Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: [v. 99, no. 2554: Articles]: February 24, 1917

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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.)