Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: v. 21, no. 525: April 6, 1878

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Real Estate Record AND BUILDERS' GUIDE. YoL. XXI. NEW YOEK, SATURDAY, APRIL 6, 1878. No. 62.5. Pidilished Weekly by '€\n %m{ Estate %mxti Issotmiion. TERMS. ONE YEAU. in advance....SIO.OO. Communications should be addressed to C. \V. SWEET. Nos. 345 AND 34T BnoADW.w. Next week will appear the fifth of our aeries of articles on the lIj-gienicB of Building. THE NEW TAX LAW. There has been introduced into tho State Senate bj' Senator .Sessions, and passed bj- that bodj' with the celeritj-of a lightning tlasli, a law profcssedlj- iuteuded to rehevc the holders of heavilj- mort- giiged real estate. Before this bill is railroaded through the .^sserablj-, it will be worth while to stop and consider its provisions and their probable elfects. Anj' legislation relating to taxation must be interesting to citizens at large in the present exigenc}' of affairs, and of exccptioimble moment to those whose interests aro specitillj- uft'ectcd therobj-. It, is diflicult and perhaps unfair to criticise a legis¬ lative enactment upon the meagre abstract fur¬ nished as news by the press. We shall procure an ollicial copj- of the bill as soon as practicable, and will then give the framers and promoters of it the benelit of an\- now readings which the bill itself luiij- disclose. This bill has a verj' plausible exter¬ ior, but it appears to be ingeniously- framed, to cover sinister and special objects. If our con¬ struction of it, based upon iircsent data, is war¬ rantable and just, its obvious effects will be highlj- detrimental and prejudicial to .sound and merito¬ rious real estate interests. If it seeks to establish a more certain and compreliciisivo taxation of mortgages, this object could be far more effectu¬ ally accomplished in a simple and easj- waj-, naniclj', to cause an iuventorj- lo be made at the Register's office of all ontstauding mortgages arranged according to the alpliabetical order of the mortgagees; then with the aid of a city directorj', or by special inquiry of the mortgagors, or present owners of the properties mortgaged, it could be quickly determined whether •the mort¬ gages are taxable. If the object is to relieve real estate of the double taxation now- imposed upon it—to wit: tho tax upon tlie fee aim- pie, and the ttix upon the mortgages cov¬ ering the fee, then the true and eflective way to accomplish this end is to exempt all mortgages from taxation. Upon the enactment of such a law the interest rate on mortgage loans would drop to four per cent, for prime loans, and would prob-ibly never exceed five or six per cent, per annum in normal states of the money market. Neiihcr of these objects, wc believe, is honestly or sincerely contemplated by the present law, or if they are, its direct efl'ect will be to defeat such ends, and its indirect eflects will be to heap up additional and unwarrantable taxation upon free and clear, or lightly mortgaged properties, and to seriously embarrass the negotiation of mortgage loans. The motives concealed in this bill, and the interests favored by its enactment, may be bound up in three categories. It maybe the desperate efi'ort of the owners of h»avily-mortgaged vacant lots to relieve themselves entirely from taxation at the expense of more fortunate owners of prop¬ erty free and clear, or lightly encumbered. It may be an eflbrt on the part of monicd corpora¬ tions to secure the monopoly of lending money ou mortgage, which will include the fixing of the rate of interest and the costs or bonuses. It may be an honest but ignorant efi'ort on the part of city politicians, to eulargo the area of taxable values. Under the operation of this law, the owner of a Boulevard lot mortgaged, .say to an Institution for S10,000, and tax valued at $10,00(1 will escape free of tax, and as the Institution (Life Insurance Com¬ pany or Savings Bank) is exempt by law from tax¬ ation on mortgages, the amount of tax thus waived will be reassessed upon free and dear, or lightlj-- encumbcred property. AVe have no time now to trace out the full efl'octs of this law, but can see at a glance enough evil consequences that are likely to follow in its trail, to warriint ns in sounding a nolo of alarm to all conserviitive and bona fide owners of retd estate aii^l personal investors on mortgages, as wc believe their interests are being placed iu jeopartly. We will summarize our criticisms upon this law as succinctly as possible, leaving our readers to discover at their leisure the links of cause and effect in the positions we shall assume with relii- tioii to it. It offers a large premium to ow-ncrs of property that is heavily mortgaged. It imposes a correspondingly hciivy penalty on the owners of free and dear or lightly encuniliercd property. It will give to monicd corporations in this State and to individual capitalists residing out of the State acom])lote monopoly of