Why do Catholics confess their sins to a priest?
Confession is a Sacrament instituted by Jesus Christ providing a means for those who fall into sin after Baptism to be restored into God's grace. It involves the admission of one's sins made to a duly approved Priest in order to obtain absolution.
Confession is called the "Sacrament of Penance" as:
* the recipient must be truly repentant of his sins,
* be determined to try to avoid this sin in the future, and
* be willing to make reparations as appropriate with any/all injured parties.
Only God can forgive sin. The Sacrament of Penance is the way which God has chosen to administer that forgiveness. Jesus exercized the power to forgive sins "that you may know that the Son of man has authority on earth to forgive sins" (Mt 8:6). And Jesus to the Apostles in Jn 20:21-23 reads: "... As the Father has sent Me, so I send you. And when He had said this, He breathed on them and said to them: 'Receive the Holy Spirit. Whose sins you forgive are forgiven them, and whose sins you retain are retained." Note that this power bestowed upon the Apostles is different than the power previously given Peter of binding and loosing, which is the broad power in matters of faith and morals; this power is specific to sin. Knowing that the Apostles, mere men, were incapable of handling such a responsibility on their own power, Jesus Christ gave them a special communication with the Holy Spirit (pneuma) for this special work. In all of the Bible, there are only two instances where God breathed on man, the other was when He gave man a living soul in Gen 2:7 - thus emphasizing the importance of the Sacrement of Penance. And as this power was bestowed upon the Apostles, it was to be inherited by their successors, continuing His presence throughout time (Mt 28:19-20). Yes, Jesus is the one Mediator, but that does not deny Him from choosing others to assist Him in his work.
The Apostles certainly understood what Jesus Christ had commissioned them to do. Paul, in the name of Jesus, exercised the power of binding and loosing from sin and the effects of sin in the case of the incestuous Corinthian. In 1 Cor 3, Paul says: "I have already judged him that hath done so"; and in 2 Cor 2:10, Paul justifies his forgiveness of the repentant man by saying "If I have pardoned anything, I have done it in the person of Christ". Further, in 2 Cor 5:18, Paul writes: "All this if from God, who through Christ reconciled us to himself and gave us the ministry of reconciliation". And in 2 Cor 5:20, Paul confirms "So we are ambassadors for Christ".
One Mediator redeemed us, Jesus Christ. The Catholic Priest, in the Sacrament of Penance, does not redeem us; he is but an agent of the one Mediator, assigned and empowered by the one Mediator. Confession is but one way of applying the mediation of Christ to men - Baptism is another. A prominent protestant televangelist, arguing against the Sacrament of Penance, used Acts 10 and Acts 16 as proof text, pointing out that Peter did not give absolution to Cornelius and Paul did not give absolution to the Philippian jailer. This is true; however, not for the reasoning implied. Both Cornelius and the jailer were being baptized, and confession is not necessary for Baptism since Baptism in itself forgives sin (original sin and any other sin personally committed before the Baptism).
Why not confess your sins directly to God in prayer?
By sin, it was God that was offended; and God set down the conditions for forgiveness. You cannot insist of God that He forgive your sins on your own conditions. And Jesus Christ did not bestow the power and responsibility to forgive sins to the Apostles and their successors knowing that all one needed to do was to seek forgiveness through prayer. The Church does not deny that sins will be forgiven via prayer directly to God, given of course that there's true repentance coupled with firm resolution to avoid this sin in the future; however, the only way we can be sure of proper disposition of the forgiveness of sin with absolute certainty is via the means established by Christ - the Sacrament of Penance.
Do Catholics sin because they know they can get absolution in Confession?
That's as silly as asking: Would you break your leg knowing that a doctor could heal it? Besides, the Sacrament of Penance does not give permission to commit the same sin again, and if the penitent has the intention of doing so, the absolution is null and void.
Did Catholic priests invent Confession (and Purgatory for that matter) in order to obtain money?
No money is ever paid for absolution; further, it would be mortal sin for a priest to suggest or demand payment for absolution. It is indeed customary to give a priest a small stipend for celebrating a memorial Mass. The usual/customary amount is five dollars, though there is no obligation to give anything, and many people, out of poverty or ignorance, give nothing. As far as the Bible is concerned, it's entirely reasonable for a priest to receive some small stipend for guest preaching, baptisms, weddings, and other ministerial functions. Paul said, "Let the presbyters [priests] who rule well be considered worthy of double honor, especially those who labor in preaching and teaching; for the scripture says, 'You shall not muzzle an ox when it is treading out the grain,' and, 'The laborer deserves his wages'" (1 Tim 5:17-18; cf. Mt 10:10, Lk 10:7).
