The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1856-1888, 1881-08-27
Taxing Evidences of Debt.


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No method of assessment has ever been devised
winch operates successfully in bringing under
taxation those forms Of personal property which
exist only IN evidences Of debt. In Oregon we
nave always tried TO accomplish this, but il has
always eluded US. One of our errors has been
partially amended by the change in the law relat-
ing 10 deductions of Indebtedness. Such dednr-
tons may now be allowed only when the name
Oh the creditor is given. This partially checks
one abuse. But no small part of our strength is
stiil expended IN the vain effort to tax creditors
Under a really %judicious system we should on the
one hand abandon this effort, while on the other
We should allow no deductions for debts of auy
kind. Only actual or tangible property should
pay taxes, and it should pay wherever found.
such q system would be more just TO ali classes,
and in the end particularly so to borrowers.
They would get the reduction Of interest which
would surely follow free competition of money in
q market where it was known that no effort
would be made to tax loans. In spite Of all
Efforts a large part Of the money lent inIour State
escapes taxation. 1t is lent chiefly By associations
organized for the purpose, which are taxed on
their paid-up capital, or more usually on some
lump sum arbitrarily fixed or guessed at by the
assessor, but of course not approximating the
average amount of their outstanding loans.
The attempt to tax mortgages and the almost
universal failure TO accomplish it is a familiar
part of this subject. Every effort vet made TO
tax evidences of debt in this form has been baked
" INK Ingenuity vi LuOIN kdRCCS. ~ CluQUQOn
device once was to require the mortgagor to pay
the taxes. But this was met in many States by
a statute declaring all such agreements void, or
voidable. The most ingenious continuance yet
employed to obtain exemption from taxation Of
loans secured on lands is described in the Atlantic
for August. 1t is presented as a curious instance
of the ease with which taxation of personal pro-
perry may be evaded. " A firm of capitalists
requested a lawyer to draw up a legal instrument
which would enable them to lend money on the
security of land, and be at the same time entirely
free from any liability for local taxes on the
secured debt. By the plan he devised the mort
gagor shifts his legal status into that of q tenant
for q term of years and prospective purchaser
the mortgage shifts his into that of landlord and
vendor. The money lender receives a deed in
stead Of a mortgage. This is of course recorded.
The borrower receives a lease of the land at a
yearly rent equal to the annual interest on the
sum received for purchase money. Embodied
in the same instrument is q contract for sale, by
which the landlord agrees to convey the land to
the tenant at the expiration of the lease or
receipt of the same sum for which he bought il
of him, and further a clause whereby the tenant
agrees to pay all the taxes assessed on the pro-
perty during his term. If there are any building;
on the land the usual insurance clause may be
inserted. There is also the usual covenant fol
repairs, &c., to be made by the tenant. Imme
date possession is given indeed, the possession
of the borrower is not interrupted. The gist o
the transaction is exactly the same as if thu
money were borrowed and a mortgage given ii
security but by the ingenious changes in thu
usual legal phraseology the vexed question
whether the lender can be compelled to pay take
on the mortgage is definitely settled in the mega
tive" We are told that this means of evadinI
the taxation OF mortgages has been submitted t
highest legal talent, and has been pronounceC
safe and ~effectual. 1t is stated further that
great deal of money has been lent on this form o
landed security. Though the owner of the LAM
parts with the title, his rights in the land ar
secure, depending as in simple mortgage on re
payment of the money. The lender secures hi
object, which is obtainment of interest. withou
liability to taxation.
All this goes in with innumerable instances @
previous experience as further illustration of tn
impossibility of taxing evidences of debt. Th
correct principle is to tax actual property only
and to tax it to the owner without regard to hi
Indebtedness. On his part he receives compensa
ton in reduced rates of interest. Such reduce
rates will be had when lenders know they Wi
not be pursued with demands for payment Q
taxes on their loans. A standing Illustration
afforded by the status and example of the nationt
debt. 1t is only because of good security an
exemption from taxation that the United State
is able to get money at four per cent, or eve
less. When borrowers insist that lenders sha
pay taxes on the evidences of debt they hold, til
effect is simply to compel themselves to pay tt
amount in the shape of higher interest. Til
example of United States bonds ought to max
this point very easily and clearly understood.