Mortgage Loans, as the former arc exempt by law from taxation and the latter cannot be taxed by this State, nor can in¬ terest be withheld for them when due. It discriminates severely against the capitalist or lender on mortgage in this State, by compelling him to pay out of his present income of six per cent, a tax of two and a half per cent., leaving him a net income of three and a half per cent., or in heu of this compels him to take up with such bor¬ rowers (the poorest of all) w-ho will agree to pay the tax out of their own pockets. This moans poor bondsman and poor security. It appears to limit its operation to purchase money mortgages, a very small percentage of ex¬ isting mortgages. The principle and heaviest mortgages of this description arc now covering vacant lots. This feature aecma to indicate that tlic bill has been prepared expressly and espe¬ cially for the relief of holders of some uptown lots, that are now mortgaged for more than the assessed tax valuation. It will have the effect to Avithdraw- from the Tax lists all mortgages that are now taxed and lo im¬ pose upou free and clear or lightly encumbered real estate an additional biudcn, which in the case of lightly encumbered properly will more than neu tralize the apparent benefit which it may derive from the operatiou of the law. It will precipitate the calling in, or immediate foreclosure, of all past due mortgages held by individual residents of this State, and throw serious and insurmountable ob¬ stacles iu the way of negotiatiug fresh loans from similar sources. It will impair existing contracts and hopelessly confuse the basis of fresh negotiations. It represents class or special legislation of the most objectionable kind. Its operation would bo liurah, unequal, oppressive. It would add just the additional ounce to a lotul of misfortune which real estate is not able at present to bear. It encourages rascality and recklcs.sness, and discourages thrift, prudence and honest dealing. It w-ill open possibilities f'or widespread evasion of taxation on real estate. Owners will have merely to over their properties with fictitious mortgages to tho amount of the asse.s.-ii-d tax valu¬ ation, and thus escape taxation entirely. The city will be seriously and hopelessly defeated of its r.-venue. Its apparent relief of mortgage debt(jr3 is really deceptivo and illusory. It will depreciate the value of their property through the hardships lliiis im¬ posed on real estate, ami render extensive fore¬ closures inevitable. If owners could borrow at four per cent, by agreeing to pay the tax the rate would amount to more than the ruling one to-day, while owners are sure to be met under the opera¬ tion of this law- by increased tax valuations, and largely increased taxes. It will have the tendency to ultimately establish the highest legal rate as the ruling one for loans, and introduce the vicious sys¬ tem of discounts, bonuses and slmve.sjfor procuring loans, when mortgages on city property should be, and would otherwise be, eagerly sought after as the choicest and most reliable securities, available aud negotiable at the lowest rates of interesL THEORIES OF TAXATION. When, iu loss than thirtj- j'ear.s, the total taxa¬ tion of this State, including State, county- and school tax, has increased from four millions to sixty- million.s, having declined only in recent years, after five j-ears of signal disaster, to its present standard of fifty millions, it behooves the tax-paj-er most certainly, and relatively- the press and the entire peiiple of this State, to give heed to questions of taxation. After the settlement, or unsettlemcut rather, of the currency question by the general government, there is no issue more certaiu to loom up in portentous and over¬ shadowing proportions, both iu the Federal and in the State governments, than this very question of taxation. It is computed that the total governmental tax¬ ation, Federal and Sttite, impo.sed upon this State iu a J-ear amounts to fully ono hundred millions of dollars. It is needless to saj-, that this is an intolerable and imprecedented burden upon the business interests and industries of the Common¬ wealth, and, in view of the prolonged revulsion through which our whole business community is ixissing, it becomes an interesting study- to note the issue of the struggle between honest business effort and the cormorants of government. It maj- be esteemed a prime misfortune that the science of political economj-, if it can be call¬ ed a science, has made so little progress since its birth. Although among the earliest generaliza¬ tions of instructed and enlightened human genius, we are compelled to look for its highest authori¬ ties in works which were produced between two and three centuries ago, and it measures the pro- gre.ss in this department of thought and knowl¬ edge to say that the standards then set up are the authoritative and controlling ones to-day. Po¬ litical economy must take its place in the category