Some protestants mistakenly believe that the Fourth Latern Council, in 1215 AD, invented auricular (heard by a human) confession. In reality, the Fourth Latern Council mandated annual confession for all Catholics - oral confession heard by priests existed from the start of the Church.
Until the Reformation, all Christians went to Confession. What did the Early Fathers believe and practice?
The Didache - "Confess your sins in Church, and do not go up to your prayer with an evil conscience. This is the way of life. ... On the Lord's Day gather together, break bread, and give thanks, after confessing your transgressions so that your sacrifice may be pure" (Didache 4:14, 14:1 [AD 70]).
The Letter of Barnabas - "You shall judge righteously. You shall not make a schism, but you shall pacify those that contend by bringing them together. You shall confess your sins. You shall not go to prayer with an evil conscience. This is the way of light. (Letter of Barnabas 19 [AD 74]).
Ignatius of Antioch - "For as many as are of God and of Jesus Christ are also with the bishop. And as many as shall, in the exercise of penance, return into the unity of the Church, these, too, shall belong to God, that they may live according to Jesus Christ" (Letter to the Philadelphians 3 [AD 110]). "For where there is division and wrath, God does not dwell. To all them that repent, the Lord grants forgiveness, if they turn in penitence to the unity of God, and to communion with the bishop". (ibid., 8)
Irenaeus of Lyons - "[The Gnostic disciples of Marcus] have deluded many women. ... Their consciences have been branded as with a hot iron. Some of these women make a public confession, but others are ashamed to do this, and in silence, as if withdrawing from themselves the hope of the life of God, they either apostatize entirely or hesitate between the two courses" (Against Heresies 1:22 [AD 189]).
Tertullian - "[Regarding confession, some] flee from this work as being an exposure of themselves, or they put it off from day to day. I presume they are more mindful of modesty than of salvation, like those who contract a disease in the more shameful parts of the body and shun making themselves known to the physicians; and thus they perish along with their own bashfulness" (Repentance 10:1 [AD 203]). "[T]the Church has the power of forgiving sins. This I acknowledge and adjudge" (ibid., 21). "I hear that there has even been an edict set forth... The Great Pontiff--that is, the bishop of bishops [i.e., the pope]--issues an edict: 'I remit, to such as have discharged penance, the sins both of adultery and of fornication" (Modesty 1 [AD 220]).
Hippolytus - "[The bishop conducting the ordination of the new bishop shall pray:] God and Father of our Lord Jesus Christ... Pour forth now that power which comes from You, from Your Royal Spirit, which You gave to Your beloved Son, Jesus Christ, and which He bestowed upon His holy Apostles... and grant this Your servant, whom You have chosen for the episcopate, [the power] to feed Your holy flock and to serve without blame as Your high priest, ministering night and day to propitiate unceasingly before Your face and to offer to You the gifts of Your holy Church, and by the Spirit of the high-priesthood to have the authority to forgive sins, in accord with Your command" (Apostolic Tradition 3 [AD 215])
Origen - "[A final method of forgiveness], albeit hard and laborious [is] the remission of sins through penance, when the sinner... does not shrink from declaring his sin to a priest of the Lord and from seeking medicine, after the manner of him who say, 'I said, "To the Lord I will accuse myself of my iniquity"'" (Homilies in Lev 2:4 [AD 248]).
Cyprian of Carthage - "The Apostle likewise bears witness and says: '... Whoever eats the bread or drinks the cup of the Lord unworthily will be guilty of the body and blood of the Lord' [1 Cor 11:27]. But [the impenitent] spurn and despise all these warnings; before their sins are expiated, before they have made a confession of their crime, before their conscience has been purged in the ceremony and at the hand of the priest... they do violence to His body and blood, and with their hands and mouth they sin against the Lord more than when they denied Him" (The Lapsed 15:1). "Of how much greater faith and salutary fear are they who... confess their sins to the priests of God in a straightforward manner and in sorrow, making an open declaration of conscience. ... I beseech you, brethren, let everyone who has sinned confess his sin while he is still in this world, while his confession is still admissible, while the satisfaction and remission made through the priests are still pleasing before the Lord" (ibid., 28). "[S]inners may do penance for a set time, and according to the rules of discipline come to public confession, and by imposition of the hand of the bishop and clergy receive the right of communion. [But now some] with their time [of penance] still unfulfilled... they are admitted to communion, and their name is presented; and while the penitence is not yet performed, confession is not yet made, the hands of the bishop and clergy are not yet laid upon them, the Eucharist is given to them; although it is written, 'Whosoever shall eat the bread and drink the cup of the Lord unworthily, shall be guilty of the body and blood of the Lord' [1 Cor 11:27]" (Letters 9:2 [AD 253]). "And do not think, dearest brother, that either the courage of the brethren will be lessened, or that martyrdoms will fail for this cause, that penance is relaxed to the lapsed, and that the hope of peace [i.e., absolution] is offered to the penitent. ... For to adulterers even a time of repentance is granted by us, and peace is given" (ibid., 51[55]:20). "But I wonder that some are so obstinate as to think that repentance is not to be granted to the lapsed, or to suppose that pardon is to be denied to the penitent, when it is written, 'Remember whence thou art fallen, and repent, and do the first works' [Rv 2:5], which certainly is said to him who evidently has fallen, and whom the Lord exhorts to rise up again by his deeds [of penance], because it is written, "Alms deliver from death" [Tob 12:8]" (ibid., 51[55]:22).
