg, the ruler of each Germanic region was tasked with selecting Lutheranism or Catholicism within his territory and supporting the chosen church.

As Germans started migrating to cities and towns,though, agricultural and productions tithes, which had formerly supported local churches, became less and less relevant and were eventually abolished. Local governments had to find new ways to support churches and, eventually, turned to taxes.

Fast-forward to the post-WWI Weimer Republic: Germany codified the Church Tax at the federal level. And, as best as I can tell, that Church Tax and today’s Church Tax are largely the same.

How the Church Tax Works

As I understand it, the way the Church Tax works is this: religious organizations in Germany can qualify to be treated as public law corporations. Public law corporation status provides a number of benefits, including exemption from income, inheritance, and gift taxes, the right to employ clergy as civil servants in various public facilities, and exemption from bankruptcy laws. In addition, public law corporations can impose the Church Tax on their members.

Churches actually get to draft their own tax ordinances (though the ordinances must be approved by the state). Generally, state statutes provide forms that these Church Taxes can take, including income, wealth, and property taxes. Though churches are technically responsible for collecting the tax themselves, they can—and usually do—enlist the state’s help. The government collects the tax through its wage withholding, then, after keeping a service fee, remits the rest of the Church Tax to the relevant church. When the Church Tax is imposed on a member’s income, it’s levied as 8 to 9 percent of her federal income tax liability, which amounts to between 3 and 4 percent of her income.

What’s Made the Church Tax Particularly Controversial Recently?

Two things: first, in 2012, a German court held that churches could bar people who stopped paying the tax (by civilly withdrawing from the church) from participating in church activities, including becoming godparents and joining church-run clubs.

Second, church members will no longer be able to avoid paying the Church Tax on their capital gains. While technically it has always been imposed on capital gains, in the past, banks waited for customers to volunteer their religious affiliation. Under new rules, banks are required to report their customers’ affiliation, rather than wait. That is, while the underlying law hasn’t changed, the enforcement mechanism has just improved.

So What Does This Have to Do With the Mormons?

Not a lot, right now. The Catholic and Evangelical churches in Germany are the biggest users of the Church Tax mechanism, and some Jewish congregations use it, too. The Mormon church is a public law corporation, but, as best I can find, doesn’t use the Church Tax mechanism.

But imagine we did. Would the financial savings be worth formal disaffiliation? See, this seems like a really easy tax to avoid—in fact, it is a really easy tax to avoid, if you believe that religious affiliation doesn’t matter. But for believers, there are frictions that impede the complete evasion of the Church Tax. That is, if being a member of a religious community matters, then there is a cost to the disaffiliation, and individual members, I suppose, have to decide which cost is more salient to them.Ultimately, for me, the salvific ordinances, combined with the sense of community engendered in formal religious affiliation, would be worth paying the tax.

Postlude

Like I said, I’m not super-familiar with German law or culture (or taxes); most of the substance of this post comes from an academic article and news reports I’ve read over the last couple days. So tell me what I’m missing. And tell me about the church taxes you’re familiar with. (It’s worth noting that a number of other European countries also have church taxes, albeit with different designs and different histories. Also, as Prof. Hoffer points out, church taxes were a relevant part of American history.)

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[fn1] If you don’t subscribe to the WSJ, you can get relevant excerpts from the article at Paul Caron’s TaxProf blog.

[fn2] And I seriously mean the broadest strokes: German history is not my specialty, but it’s important to understanding what may be happening to church membership in Germany. Any history I don’t link to in the body of the post comes from Stephanie R. Hoffer’s “Caesar as God’s Banker: Using Germany’s Church Tax as an Example of Non-Geographically Bounded Taxing Jurisdiction.”