Strengthening Constitutional Self-Government

No Left Turns


The Wisdom of the Common Law

From Ronald Seavoy's classic The Origins of the American Business Corporation.  (A book on a subject that ought to occupy more time in our history classes).  After the American Revolution, as the State of New York passed a law allowing religious congregations to incorporate (a step necessary to allow them to own land):

A mortmain clause, limiting the amount of land a congregation could own, was added to prevent the accumulation of real property in immobile corporate hands.  Thereafter, some form of mortmain restriction as placed in almost all charters of benevolent societies.  This was a legal carry-over from England where mortmain clauses were designed to prevent the accumulation of land in the hands of churches and other charitable organizations.

I wonder if we, in modern America, should consider restoring that a like restriction on all tax-free entities.  Perpetuities are problematic in a democratic-republic.  As the endowments of our major Universites and colleges grow, along with our major foundations, it reduces our tax base.  Business corporations must compete to survive. Hence that concern does not apply. But charitable trusts can be forever. Since we don't have the feudal law here (at least in most cases), it would probably have to take a different form than the old restriction. 

As I understand the law, (and I may very well be wrong here), charitable institutions have some key advantages in the market.  If they don't pay capital gains taxes on trades, for example, they can be much more efficient traders of stocks and other assets.  Similarly, if they don't pay real estate taxes, they can drive for profit landlords out of the market by charging less rent for like apartments.  When relatively little wealth is off the tax books, that's not a real problem. As more and more is held by charities, it could become a problem.  More generally, the lack of competition makes long-term ownership by charitable entities very different than ownership by business corporations.

Perhaps we could just require that charitable foundations spend more than the current 5% per year of their endowments (and change the way that 5% is counted).  It would make sense to exempt land that was used directly by charities (such as church and school buildings), but not other lands, etc.

Categories > History

Discussions - 1 Comment

I'm sure I know a lot less than you on this (among other subjects). I think local govts get their revenge (and maybe more) by making it difficult for churches and other religious institutions to be established through complicated zoning ordinances and overzealous enforcement of parking, etc.

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