Supreme Court win for religious tax breaks could mean a loss for unemployment system 

WASHINGTON (CN) — The Supreme Court’s review of a religious liberties case next week could mean another setback for Americans who find themselves out of work as fears of a recession rise.

On Monday, the justices will hear from a Catholic nonprofit umbrella organization in Wisconsin that wants a “religious activity” test for determining tax-exempt status that economists warn would cripple the unemployment insurance system.

The Economic Policy Institute said the system emerged in the post-Depression recovery and has since boosted the American economy in its darkest hours, including during the 2008 recession and Covid-19 pandemic.

“Allowing employers to obtain a religious exemption simply by asserting a subjective religious motive — without also showing that what they do is distinctively religious — would undermine the ability of the unemployment insurance system to both protect American families from the worst effects of unemployment and help the economy recover from downturns by ensuring a baseline rate of spending in times of economic crisis,” the institute wrote in an amicus brief joined by six other economic and employment groups.

Catholic Charities paid into Wisconsin’s unemployment system for decades before filing for a religious exemption in 2016. The application was denied, however, after the Department of Workforce Development determined the organization isn’t operated primarily for religious purposes.

In its brief to the U.S. Supreme Court, the charitable group argued Wisconsin denied its exemption based on its “own cramped, idiosyncratic understanding of what constitutes ‘religious’ behavior. Catholic Charities says the state’s characterization unconstitutionally interferes with its religious practice.

“If Catholic Charities were to proselytize those it serves, refuse to help non-Catholics, or refuse to hire non-Catholics, then its activities might fit the stereotypes of religion the Wisconsin Supreme Court relies on,” the group wrote. “But because Catholic Charities’ religious beliefs do not allow it to conform to those stereotypes, its ministry is not ‘religious in nature’ and it thus flunks the test for obtaining a religious exemption.”

Catholic Charities provides oversight services for affiliated entities — Barron County Developmental Services, Black River Industries, Diversified Services and Headwaters — that all provide daily living and job training for people with disabilities.

The entities don’t receive funding from the Catholic diocese, provide religious training or attempt to inculcate the faith.

Catholic Charities does receive funding from the federal, state and local government, however, all of which cannot be spent on explicitly religious activities.

The Wisconsin Supreme Court determined that the group’s activities mirrored those of secular nonprofits, but Catholic Charities argues it should qualify for the exemption for motive alone.

“Courts can constitutionally draw this line by focusing on the sincerity and religiosity of a claimant’s beliefs rather than trying to decide whether particular activities are ‘inherently religious,’” Catholic Charities wrote.

Wisconsin said the motive-only test would paint with too broad of a brush, encompassing organizations that operate outside of religion. Under that standard, the state said religiously affiliated hospitals would be exempt, but secular hospitals that provide the same service wouldn’t.

If the court sides with Catholic Charities, religious hospitals will just be one group that could benefit.

According to the Economic Policy Institute, a large base of employers is necessary to spread out the costs and benefits of the system. By collecting funds from many employers during periods of stable employment, the system ensures it can pay out benefits during periods of high unemployment.

While Catholic Charities said it would provide benefits for its employees, the Economic Policy Institute said other organizations taking advantage of broader exemptions may not. Employer-run unemployment insurance also wouldn’t include federal benefits and isn’t guaranteed if the business suffers financially, the institute said.

If all of Wisconsin’s religiously affiliated nonprofits opted out of the system during the Covid-19 pandemic, Wisconsin’s economy would have lost at least $26.4 million in federal benefits.

“The loss of such benefits would have further strained the families of employees who dedicated their lives to the service of others,” the institute wrote. “The cost of offsetting the loss of those federal benefits would have fallen on locally supported food pantries, shelters, and other charities.”

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