record indicates that the education controls should be left largely to state determination if the bill is to have political success. The restrictions placed in an act relative to the division of funds between the races in states which maintain separate schools are education controls. This phase of federal aid to education has been difficult to resolve in a satisfactory manner because it has brought forth so many emotional and sectional attitudes and differences. The basic motivation for any safeguards as to division of funds is to be found in the apprehension that the southern states would not, if left alone, make an equitable apportionment. This fear has been based on observation of the way in which the southern states divide their own funds between the two school systems. Interestingly enough, the present solution found in the Taft bills of 1946, 1947, and 1948 is not very different from that contained in the Blair bills of the 1880's. The Blair bills would have required that the state apportion the money received from the Federal Government to the minority race in at least the ratio of its population between the ages of ten and twenty-one to the total such population of the state. The Taft bill provides a similar apportionment based upon population ratios of all ages with additional guarantees that Negroes would receive a minimum expenditure per pupil in all educational jurisdictions. One of the most plaguing problems in the whole history of federal aid to education has revolved around the method of allocating the funds among the various states. The way in which the framers of the bill approach the responsibility of the Federal Government determines to a considerable degree the type of allocation formula which will be used. The Reeves Committee, for example, seemed to feel that the Federal Government had an interest in its own right in the education of all the people. Consequently, the inadequacies of the state educational program were of more importance than the ability of states to support an adequate educational system. One political difficulty involved in an allocation formula is that of weighing the effect which the furnishing of federal money to a state will have upon the attitude of that state's representatives toward such a measure. In the 1943 debates, Senator Taft maintained that the reason why the bill did not distribute money on the basis of need was because "so few States would get money that the bill never could be passed."146 Although not all of the federal aid bills have adhered strictly to the principle of fund allocation on the basis of fiscal inability, it is doubtful if the agitation would have been as persistent had there not been the conviction that certain states were too poor to maintain an adequate level of education. Various organizations and groups have held definite and frequently conflicting opinions on the subject of aid. Generally, labor groups have favored federal aid, and the various management groups have been opposed. The teachers' organizations have frequently been in disagreement on the proposed provisions of legislation. The Negro groups have advocated aid under certain conditions. The Catholic 146 89 CONG. REC. 8303 (1943). and Protestant churches have brought their pressure to bear, particularly in the matter of aid for non-public schools. To summarize, a number of factors have blocked the passage of legislation for federal aid to education. The effect which federal aid would have upon the segregated school system of the South; the failure to secure agreement on the formula for allocating funds to the various states; the constitutional questions; the administrative arrangements to secure compliance by the states with the terms of the legislation; the emotional climate in which debate and discussion took place, particularly after the Civil War; the attitudes of the major political parties and their leaders; the fear that federal aid means federal control; and the inability to reach a solution of the controversy as to the use of federal funds for parochial schools-all have contributed to the failure to secure enactment of this legislation. PREFERMENT OF RELIGIOUS INSTITUTIONS IN TAX AND LABOR LEGISLATION MONRAD G. PAULSEN* The great majority of persons agree that the church and the state should remain separated in the United States. Yet it is also generally agreed that religious institutions should be encouraged by relieving them from statutory burdens which other groups in the nation ordinarily bear. The traditional exemption of the church from taxation of its property and income is the principal example of the sheltered position of religious organizations.1 Indeed, Dean Sperry of the Harvard Divinity School has called the tax exemption of churches "the most important governmental recognition of religion made in America. . . ." Religious preferment is likewise manifested by according individuals and corporations who donate to religious institutions a deduction from their otherwise taxable property and income. Certain statutes regulating employers' relationships with their employees also contain exceptions in favor of religious groups. ... I THE TAX EXEMPTIONS ... In the federal tax system corporations, funds, and foundations "operated exclusively for religious, charitable, scientific, literary, or educational purposes" are exempted from the provisions of the federal income tax, provided "no substantial part of the activities [are for] carrying on propaganda, or otherwise attempting, to influence legislation." "Religious or apostolic associations or corporations . . even if such associations or corporations engage in business for the common benefit of the members . . . .' ." are also exempt from income taxation, as are "corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the [net income] ... to an organization which itself is exempt from the tax. " The fair rental value of a parsonage to a minister of religion is exempt from income taxation. 6 Not only are these religious organizations themselves unburdened by federal tax obligations but, within limitations, gifts of tax-free income may be made by taxpayers A.B 1940, J.D. 1942, University of Chicago. Assistant Professor of Law, Indiana University School of Law. 1 A general discussion is to be found in WILLIAM G. TORPEY, JUDICIAL DOCTRINES OF RELIGIOUS RIGHTS IN AMERICA C. VI (1948). See also Killough, Exemptions to Educational, Philanthropic and Religious Organizations, in TAX EXEMPTIONS 23 (1939); CARL ZOLLMANN, AMERICAN CHURCH LAW C. 10 (1933). 