[Congressional Record Volume 143, Number 1 (Tuesday, January 7, 1997)]
[Extensions of Remarks]
[Page E55]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INEQUITY IN THE TAX CODE

                                 ______
                                 

                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                        Tuesday, January 7, 1997

  Mr. CRANE. Mr. Speaker, today I am introducing legislation designed 
to end an inequity that currently exists in our Tax Code. The Federal 
Unemployment Tax Act [FUTA] exempts certain churches and religious 
organizations operated by churches from having to pay State 
unemployment taxes. This exemption extends to schools directly operated 
by churches. Although church-operated schools are exempt, there is one 
class of religious schools which is presently not exempt--schools 
which, in equity and fairness, and for constitutional reasons, deserve 
this exemption.
  The schools in this nonexempt class are religious schools which are 
not operated by churches, but are instead operated by lay boards of 
believers. Such schools are as pervasively religious as the church-
operated schools. Indeed, nonchurch religious schools would not exist 
except for their religious mission and are, in every way except church 
affiliation, religiously indistinguishable from exempt schools. It is 
my understanding that these schools constitute about 20 percent of the 
membership of the Protestant evangelical schools in the country, and 
that, in addition, Catholic, Jewish, and other Protestant schools fall 
into this category.
  Quite simply, these schools should not have to bear the burden of the 
FUTA tax. The intent and purpose of these schools are the same as those 
operated by churches. Not exempting such schools raises serious 
constitutional questions with respect to the free exercise and 
establishments clauses of the first amendment as well as the equal 
protection clause of the 14th amendment. Although an effort was made to 
bring this issue before the Supreme Court, the Court did not reach the 
merits and dismissed the case on other grounds. Recognizing the 
constitutional issues involved, the U.S. Department of Labor deferred 
the initiation of conformity proceedings for roughly 2 years against 
States which exempt these schools from State unemployment tax ``until 
the constitutional issue is definitively resolved.'' The constitutional 
issue has yet to be resolved and the Department of Labor has since 
started enforcing its interpretation of the law.
  My legislation will clarify this issue once and for all by simply 
amending the Internal Revenue Code to provide that service performed 
for an elementary or secondary school operated primarily for religious 
purposes is exempt from the Federal unemployment tax. Many Members of 
Congress will find religious schools in their district that fall into 
this nonexempt category, and, moreover, will find that these schools 
merit equitable and constitutional treatment. I would ask my colleagues 
to join me in an effort to bring equity to this section of the Tax 
Code.

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