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REAL ESTATE
Hi
AND
(Copyright. 1917, by The Record and Guide Co.)
NEW YORK, FEBRUARY 24, 1917
ATTITUDE OF THE TAXPAYER TOWARD TAXATION
Realty Owner Not Adverse to Pay His Share But
Asks for Fair Treatment Without Discrimination
A "TAX" is defined as "a disagree¬
able or burdensome duty or charge;
to load with a burden or burdens." The
taxpayer's conception of a tax is: A mod¬
ern instrument to extract the greatest
amount of contributions toward public
affairs for the least amount of public
service.
For years the real estate owner has
been bearing the burden of oppression
jeered and scorned by the non-taxpayer.
The props have now become weakened
and unless reinforced will cause the
weight, now shaky, to tumble. New
sources of revenue has become the
watchword. The wealth is there; how
best can it be tapped? How best can
it be extracted with the least pain? How
far can the arm of government be
stretched to reach the innermost re¬
cesses of wealth? These are the present-
day problems. No thought or sugges¬
tion how best to cut expenditures, how
to economize, or how to extract the
greatest amount of service for the least
amount of money. These are foreign
to the present notions of advancement
and civilization. Economy and retrench¬
ment may well serve private corpora¬
tions, but not municipal, State or Fed¬
eral government.
Curtailment of expenditures is almost
inconceivable, even though the city debt
limit has not only been reached, but be¬
lieved to be passed.
A public official "was recently asked.
"Has not the debt limit of the City of
New York been reached, and what is the
debt limit?" To which he replied with
a significant smile. "The debt limit is
something that can be stretched, and it
depends upon who makes the applica¬
tion for the expenditure as to whether
it has been reached or not." Has the
taxpaj'er cause to grumble?
Taxation was unknown among the
savages. The savages did not contribute
towards the administration of public af¬
fairs. There were none. Chief and sub¬
ject alike went out to hunt for what they
needed. Everybodj' worked and earned
and no one was so far superior as to
become a parasite on the rest of the
savage tribe. Even after the formation
of the States and for a long time the
needs of the States were insignificant and
there had been no need of taxation at
all, except for local purposes. After the
Civil War. the need of State revenue
increased and with it the old methods of
raising revenue broke down and were
insufficient to meet the multiplied needs
of the States. As civilization advanced,
the needs further multiplied and the tax
problem became greater until it has be¬
come the modern instrument to shear
the unwilling sheep of everv ounce of
wool.
In the large cities, and particularlv
in the City of New York, the problem
has become keen and complex and the
situation intense. In the smaller towns
and villages where the old poll tax is
still imposed the problein is not so seri¬
ous.
The heterogeneous mass of tax laws
so complicated, chaotic, equivocal and in¬
explicable are not onlv inadequate and
""^'^'^'jl^'^'e, but a major part unenforci¬
ble. They are like an engine built one
By ISAAC HYMAN
hundred years ago patched up to meet
modern conditions. No one would shed
any tears or miss them if they were
abolished.
The Personal Property Ta.x is a farce.
Under the personal property tax the
greatest relative burden falls on the man
of moderate means, while the wealthy,
who are sufficiently wise to invest in ta.x-
e.xempt securities, or to avail themselves
of other loopholes in the law. escape al¬
most entirely.
The assessed value of personal prop¬
erty for the year 1916 was four billion
dollars. When the people got through
"swearing off" there remained on the
final assessment roll a paltry $376,530,150,
and on this only $7,705,525 as a tax was
collected. Corporations with millions of
dollars put their principal place of busi¬
ness at some small place to escape as¬
sessment on their personal property. By
this ruse their assessment on personal
property is practically nil and they
escape their just share of the burden of
ta.xation.
Effect on Assessed Valuations.
As the revenue derived from other
sources diminishes the assessed valua¬
tion of real estate, the only visible tangi¬
ble property that can't escape or be
moved increases by leaps and bounds.