Aphraahat the Persian Sage - "You [priests], then, who are disciples of our illustrious Physician, you ought not deny a curative to those in need of healing. And if anyone uncovers his wound before you, give him the remedy of repentance. And he that is ashamed to make known his weakness, encourage him so that he will not hide it from you. And when he has revealed it to you, do not make it public, lest because of it the innocent might be reckoned as guilty by our enemies and by those who hate us" (Treatises 7:3 [AD 340]).
Basil the Great - "It is necessary to confess our sins to those to whom the dispensation of God's mysteries is entrusted. Those doing penance of old are found to have done it before the saints. It is written in the Gospel that they confessed their sins to John the Baptist [Mt 3:6], but in Acts [19:18] they confessed to the apostles" (Rules Briefly Treated 288 [AD 374]).
John Chrysostom - "Priests have received a power which God has given neither to angels nor to archangels. It was said to them: 'Whatsoever you shall bind on earth shall be bound in heaven; and whatsoever you shall loose, shall be loosed.' Temporal rulers have indeed the power of binding; but they can only bind the body. Priests, in contrast, can bind with a bond which pertains to the soul itself and transcends the very heavens. Did [God] not give them all the powers of heaven? 'Whose sins you shall forgive,' he says, 'they are forgiven them; whose sins you shall retain, they are retained.' What greater power is there than this? The Father has given all judgment to the Son. And now I see the Son placing all this power in the hands of men [Mt 10:40, Jn 20:21, The Priesthood 3:5 [AD 387]).
Ambrose of Milan - "For those to whom [the right of binding and loosing] has been given, it is plain that either both are allowed, or it is clear that neither is allowed. Both are allowed to the Church, neither is allowed to heresy. For this right has been granted to priests only" (Penance 1:1 [AD 388]).
Jerome - "If the serpent, the devil, bites someone secretly, he infects that person with the venom of sin. And if the one who has been bitten keeps silence and does not do penance, and does not want to confess his wound... then his brother and his master, who have the word [of absolution] that will cure him, cannot very well assist him" (Commentary on Ec 10:11 [AD 388]). "We read in Leviticus about lepers, where they are ordered to show themselves to the priests, and if they have leprosy, then they are to be declared unclean by the priest. ... Just as in the Old Testament the priest makes the leper clean or unclean, so in the New Testament the bishop or presbyter binds or looses not those who are innocent or guilty, but by reason of their office, when they have heard various kinds of sins, they know who is to be bound and who is to be loosed" (Commentary on Mt 3:16-19 [AD 398]).
Augustine - "When you shall have been baptized, keep to a good life in the commandments of God so that you may preserve your baptism to the very end. I do not tell you that you will live here without sin, but they are venial sins which this life is never without. Baptism was instituted for all sins. For light sins, without which we cannot live, prayer was instituted. ... But do not commit those sins on account of which you would have to be separated from the body of Christ. Perish the thought! For those whom you see doing penance have committed crimes, either adultery or some other enormities. That is why they are doing penance. If their sins were light, daily prayer would suffice to blot them out. ... In the Church, therefore, there are three ways in which sins are forgiven: in baptisms, in prayer, and in the greater humility of penance" (Sermon to Catechumens on the Creed 7:15, 8:16 [AD 395]). "I realize what the incontinent can say:... that if a man, accusing his wife of adultery, kills her, this sin, since it is finished and does not perdure in him [i.e., since he does not keep committing it], if it is committed by a catechumen, is absolved in baptism, and if it is done by one who is baptized, it is healed by penance and reconciliation" (Adulterous Marriages 2:16:16 [AD 419]).
St. Patrick - "[The murderer] Coroticus... fears neither God nor his priests, whom he [God] chose and to whom he granted that highest, divine, and sublime power, that whom they should bind on earth should be bound in heaven" (Letter to the Soldiers of Coroticus 6 [AD 452]).