Changes to the church financing systems - common suggestions and recent developments in the light of the model developments in the light of the model

In order to evaluate suggestions for the future development of church financing systems, some criteria or objectives need to be defined. Without doubt the perfect church financing system differs depending on whom one asks. From the point of view of church tax payers, their individual utility matters. For the beneficiaries of the system, such as churches and secular charities and their clients, the maximization of revenues is important. For the religious communities, maximizing the number of members can also be an aim. These three objectives will be considered for each suggestion.⁴⁹

The following suggestions will be discussed:

 making the tax assignment system more efficient by letting taxpayers decide how their secular contributions are used;

 separating church membership from the duty to pay church taxes in the church tax system;

 switching from the church tax to the tax assignment system.

3.6.4.1 Making the tax assignment system more efficient

Looking at the implementation of the tax assignment system in Italy, one can conclude that until the mid-2000s the government used most of its revenues for the conservation of cultural heritage and neglected the other purposes listed in the law (Pistolesi, 2006: 170). The Italian government even has the possibility to use some of the revenues for non-charitable purposes (Pistolesi, 2006: 175; see also Servizio studi del Senato, 2012: 3-4), which it has used extensively in recent years. For example, in 2011 it was not possible for charitable organizations to get any funding from the state’s revenues of the “otto per mille” since it was spent exclusively on firefighting planes for the Office of Civil Protection and the renovation of prisons (Governo italiano, 2012). Furthermore, the government does not advertise in order to convince citizens that they should assign their taxes to the state, while churches, in particular the Catholic Church, do. Judging from the actual implementation of the tax assignment system in Italy, it appears as if the government consciously disincentivizes citizens to attribute their taxes to the state, possibly in an attempt to favor religious communities as receivers of the funds.

There have been various – unsuccessful – initiatives to extend the scope of charitable purposes supported and to allow financing of municipal governments, scientific research, a foundation for women and families, associations that support the handicapped or large private charities (Carmignani Caridi, 2006: 150-156). This again suggests that citizens are not satisfied with the way the state uses its revenues from the assignment tax, or in the terms of my model, that is low. As a consequence, more people might attribute their taxes to religious organizations at the possible cost of diminished contributions to secular purposes.

One conclusion from such a strategy by the state is that the state tries to avoid competition between church and state for the revenues of taxpayers. Such competition in fitting parameters is inherent in the tax assignment system (see Meuthen, 1993: 195 and sources therein), but can be avoided if one of the participants consciously uses its revenues in a way that is not in line with taxpayers’ preferences.⁵⁰

A possibility to make the Italian tax assignment system more flexible, foster competition and thereby increase the utility of taxpayers is to increase the number of possible choices. The state could also take up previous suggestions and broaden the scope of activities that are supported by tax revenues – if these activities correspond to the preferences of many Italians.

This idea could be taken a step further by allowing individuals to name one or more charitable organizations on their tax returns which should receive their taxes. In fact, a similar system exists in Italy. Apart from the assignment tax or “otto per mille”, there is a separate regulation which is called “cinque per mille” (“five per thousand”). Here taxpayers have the possibility to assign 0.5 % of their income tax amount to various non-profits, local social assistance centers, universities and research institutions that they name on their income tax returns (see http://www.cinquepermille.net/). All these measures increase the variable in the model.

Furthermore, instead of a binary choice between assigning taxes to the church or the state, individuals could be given the possibility to split taxes between the two destinations. Again, this would adjust the system to the preferences of individuals, because they are no longer forced to make higher than individually efficient contributions to just one of the two

50 The tax assignment system was originally introduced to replace the previous system of state financing of the Catholic Church with a different system. If the state presented itself as a more attractive beneficiary of the tax system than the church, revenues of religious organizations could drop significantly and the target for which the

“otto per mille” was created would be missed.

destinations while for the other cause only the possibility to make voluntary contributions remains.

It is easy to see that such measures increase the individual utility for those who want to give at least some of their tax money to the state and leave utility unchanged for those who attribute the whole tax amount to the church.

With the measures discussed above overall charitable giving will decrease, which can easily be seen when one remembers that the drivers of above-benchmark giving in tax systems are the low perceived fitting with respect to the use of revenues by the institutions receiving the tax and higher than individually optimal tax rates. When fitting is increased or taxes can be split up between the causes that one would like to support, these drivers of above-benchmark giving are reduced. If the state unilaterally increases its fitting parameter, it will increase its revenues while the church will lose both taxes and voluntary contributions. When taxes can be split up between churches and the state, it is a priori unclear who profits and who loses.

However, in the end aggregate giving will more closely resemble the distribution of and in society.

Within the model framework the ideas and suggestions discussed in this section do not have any effect on church membership numbers.

