The First Amendment has never allowed a state church. Everson had nothing to do with religion. The plaintiff in this case was against a tax funded school district that provided reimbursement to parents of both public and private schooled children taking the public transportation system to school. The taxpayer contended that reimbursement given for children attending private religious schools violated the constitutional prohibition against state support of religion, and the taking of taxpayers' money to do so violated the constitution's Due Process Clause. Of the private school that benefitted from the payment policy, 96% of them were Catholic schools.
Hugo Black based his opinion on the First Amendment. He stated:
"The 'establishment of religion' clause of the First Amendment means at least this: Neither a state nor the Federal Government can set up a church. Neither can pass laws which aid one religion, aid all religions or prefer one religion over another. Neither can force nor influence a person to go to or to remain away from church against his will or force him to profess a belief or disbelief in any religion. No person can be punished for entertaining or professing religious beliefs or disbeliefs, for church attendance or non-attendance. No tax in any amount, large or small, can be levied to support any religious activities or institutions, whatever they may be called, or whatever form they may adopt to teach or practice religion. Neither a state nor the Federal Government can, openly or secretly, participate in the affairs of any religious organizations or groups and vice versa. In the words of Jefferson, the clause against establishment of religion by law was intended to erect 'a wall of separation between Church and State.'" 330 U.S. 1, 15-16.
The dissenting opinion (by Justice Jackson) stated:
"The funds used here were raised by taxation. The Court does not dispute nor could it that their use does in fact give aid and encouragement to religious instruction. It only concludes that this aid is not 'support' in law. But Madison and Jefferson were concerned with aid and support in fact not as a legal conclusion 'entangled in precedents.' Here parents pay money to send their children to parochial schools and funds raised by taxation are used to reimburse them. This not only helps the children to get to school and the parents to send them. It aids them in a substantial way to get the very thing which they are sent to the particular school to secure, namely, religious training and teaching." 330 U.S. 1, 45.
The "wall of separation" didn't start with Everson, it started with Thomas Jefferson writing in the Federalist Papers. Jefferson himself was an atheist, but he understood that the federal government should not endorse or sanction a state religion, which was common in England (The Church of England was a state-sanctioned and endorsed church).
If the establishment clause applied to the states then it would not have been necessary for Jefferson to write his own Virgina Statute for Religious Freedom. The first amendment left the question of religious establishment up to the states to decide.
We had state establishments, they weren’t struck down until 1947 or after.
Here’s Clarence Thomas again.
This textual analysis is consistent with the prevailing view that the Constitution left religion to the States. ... History also supports this understanding: At the founding, at least six States had established religions.
The “Wall of Separation” TJ quote from Danbury was a little known footnote in history until 1947, not a famous pillar of jurisprudence. Hugo Black wanted to find something, anything, to justify himself, maybe just to get the idea in there later, and found this obscure TJ quote. It’s Hugo Black that made this quote famous. It wasn’t a famous quote that Hugo Black used.