The Democratic advocate. [volume] (Westminster, Md.) 1865-1972, 1884-01-19
Taxing Mortgages.

TaXlng mortgages.
The most important subject to the general
public treated in State Tax Commissioner
Woolford's report is that taxing mortgages.
The report shows that the assessments made
by the Commissioner yielded last year more
than S114, 900, and contains suggestions cal
culated to make tlre office more efficient and
to insure more revenue to the state. These
are all important, but the people will be most
concerned in his arguments and reasonings
why mortgaged debts should be taxed. Be-
low we quote his words:
Previous to the passage of the Act of 1870,
Chapter 394, debts secured by mortgage were
always taxable as other interest bearing Sc
curities, except in the single instance of the
| deferred payments of the purchase money for
land secured by mortgage of such land, pro-
vision for the exemption OF the latter class OF
| mortgage debts from taxation having been
passed short time before.
At the time of the passage of the Act OF
1870, landowners in Maryland were suffering
| from the terrible effects of the civil war, an
immense debt of the United States was seek
ing investment at six per cent. interest free OF
taxation; q variety of railroad bonds and other
coupon bonds promising six, seven and eight
| per cent. interest were offered freely, and
| other investment were constantly on the
| market to such an extent, that the owners of
real property, particularly in the counties,
! frequently found difficulty in borrowing upon
mortgage, while the mortgage debt was liable
| to taxation. This fact no doubt brought upon
the Legislature of that year a very strong
pressure to disregard the provision Of the Bill
ocD IL ga ba on 10 VII
shrewd capitalist who was anxious to adhere
| to solid investments, rather than yield to
tempting rates of interest on investments in
which he very wisely had not equal confidence,
! Joined in the pressure, and the Act OF 1870
| was passed. 1t was believed by many to be
necessary for the relief of the landed interest,
and was acceded to as a sort of necessity from
! the consequences of the war. There is no
doubt that temporary relief was gained by
! many owners of real property by this means.
1t created desire on the part of investors, to
obtain such solid security on more favorable
terms, and caused money to be freely offered
| to landowners on mortgage, and many land
owners availed themselves of the opportunity
to obtain actual or tancied relief. On the
part Of many who were thus encouraged to put
| liens on their estates which they have not been
able since to release without inconvenience, a
debts were taxed, disposition to realize on
! such mortgages at once, might result in in
convenience. 1t is submitted that this fear is
now groundless, for the reason that the re-
duction in the rates of interest on all safe Sc
curities has been so great, that very few per-
fectly secure investments can now be had,
which will yield more than three and a half or
four per cent. net income. 1t is believed,
therefore, that if such mortgage debts were
again subjected to taxation, that the demand
for safe investments would render it easy for
any mortgagor under covenant to pay the
taxes on the mortgage debt. to obtain a re-
lease of the old mortgage, by exchanging it
for a new one without such covenant, and
that investors would find it to their interest to
secure such safe security, although the net in
come therefrom, free of taxes, might be re-
duced to five or even four and halfper cent,
per annum.
Assuming this view to be correct, the pres
ent Legislature will have an opportunity to
restore the operation ofthe principle of equal
ity of taxation, contained in the declaration
OF rights of the State, without danger to any
of her citizens That this position is regarded
as correct by the masses Of the people, is war
ranted by the fact, that a large majority OF the
people of the State, including mortgagors, be-
lieve that it is incumbent on the General AS
SemDlV 10 TeSIOTe IHt Glutillll vi ttAutlOH III
this respect. 1t is noticeable fact, that while
the investor is clamorous for n continuance OF
the exemption, the landowner, though mort
gagor, being deeply interested in restoring
equality in taxation, favors the restoration.
believe, that in the present condition of the
money market, the change can now be made
without serious Inconvenience to any one, and
that such being the case, majority of the
people demand and expect it TO be done. If
this is done, it will in my judgment be incum-
bent on the Legislature to make all future
covenants ON the part ofmortgagors to pay the
taxes on the mortgage debts imperative and
void, and to repeal the present provision max
ing such contracts lawful.
In answer to the argument frequently made
of late years, that the taxation of mortgage
debts, secured upon land, involves double
taxation, the land itself being taxed to the
mortgagor, ! need simply say, that such a
doctrine has been repeatedly urged upon the
Court of Appeals of this State, and that high
tribunal has uniformally repudiated such n
theory, the land being regarded as the estate
of the mortgagor in possession, and the mort
gage debt being the property OF the mortgage.
When the purchase money for the land,
however, is the subject of the mortgage debt,
it would be equitable that the mortgagor in
possession of the land should be credited with
the unpaid purchase money thus secureu, that
amount being subject to taxation in the hands
of the mortgage. Wherever the land has
been simply hypothetical for the security OF
a loan, there can be no more reason for the
exemption. than there is for the exemption OF
shares of bank stock hypothetical for the
SHINE purpose, although such II proposition
was never made in the latter case or claimed,
so far as am advised.
In the instance ofrailroad and other corpor-
alton bonds bearing coupons for interest, OF
which there are millions exempted under the
Act of 1870, and other laws made in pursuance
of the provisions of that Act, the claim OF
double taxation has never been set up, as no
covenant exists in them, compelling the mort
gagor in any event to pay the taxes; yet being
mortgage debts, the exemption pertains to
them as well as to the mortgage debts OF indi-
viduals, in all cases where the entire property
mortgaged, is situated within the State of
Maryland.
The restoration of such mortgage bonds to
taxation would add immensely to the basis of
assessment in the State.
The Protection Fallacy.
These are high tariff times, when labor en-