3.6.4.2 Free church membership in the church tax system

In September 2012 the Federal Administrative Court of Germany decided about the legal challenge of a retired professor of church law. He demanded the right to disaffiliate from the church as a corporation under public law (“Körperschaft öffentlichen Rechts”), which collects church taxes, but at the same time he wanted to remain a member of the Roman Catholic Church as a religious community. The court decided that the professor has the right to state that he only wants to leave the corporation under public law, but that the consequences thereof are a matter of the Church, not of the state. (Schilder, 2012)

Days before the decision by the Federal Administrative Court, the German Bishops’

Conference published a decree stating that the declaration of church disaffiliation in front of a state authority is a violation of church members’ “obligation to maintain communion with the church” and their “obligation to assist with the needs of the Church so that the Church can fulfil its duties” (Deutsche Bischofskonferenz, 2012 [my own translation]). The decree also lists the consequences of church disaffiliation:

 loss of right to receive sacraments (repentance, Eucharist, confirmation, anointing of the sick)

 loss of right to hold an office in the church

 loss of right to be godfather or sponsor

 loss of right to vote in the church

 loss of right to be in a church council

 loss of right to be a member of a church association

 religious weddings only possible under additional provisions

 religious funeral can be denied

 consequences for church employees according to specific regulations for church employees

 loss of right to work as religious education teacher or as professor of theology.

Both the court’s decision and the bishops’ decree made it clear that there will be no separation of the duty to pay church taxes and the right to enjoy membership benefits. In the terms of the model, a separation of church tax payments and entitlement to membership benefits would imply a change from the church tax to the voluntary giving system, since the church tax would only be a suggestion for an adequate contribution (such as tithing in parts of US churches). For the model church member, such a change would increase his or her utility since the individual could decide about his or her optimal level of giving without constraints and everybody who has a non-negative utility from membership could be a member.

The model implies that total contributions to the church decrease and their structure changes as well. One would expect to see more voluntary contributions, which are likely to be earmarked, and less church tax revenues, since only those individuals who fully agree with the use of revenues by the church ( ) would pay church taxes. In contrast, voluntary contributions to secular charities would increase.

Furthermore, there should be an increase in the number of church members, since the costs of church membership are zero in the voluntary giving system, but can be considerable in the church tax system, while membership benefits remain constant.

3.6.4.3 Replacing the church tax system with a tax assignment system

Opponents of the church tax system in Germany often suggest a reform of the church financing system and the introduction of church financing through tax assignment or through

completely voluntary contributions without any state interference (see Branahl, 1992: 34-42;

Feldhoff, 1996: 41-48).

Assuming for a moment that the tax rates in the church tax and the tax assignment systems are the same, it is not possible to say which system generates the highest total contributions to charitable causes. In the tax assignment system the state can be a highly attractive alternative to religious giving that allows individuals to fulfil their demand for charitable giving such that additional secular giving will be reduced to a minimum. Consequently, overall giving is lower than in the church tax system where all church members are forced to choose the church as the receiver of the money, and to make additional voluntary contributions if the perceived fitting with respect to the church is low.

However, if the tax rate is sufficiently high or the fitting parameter with respect to the church is low in the church tax system, a significant share of church members, in particular those with a high income, will disaffiliate from the church in an attempt to elude the tax. In that case, the tax assignment system will generate higher revenues. In the church tax system the churches’ ability to raise revenues above the level that would be given completely voluntarily critically depends on the benefits that the churches provide. However, in the previous decades social pressure to be a church member has diminished and more secular alternatives to religious groups, religious counselling or religious festivities exist. All these developments diminish the benefits of church membership. At the same time, the number of non-religiously affiliated organizations and charities has increased and it is easier nowadays to find an organization which supports the charitable activities one prefers. As a result, churches face two types of people who drop out: those who turn away from the church completely because they do not feel any benefits of membership and those who want to stay close to the church but prefer to decide independently which church-related projects they support financially.

This leads to the second question how a change from the church tax to the tax assignment system will affect church membership numbers. In the tax assignment system there is no financial incentive to leave the church. All individuals with positive membership benefits are members. Consequently, membership numbers are higher than in the church tax system.

The overall effect on individuals’ utility is unclear. For church members who attribute their tax to the church in the tax assignment system, nothing will change.⁵¹ Church members who decide to attribute their money to the state profit since the tax in the assignment system offers

them an alternative that is more attractive to them than giving to the church. Most non-members lose, because they are forced to pay taxes and give them to some organization that they might perceive as not acting in accordance with their preferences. However, there can also be some non-members who profit. Imagine a person has left the church because he or she disagrees with the use of revenues by the church, but still he or she has positive membership utility. Such a person might profit from the introduction of the tax assignment system because it provides the individual with the possibility to be a church member but still attribute the taxes to secular institutions, which might have a better fitting than the church.