There is currently a controversy in Germany in regard to the application of capital gains to the “church” tax that is levied on individuals who profess membership in certain churches in Germany.

The Bill of Rights was added to the United States Constitution in order to provide greater constitutional protection to certain individual liberties. These liberties include freedom of religion, a free press, the right to peaceful assembly, the right to bear arms, protection against unreasonable search and seizure, the right to avoid self-incrimination (taking the fifth), due process, protection against double jeopardy, the right to a jury trial, the right to counsel, and protection against cruel and unusual punishment. We have seen how some of these rights have been eroded over the years through changing attitudes, judicial rulings, and even legislation.

The First Amendment reads “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.” With the protection of freedom of religion, Americans are often woefully uninformed about what may be happening in other countries. What is a matter of law in other countries is unthinkable here. However, our lack of knowledge may subject us to the risk of eroding other liberties.

Germany, along with other European nations, levies a “church tax” on incomes of individuals who are members of churches that are a part of one of the main organized religions. The tax in Germany is 8-9% of the individual’s regular income tax bill. The regular tax rate in Germany is between 14 and 45%. An individual with a taxable income of €100,000 would pay €30,000 in income tax. Then an additional 8-9% of that would be levied on the €30,000 tax for a church tax of €24,000-2,700. This has been in place for some time. Churches use this tax money to finance church operations, pay clergy salaries, and support affiliated hospitals and social services. Germans who officially leave the church can avoid the tax.

The German capital gain rate is zero if real estate has been held for more than 10 years. Like the United States, real estate is subject to regular rates when held for less than a year. The big difference from the United States code, however, relates to the sale of shares of stock. When the seller owns less than 1% of the shares, the rate is 25%; in excess of 1% ownership, the tax is at normal rates on 60% of the profit.

The current controversy relates to the capital gain tax. Officially, the church tax was always due on capital gains. However, it has not been properly enforced. Until now. The new rules, which go into effect next year, utilized withholding at the source. Any church member earning more than €801 in capital gains will have the tax withheld by the bank, which will then remit it to the tax authorities for distribution to the churches. Obviously, banks must obtain church membership data from their customers. These rules were supported by the churches.

However, there has been a backlash of unintended consequences. Both Catholic and Protestant churches have reported significant numbers of registered members have dropped membership in their churches to avoid paying this additional tax. Some have reported decreases in excess of 50%.
While it may sound enticing to levy a tax that can help finance hospitals and social services, one must look at the big picture. This would erode our First Amendment rights and would be a significant discouragement from belonging to a church. Think it can’t happen here? Recall George W. Bush’s “White House Office of Faith-Based and Community Initiatives,” which provided federal funds for faith-based organizations providing social services? It is still around under Barack Obama as the “White House Office of Faith-Based and Neighborhood Partnerships.” A well-intended idea, but misdirected, and a crack in the di of one of our Constitutionally protected individual freedoms.