He is speaking here of the government's authority to punish. It can't punish that which is not harmful to others. He is NOT speaking about whether people who do believe can use religious principles of thought to vote or support legislation or whether people who believe (or who don't believe) can try to spread their beliefs as they see fit. Of course they can. He is a chief proponent of the idea that we have complete freedom to act upon our religious convictions, including in the public forum (he chose to have his authorship of the Virginia Statue For Religious Freedom engraved on his tombstone rather than his presidency). I have a somewhat low opinion of the quote for other reasons, particularly because he doesn't seem to have a very robust idea of what impacts others or is harmful to others. If people have false conceptions about God, if they can't agree on basic terms of morality, this impacts the unity and cohesion of the republic. While this doesn't mean his conclusion is wrong (it isn't... in our system there should be no punishment for religious beliefs or lack thereof), I respectfully believe that certain beliefs (or disbelief) can indeed be harmful to the larger community.