SENATE FINANCE

И

The committee met, pursuant to notice, at 10 2221, Dirksen Senate Office Building, Hon. Robe man) presiding.

Present: Senators Dole, Packwood, Danforth Symms, Grassley, Byrd, Matsunaga, Moynihan, I sentative Charles B. Rangel.

[The press release announcing hearings, the pre of Senators Dole, Symms, Grassley, and Hart, and rial prepared by the Joint Committee on Taxation

[Press Release No. 82-104, January 18, 1982, Committee on Finance

SENATE FINANCE COMMITTEE SCHEDULES HEARING ON PROPO DENY TAX-EXEMPTION TO RACIALLY DISCRIMINATORY PR The Honorable Robert J. Dole, Chairman of the Comm nounced today that the Committee has scheduled a hearin would deny the benefits of tax-exempt status to private school discriminatory policies.

Chairman Dole stated, "The President has specifically aske assure that private schools that discriminate on the basis of ra ed from income tax. I have assured the President that the Fi act expeditiously to consider the Administration's proposals in

Dole added, "Today the President sent proposed legislation in his capacity as President of the Senate. I intend to intr when the Senate returns next week.

"In his cover letter transmitting the proposed legislation, th his desire for early Congressional action in the following wa cooperation in working with you to enact such legislation as r urge that you give this matter the very highest priority.'

The hearing is scheduled for Monday, February 1 at 10:3 Dirksen Senate Office Building.

STATEMENT OF CHAIRMAN DOLE

Today we open the first round of hearings on legislation exempt status to private schools that discriminate on the basis today only from Administration witnesses; however, we expect date to receive testimony from the many public witnesses

matter.

Racial discrimination in any form is abhorrent. Nevertheles is particularly repugnant where it restricts the availability o nity, which is one of the basic underpinnings of American der

(1)

lieve that racial prejudice is fundamentally wrong and a socially des think it should be made clear that private schools which discriminte race should not be eligible for the benefits of an exemption from F Otherwise, the Federal Government can be viewed as tacitly encoura crimination in education by conferring the advantages of tax-exemp criminatory institutions.

Desipite my conviction that discriminatory schools should be den status, we must be careful that our zeal to eradicate racial discrimin result in any infringement of religious freedom, an equally strong ten democracy. The majority of private schools in this country have a ation. Many of these schools sincerely believe that past Internal R nondiscrimination policies and enforcement efforts have run roughsh tutionally guaranteed religious liberties.

Thus, if we are to legislate on this issue, Congress needs all the g get concerning how to resolve the conflict between nondiscrimination first amendment religious liberties. I am one who hopes that it is st the Supreme Court to decide the Bob Jones and Goldsboro Christian S that Congress can benefit from the Court's wisdom on these difficult issues.

I look forward to the light that the witnesses today can shed on this issue.

STATEMENT OF HON. STEVEN D. SYMMS

Good morning. Today, the Senate Finance Committee is faced with a sion. It must amend the IRS Code to make clear what private actions al Civil rights policies to such an extent that the government must d emption. At the same time, it must scrupulously avoid comprising wh the most cherished of all of our freedoms, the right to practice one's rel without subjecting oneself to government scrutiny. It must avoid at all up a mechamism, that in the future, could be used to compel educati tions in this country to choose between revising their teaching to accor rent Federal orthodoxy or ground out of business.

The issue before the Senate Finance Committee is whether or not th a sincerely held religious belief, by a pervasively religious private instit is not the recipient of direct or indirect financial assistance from gover result either in the denial of its tax-exempt status, with the necessarily possibly fatal, economic harm which must result therefrom, or the com donment of an article of faith.

In examining the issue of tax exemptions, the Senate Finance Com decide whether it will adhere to the fairly new philosophy underlying th "tax expenditures." The theory of "tax expenditures" was, I believe, Stanley Surrey and implemented during his tenure at the Department o ury during the Kennedy Administration. The "tax expenditure" theo that all income and possessions belong to the State and that it is an exp Government if some portion of that individual's possessions are returned vidual. Until the 1960's, the United States Government's tax policy wa the premise that each individual was obligated to pay a portion of his inc Government for services that the Government provided to those living in protected by the Government of the United States.

If we make the assumption that all possessions and income belong to then a tax exemption could be considered a subsidy. If we believe that in possessions belong to the individual but that the individual must pay a fee in and being protected by the Government, then a tax exemption cannot ered a subsidy.

I would like to state at this time that I am and have been a strong op discriminatory policies and of those who practice discrimination of any son ally, religions that discriminate are abhorrent to my own sense of ethics more, religions founded for the sole purpose of establishing educational in that will allow them to discriminate are, in my opinion, religions that are fide religious institutions. However, whether a particular religious inst bona-fide should be an issue that is settled by the IRS proving, in our cour particular religion is not a bona-fide religious institution.

Nevertheless, I am hopeful that the Committee and the Congress will equitable and Constitutional decision on this issue if forced to legislate

so expandea, even tnougn it naɑ never reiused an application o would not only have to prove its absence of discriminatory in have to advertise for minority students and faculty members enrollment guidelines dictated by the IRS.

