I’m rather conflicted on this issue. I like the Vidal essay referred to by the OP (i like most of the essays in the United States book), and it often seems that churches and other non-profits should be taxed, given their income and the uses to which it is put.
But, on the other hand, where do we decide what activities performed by non-profit organizations should be tax-deductible and which should not? Should be adopt some sort of “public good” criterion whereby certain activities qualify for tax deductibility?
The real porblem it seems to me, is often at the local level. For example, here in Baltimore the Johns Hopkins University is about the biggest employer in the city, one of the biggest landowners, and a general behemoth in the local economy.
Now, on the one hand this is very good for the city, because JHU provides many jobs for locals, keeps many buildings full, and its students give a real boost to the local economy. OTOH, Baltimore is a poor city, and the fact that JHU is the largest landowner around and is also not required to pay local property taxes means that the city misses out on a lot of revenue. Even worse, every time Hopkins buys a new piece of property (something it does constantly) the city’s income drops.
One can argue that Hopkins contributes a lot to the local economy, and it does, but there are things that need doing that the city has to take care of (garbage collection, snow clearing, etc., etc.), and that are supported by the sort of local taxes that the university does not have to pay.
I believe (any Balto dopers who know the story better can correct me) that the city tried a few years ago to make the university pay taxes, and the university agreed to a one-off payment to help the city on the condition that the long-term tax situation didn’t change.
Anyway, in response to the OP, i think that it’s not just a black and white issue of tax vs. don’t tax. Maybe we need more categories, with a graded scheme of tax liability (i know, just what we need, more tax bureaucracy).