There is at present no way to raise
new revenue to meet the increased ex¬
penditure of State and local governments
without increasing the already over¬
burdened real estate. Real estate is now
paying about 95 per cent, of the local
tax and about 85 per cent, of the total
State tax.
It is urged that the real estate owner
can pass his burden on to the tenant.
That is a fallacy. Practicallv that is al¬
most an impossibility. Tenants will not
.stand for any additional burdens to re¬
lieve the owner and a casual investiga¬
tion will disclose that rents have re¬
mained about the same in the older sec¬
tions of the city, except, of course, in
new buildings, and in some instances
have even declined. The average tenant
places a limit on rent, and if an attempt
is made to raise that limit a removal oc¬
curs. That means a renovation of the
apartment and a vacancv for an uncer¬
tain time. With this in mind a landlord
hesitates a long time before he persists in
a demand for an increase. So that while
the oblio-ations continue to multiply the
income is fixed and there is no return on
the investment.
Discrimination Against Landlords.
This is unfair. Monev invested in real
estate is no diflferent from money in¬
vested in any other business. No one
seems to complain when a business man
makes a profit, why then the enmitv and
jealousies toward the landlord? If an
owner nets a 6 per cent, return on his
money he is considered fortunate. If a
business man nets 6 per cent, on his
business he contemplates either a com¬
promise with his creditors or a bank¬
ruptcy. Every one envies a landlord,
yet no one wants to assume his burdens
U^nder our Personal Propertv Law for
the purpose of arriving at the taxable
amount, all debts and liabilities are de¬
ducted and the tax levied on the bal¬
ance, if there is any. Most often there
IS none. • '
No deductions, however, are permitted
from the assessed value of real estate.
The owner pays on the full value re7
gardless of his mortgage liabilities and
other obligations and charges. He not
only pays on what he owns, but on what
he owes as well.
The Personal Property Tax is about
2 per cent, and is based on the net
worth. Tlie Federal Income Tax is 2
per cent, and is based upon the net in¬
come, after deducting e.xemptions.
The tax on real estate, however—mark
the discrimination—is also 2 per cent.,
but is based on the full value and is
equivalent to about 50 per cent, of the
income.
To illustrate:
Personal Property Tax:
Total assets of a business........$50,000
Liabilities ....................... 40,000
Net worth ......................$10,000
-Amount of tax at 2 per cent...... $200
Federal Income Tax:
Gross income ................... $5,000
Exemption ...................... 4,000
Net taxable income.............. $1,000
-\mount of tax at 2 per cent...... $20
Real Estate Tax:
.\ssessed valuation ..............$50,000
Mortgages ...................... 40,000
Investment ......................$10,000
.Amount of tax at 2 per cent...... $1,000
Compared to Income Tax:
Gross rental same property...... $6,000
Fixed charges, expenditures, etc.,
not including amount of tax.... 4,500
Balance ......................... $1,500
Less amount of tax.............. 1,000
Net income ...................... $500
In other words, the owner of real
estate pays for the same capital invest¬
ment $800 more than the business man
and $980 more than the man who has
ten times as much income as he.
Is this a fair proposition? Can you
blame the real estate owner for feeling
bitter and unwilling to continue to carry
the burden and oppose legislation that
would increase the load?
Is he not justified in demanding relief?
But says the critic: Look at the pos
sible profits by increased value. How
about the good will of a business? Does
not the good will increase 100 per cent,
as fast as any land or property value.
The injustice of this disproportionate
share of the burden is now fully recog¬
nized and conceded, but how to rectify
and relieve the situation is the difficult
problem.
The advocates of a State Income Tax
Law claim that that will give some re¬
lief. But the relief would be so slight as
to be almost negligible. The estimated
approximate revenue from an income tax
would be about $44,000,000. Assuming
that 80 per cent .of this is to be returned
to the locality, New York City on the
basis of its contribution would receive
back about $18,000,000, hardly enough
to make an impression on a $212,000,000
budget.
(Continued on page 252.)