Divine Loophole; a New York Parish Grew So Profitable over the Centuries It Pays Taxes Voluntarily

By Gordon, John Steele | American Heritage, April 1994 | Go to article overview

Divine Loophole; a New York Parish Grew So Profitable over the Centuries It Pays Taxes Voluntarily


Gordon, John Steele, American Heritage


Taxes, by their nature, distort economies. Sales taxes increase prices and thus discourage buyers, while tariffs allow inefficient industries to flourish at the expense of the public in general. But the corporate income tax is surely the most distorting of all. A corporation, after all, is nothing but a wealth-creating machine, a means whereby individuals pool their resources, talents, and labor in order to create more wealth collectively than they could create individually. Taxing these entities directly--as opposed to taxing each stockholder for his or her share of the profits--might make political sense, but it is economic lunacy.

The original corporate income tax law at least was relatively simple. The push and pull of politics over the last seventy-five years, however, has produced a monster. Just complying with the law (in other words, filling out the tax forms and providing supporting documentation) now costs U.S. corporations eight billion dollars a year. The total cost of complying with the U.S. tax code is about one percent of gross domestic product. The Chrysler Corporation, for instance, employs fifty-five tax specialists who do nothing but labor over the company's federal tax return, which in 1991 was a pile of forms and documents six feet high. The IRS, meanwhile, has nine full-time staffers perpetually auditing Chrysler. For small companies-the cutting edge of the economy--it is far worse. It is estimated that companies with less than $1,000,000 in assets spend on average $390 complying with the tax code for every $100 they actually pay in taxes.

These are major distortions, ones that threaten the country's future prosperity. But there are also sundry minor distortions created by the corporate income tax. Consider the fact that some highly profitable operations pay no taxes because they belong to nonprofit institutions. This, needless to say, gives them a great advantage over any less favored competitors.

Most Americans, for instance, think of the National Geographic Society as an eleemosynary institution that has greatly extended human knowledge of the universe. Indeed, that is exactly what it is. But book and magazine publishers also see it, equally correctly, as a major publishing empire. The society's books and atlases compete with those published by TimeLife, Rand McNally, and others. Of all American magazines, only Reader's Digest and TV Guide have larger circulations than National Geographic. But unlike them, National Geographic pays no income taxes on its advertising and circulation revenues.

Highly profitable nonprofit institutions have a history in this country far older than the income tax, of course. In fact, at least one, the Episcopal Parish of Trinity in New York City, has been in existence for nearly three hundred years. Its magnificent neo-Gothic brownstone church has long been a symbol of Wall Street, at whose western end it stands. That is an appropriate setting in more ways than one, for Trinity is probably the richest parish in the world.

Trinity's vast wealth, however, has nothing to do with its proximity to the country's financial center. Trinity got rich the old-fashioned way: through the grace and favor of a reigning monarch.

Trinity Parish was established in 1697 by a royal charter from King William III and remains today one of a handful of institutions in this country that are still governed by such an instrument. The charter called for an annual quitrent to the king of "one Pepper Come as desired," but the crown, it seems, never desired it. (Nonetheless, in 1976, when Queen Elizabeth II visited the church during the bicentennial celebrations, the church voluntarily coughed up the back rent: 279 peppercorns.)

The charter, to give the parish an income, also gave Trinity the ownership of any whales that washed up on the beaches of New York Province. At the turn of the eighteenth century beached whales were a very valuable commodity, with their oil, baleen, and tons of meat. …

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