Congress sought to intervene and prevent implementation of cies through annual re-passage of the Ashbrook-Dornan amend ly losing a case brought against it by civil rights activists, howe ed in having a federal court mandate the IRS's proposed regul trary legislation. Until last Friday the whole matter was to ha the United States Supreme Court in the case of Bob Jones States.

On January 12, officials of the Treasury and Justice Depar release that was, in effect, an admission that the IRS had tres territory when it attempted to define legitimate tax-exemp They conceded that the Code did not explicitly authorize den for racial discrimination "except in the case of social clubs." T rized its position as follows:

"The Justice Department has advised that both the languag and the statute's legislative history provide no support for the tion adopted by the Commissioner in 1970. Thus the IRS is w thority to deny tax-exempt status to otherwise eligible organiza that their policies or practices do not conform to notions of na

PUBLIC OPPOSITION TO IRS REGULATIONS

For over ten years these regulations had been vigorously of racial concerns, but rather because of the intrusiveness and of 1978, the IRS scheduled hearings on proposed regulations in was deluged with more mail than it had ever received on any thousand people from these groups came to Washington and the public hearings on the matter, again a record turnout. So c dox Jews about this unprecedented assertion of government p fied against the proposed revenue procedure at the IRS hearin amicus brief in the Bob Jones University case before the U.S. S Objection to these regulations from so large and diverse a because they created a presumption of guilt against all privat tion that required any school, no matter how innocent, not only and records to IRS agents, but also to take affirmative steps advertising for and actively seeking to recruit black students had justified this broad assertion of its power not on the stand Internal Revenue Code itself but on the grounds of a public discrimination that rose to the status of a sort of Federal comm Some saw in this application of "public policy" by a Federal assertion of the right of the government to examine religious of orthodoxy and to categorize such organizations as unaccepta grant or deny tax exemptions based on aspects of an organi government was asserting a revolutionary new right to exert bodies by the power to analyze them periodically in the light ing standards of public policy and to reassess the legitimacy o churches and religious bodies ascertained that it would be o

before the right to examine religious institutions on grounds of pu tended to the right to deny exemptions to institutions that refused to or that refused to admit practicing homosexuals and other groups for recognition.

FIRST AMENDMENT RIGHTS IN JEOPARDY

An apt summary of the law in this area may be found in Justice D ity opinion in United States v. Ballard, 322 U.S. 882-887, which held u al attempts of government to determine which religious beliefs are l First Amendment places all religions in the same position:

"Man's relation to his God was made no concern of the State. He wa right to worship as he pleased and to answer to no man for the ver gious views. The religious views espoused by respondents might seem not preposterous, to most people. But if those doctrines are subject to jury charged with finding their truth or falsity, then the same can be religious beliefs of any sect. When the triers of fact undertake that tas a forbidden domain. The First Amendment does not select any one gro type of religion for preferred treatment. It puts them all in the same po The legislation proposed by the Administration may well compromis cal principle in an attempt to solve the difficult problem of discrimina lar but inaccurate argument that many are advancing with respect to lation is that since tax-exemptions are a government benefit or "subs ernment can attach any strings it sees fit. The Supreme Court has alre reply to this kind of argument. In Thomas v. Board, Review 49 U.S.L.V (1981), the Supreme Court held that:

"Where the state conditions receipt of an important benefit upon scribed by a religious faith, or where it denies such a benefit becaus mandated by religious belief, thereby putting substantial pressure on an modify his behavior and to violate his beliefs, a burden upon religion e the compulsion may be indirect, the infringement upon free exercise is substantial."

If any restrictions are placed on granting exemptions to private s should be much more narrow than the ones the IRS attempted to establ larly with regard to church institutions which are protected by the f ment. If pluralism is to continue to survive, religious organizations with lifestyles and views must continue to be allowed to exist without unnec assment.

THE ADMINISTRATION'S PROPOSED STATUTE

Early this week the Administration came out with a proposed statut only codifies the regulatory program the churches found so objectionab ther expands the sphere of federal control.

Under the Administration's bill an organization will not be tax-exempt racially discriminatory policy. An organization has a "racially discri policy if it refuses to admit students of all races to all programs offered by nization, or if the organization refuses to administer its program in a ma does not discriminate on the basis of race.

Policies are not discriminatory if limited to members of a particular or or belief, provided such policies are not based upon race or upon belief tha discrimination on the basis of race.

Section 2 would deny gift tax deductions for gifts to an offending organiz would also deny estate tax deduction for estate gifts to offending organizati Following are some of the serious objections to the Administration's prop

(1) Section 4 makes the bill retroactive to July 9, 1970. Under this onero sion churches would suddenly find themselves liable for thousands of dollar taxes. The bill would thus condone twelve years of illegal law-making by reaucrats.

(2) The statute is ambiguous as to what test should be used to prove dis tion. Under one popular test, the so-called "effects" test the government n show that the effects of discrimination are present in order to bear its b proof; for example, it need only show that no minority students or facult the organization in order to establish a prima-facie case of discrimination the "intent" test, however, the government must establish that an organiz tended to discriminate on the grounds of race.