2 WILLARD L. SPERRY, RELIGION IN AMERICA 60 (1947). INT. REV. CODE $101(6). • Id. §22(b)(6). to such organizations. Individual taxpayers are allowed a deduction not exceeding 15 per cent of their adjusted gross income for contributions to organizations which are tax exempt.' Business corporations may take a similar deduction in the amount of 5 per cent of their net income. Gifts and bequests to tax-exempt institutions are deductible for purposes of the federal gift and estate10 taxes without limitation. Those states which impose income, gift, inheritance and estate taxes grant exemptions and deductions similar to those found in the federal tax scheme.11 State tax laws also exempt both real and personal property of religious institutions from state and local tax levies. The authority for the exemptions, of course, rests wholly in statutory provisions, which are found in every state, or in constitutional prescriptions. The guarantee of religious tax exemption was considered of sufficient moment to be expressly dealt with in two-thirds of the state constitutions.12 Of these, sixteen require some form of tax exemption to be given, while the remaining sixteen are permissive. . 14 The statutory and constitutional exemptions are of great variety. Most statutes limit the amount of tax-exempt property in one way or another.18 For example, the exemption may extend only to such property as is used for religious purposes, or to such property as is exclusively used for religious purposes.15 A statute may limit the tax-exempt holdings of a church in terms of area16 or, as in New Hampshire, the limitation may be expressed in terms of the total value of property held.1 Drafting the limitations on tax-exempt property in terms of the use to which the property is put is a sure way to raise difficult questions for litigation. Is a parsonage exclusively used for housing a minister of religion entitled to the exemption?18 What of land owned by a church and held for its exclusive profit?19 What of a parking lot for churchgoers adjacent to an urban church ?20 These questions will not be resolved in this paper, but should serve to remind one of the limits within which property tax exemptions operate. II THE PROBLEM OF THE CONSTITUTION • Id. §1004(a)(2). The First Amendment to the Federal Constitution provides in part that Con* Id. §23(0). • Id. §23(q). 10 Id. §812(d). 1E.g., income tax: N. Y. TAX LAW §360 (10)(b); Iowa Code §422.9 (6b) (1946); estate tax: N. Y. TAX LAW $249 c (3); inheritance tax: Iowa CODE $450.4 (2) (1946). 11 12 See TORPEY, op. cit. supra note 1, at 173 n. 10. 18 Minnesota seems to have no limitation on the amount of tax-exempt church-owned property. See MINN. STAT. ANN. §272.02 (West, 1945). However, it has been suggested that actually the Minnesota courts do limit the exemption to property used for religious purposes. Note, Exemption of Property Owned or Used by Religious Organizations, 11 MINN. L. Rev. 541 (1927). 14 E.g., IND. ANN. STAT. §64-201 (Burns 1933). 15 E.g., UTAH CODE ANN. §80-2-1 (1943). 10 E.g., WASH. REV. STAT. ANN. §11111 (1939) (five-acre limitation). 17 N. H. REV. LAWS c. 73, §25 (1942), limits religious tax exemptions to a valuation of $150,000 18 19 30 See First Congregational Church v. Board of Review, 254 Ill. 220, 98 N.E. 275 (1912). See United Brethren v. Comm'rs, 115 N.C. 489, 20 S.E. 626 (1894). See Immanuel Presbyterian Church v. Payne, 90 Cal. App. 176, 265 Pac. 547 (1928). ง gress may make no law respecting the "establishment of religion" in the United States.21 Since 1925 the principles of the First Amendment have been recognized as applicable to the states.22 In addition, most state constitutions similarly forbid laws tending toward the establishment of religion by state governmens. A typical example is to be found in the constitution of Illinois, which provides that "no person shall be required to attend or support any ministry or place of worship against his con"23 Do these provisions of state and federal constitutions prohibit the general exemption of religious institutions from taxation? sent. . . . ... pay. ... Several state courts have answered that question in the light of their state constitutional provisions. In 1877, the Supreme Court of Iowa,24 without divulging its grounds, held a statute exempting church property from taxation not a violation of the Iowa constitutional provision that "the General Assembly shall make no law respecting the establishment of religion ... nor shall any person be compelled to taxes, or other rates for . . . the maintenance of any minister, or ministry. In Garrett Biblical Institute v. Elmhurst State Bank,26 a parallel case under the Illinois constitution, the Illinois court approved a similar statutory exemption for two principal reasons: (1) the states in a Christian nation such as ours should encourage religious establishments to build up "the moral character and better impulses of the heart"; (2) the constitution is not violated if all religious denominations are encouraged by the state through tax exemption without discrimination. "25 In the light of the Everson and McCollum cases, decided under the Federal Constitution, neither ground of the Garrett opinion is sound. In Everson v. Board of Education, payment by a New Jersey school board compensating the parents of children attending parochial schools for the children's bus fare was held not to violate the Fourteenth Amendment to the Federal Constitution. The majority opinion of Justice Black viewed the provision for transportation payment as public welfare legislation applicable to children attending public schools as well as to those attending parochial institutions. He did indicate, however, that New Jersey in making the payments had gone to the "verge" of its constitutional power. Justice Black agreed with the dissenting justices that no tax funds might be appropriated for the support of any institution which teaches the tenets and faith of any church. "Neither a state nor the Federal Government can set up a church. Neither can pass laws which aid one religion, aid all religions, or prefer one religion over another."28 The three opinions written in this case are in agreement as to that fundamental.29 Quite 31 U. S. CONST. AMEND. I. * Gitlow v. New York, 268 U. S. 652, at 666 (1925). In 1875 President Grant suggested a constitutional amendment to provide “. . . that all church property shall bear its own proportion of taxation." HERMAN V. AMES, PROPOSED AMENDMENTS TO THE CONSTITUTION 277 (1897). 23 ILL. CONST. Art. II, §3. 34 Trustees of Griswold College v. Iowa, 46 Iowa 275, 26 Am. St. Rep. 138 (1877). 25 IOWA CONST. Art. I, §3. 26 331 Ill. 308, 163 N.E. 1 (1928). See also Trustees of First Methodist Church v. Atlanta, 76 Ga. 181 (1886). 27 330 U. S. 1 (1947). 39 28 Id. at 15. (Italics supplied.) "Of course, the state may pay out tax-raised funds to relieve pauperism but it may not under our |