REAL   ESTATE







AND





BUILDERS







NEW YORK, FEBRUARY 1, 1913





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PROPOSED  SURTAX  ERRONEOUS  IN  PRINCIPLE





It Will Not Be Taken When the Land is Sold and the Value of the In¬
vestment Realized, But Must Be Paid  Yearly From  Extraneous Income.





By PROF. JOHN BATES CLARK, of Columbia University.





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THE general tax now resting on land
covers all its existing value at
the time of assessment. It is proposed
to retain this tax and to impose an ad¬
ditional one on the difference between
the value of the land in any particular
year and the value which it had in 1912.
This second or increment tax will not
be taken merely when the land is sold
and the owner has thus received the
wherewithal to pay it, but must be paid
every year from other sources.

On land which now yields no income
whatever the owner must pay the tax
from the income which he may get by
labor, or by capital otherwise invested,
and any increase in this tax will 'orce
some of this land upon the market. That
will happen for two reasons, namely,
that the tax will be harder to meet and
that the inducement to meet it and re¬
tain tlie land will be lessened. Of course,
the value of land will fall from its pres¬
ent level.

Would Be Forced on the Market.

Of land which contains either very old
buildings or new ones of the taxpaying
variety, some portion would be forced
upon the market; and this would happen
although no increase of the tax on the
increment of value were expected or
feared. But such an increase certainlj-
would  be  feared.

.\ movement strong enough to carry
through this enactment might be strong
enough to carry through another which
would double the sur-tax and the dread
of such an increase would give the meas¬
ure an effect in destroying land value
out of all proportion to the effect that
it would have if it were known that the
policy would stop with this single meas¬
ure.

What Henry George Said.

Mr. Henry George was once asked by
a member of an audience which he had
addressed whether he thought it just to
confiscate, in effect, the land belonging
to men who had recently paid for it in
honest n.oney. His reply was: "If any¬
one is a great enough fool to buy land
when this measure is impending, he does
not deserve  sympathy."

Shrewd persons would never buy land
if the single tax, in its full vigor, were
impending as a certainty; but no one can
tell precisely what is the degree of prob¬
ability that the measure will be adopted.
The milder measure now proposed may
fail of enactment, or it may be enacted
and be followed up by a series of others
of a kindred sort. The whole future val¬
ue of land then will become far more
speculative than it now is, since it will
be based, first, on a guess as to the in¬
crease in population and in the demand
for buildings and, secondly, on a fur¬
ther guess as to the progress of the pol-





Th e editorial purpose of the discussions oothe
proposed "unearned Increment ta.\*' that have
been appearing in the Record and Guide Is il) to
ascertain whether the weight of competent
opinion is for or against it and (2) how the
measure. If enacted, would work out In practice.
It Is evident that capital, representing frequently
the savings of people of small means or the In¬
heritance of dependents, Is not safe if It Is In¬
vested In real estate unless ihe laws pertaining
to real estate are in harmony with public senti¬
ment. A change in public sentiment with re¬
spect to fire prevention, fore.xample. may cause
new legislation that will destroy an owner's
entire equity In a building which conforms to
every provision of law In existence when It Is
erected. Social Justice is the only guarantee of
stability In public sentiment and In legislation,
which presumably, atleast. Is merely a re flection
of the community's conscience; and those who
are Interested in assuring permanence to invest¬
ments in real property must therefore be In¬
terested also lo obtaining equitable solutions of
community problems. Is the proposed surtax
on the unearned Increment of land values equi¬
table? The discussions that have appeared in
these pages represent the opinions of academic
authorities as well as of experienced real estate
men. They show that there Is no unanimity
ot belief even among leading economists and
students of taxation and city government.
Certainly real estate men are iustifled in oppos¬
ing a measure the equity or expediency of
which ts doubted or denied by such unbiased
students as Prof. John Bates Clark, Mr. Henry
Bruere, Dr. Frederic C. Howe and Boiough
President Cyrus C. Miller.





icy of confiscation. It will depend, in
great part, on the fraction of the future
income from land which owners will be
allowed to keep. The one certain thing
about it is that the income which the
owner can realize will be less than it
would otherwise be.

Would Discourage Construction.
In this view, building upon land held
in fee simple will be discouraged, and it
will take a considerable reduction of the
tax on buildings themselves to offset that
discouragement. The probability is that
such buildings as would be erected
would be of a cheaper and less durable
character than those which would be
erected under the present system of tax¬
ation. It is the land which is the per¬
manently valuable part of real estate,
and it is the improvements that are per¬
ishable. They lose value rapidly, not
merely because they fall into decay, but
because they become antiquated and
therefore undesirable. .\ vast area in
New York city is covered by buildings,
once thoroughly good, which at pres¬
ent add nothing to the value of the land
that they occupy; and if the owners had
had no good value in the land itself, their





entire   investment   would   by   this   time
have  vanished.

Of course, these facts react unfavor¬
ably on the borrowing of money for
building purposes. The improvements
in themselves are poor security, since
they represent a vanishing value. The
land is a good security, provided it rep¬
resents increasing value; but if that in¬
crease becomes problematical, money
will not be willingly loaned on the two
together unless the safety margin is a
very  large  one.

The Beginning of a More Drastic Policy.

In so far as this influence goes, it may
be expected to act as a check on the
supply of buildings. If the influence is
offset by a reduction in the tax on build¬
ings, the number and size of new struc¬
tures may be as great as before, but the
quality is likely to be reduced. More¬
over, since new income is needed, throw¬
ing off the tax on the buildings will lend
two-fold weight to the pressure for an
increased tax on the land, and will cause
tlie present measure, which to many per¬
sons seems mild, to reveal itself more
clearly as the beginning of a more dras¬
tic policy  of land confiscation.

Will this check building operations
and induce the city itself to furnish the
capital that is needed? Will it borrow
money and lend it to builders in vast
amounts on undesirable security? Would
the city be able to do this without ren¬
dering its own securities so undesirable
as to force it to pay an unendurable
rate of interest? Personally, I do not
anticipate such an action on the part of
the city; but I should expect, if the pol¬
icy foreshadowed by this bill were once
entered upon, that grave evils would re¬
sult, which would lead to a very strong
appeal to the city to offer relief.

Land Confiscation.

For one, I object radically to discuss¬
ing plans of land confiscation on the
basis of its practical effects alone. There
is involved in it an amount of despoiling
of honest men for which it would be dif¬
ficult to find a parallel; and the fact
that it is seriously advocated and calmly
discussed on the ground of its effect in
yielding more revenue or less revenue,
causing more building or less building,
is a strange phenomenon of practical
morals. It becomes the stranger in
view of the fact that, taking the country
over, land owners are mostly middle-
class persons, and, indeed, mostly labor¬
ers, if we use that term to cover those
whose income is chiefly a payment for
labor. If adopted in its rigor, the single
ta.x would enormously accelerate the
crushing out of the middle class, includ¬
ing the more industrious and frugal of
the  laborers.