The Vermont watchman. [volume] (Montpelier, Vt.) 1883-1911, 1884-12-10

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! is the policy of the state-and should have
fair trial. The creditor is serene, for he
knows he is sure Of his exemption at last
whenever the first step is taken in what
ever form. Once fastened on the com
munity, II Is as difficult TO remove as any old
abuse, because Of the powerful influence of
capital, and because the individual always
prefers to pay rather than study out and
| hght out, tax question. The heavy tax
rate OF cities illustrates this.
| Thus in Massachusetts the law of 1881 was
OF this rigid variety. IL left no option with
either party but provided that the creditors
interest as nortgagee shall be assessed as
real estate Ito hm, . and the mort
eager sail be assessed only for the value of
the real estate after deducting the mort
gagees interests" That positive tax upon
the creditor was what induced a great many
of the members to vote for the bill. Further
ingenious management assisted The pas
sage OF the act was delayed two days beyond
the May assessment and members were told
the responsibility would not be with them
because the next legislature would sit
four months before it would take effect,
and in the interim there would be great
public discussion of subject so important
| which discussion, thanks to the leading
newspapers, did not come off. Members in
1857 would not think of the main question,
saying the law had been passed after thirty
years talk and should have a fair trial
that at least they did not propose to wash
! the dirty linen of their predecessors. But
when the lenders, and especially the saw
| 1ngs banks, faced the question OF meeting
these taxes everywhere, the savings bank
tax being only half of one per cent while the
new taxes would be one and one-half their
| debtors were very soon made to feel that
they had been invited to Barmacide feast
and the legislature of 1882, | think without
dissenting voice, passed an amendment to
such that the land tax might be laid on the
debtor as before, unless he should insist
otherwise, which he has taken great pains
not to do. Thus the muzzle for the creditor,
having served its purpose in securing votes,
was dropped even before its use was at
tempted. The experience of Connecticut,
as stated by the New York commission of
1871, was similar:
This state (act of ls6O) taxed mortgages at their
but provided that as Between Of e
t res might be deducted from the valuation
be transferred for taxation to the list of the assets
ably that this last provision did not facilitate the
loan of money on mortgage an additional law
de eyss,a6 s;ao , % reas0n Of ne payn9 OF
s %' sS Sss' e e es eaa 3
secure e same-the practical effect Of which is most
the debtor and entirely exempt the creditor"
In New Jersey a system of taxing the
creditor by deduction from his debt created
panic by causing multitude of foreclos-
ures. Many called for an extra session of
the legislature to repeal the obnoxious law.
Thus the New York commission of 1871 states
the case in its second report:
New Jersey in the past instance enacted
moreover which could with the utmost certainty
be executed, and similar in principle to that above
sage should pay the tax on it. and deduct the tax
a senE With the
due were immediately foreclosed, and as
the growing counties near the city of New York
wishing hhh to borrow money on land to sell land
much so that If the law taxing mortgages in this
section OF the state had not been promptly repealed
| would become
predominant one in the state elections"
The rationale of the difficulty seems to be
this: Suppose in Vermont tax of one per
cent-S1 on the grand list--a rigdly en-
forced ustlry law to prevent taking above
six per cent interest-a natural rate of in
terest (that is, the home-established rate
which would prevail if no foreign, exempt,
or tax-escaping capital should compete to
reduce it, to be seven per cent-and an
actual rate fixed by the competition of the
general Hood of loanable capital through the
:. world to be six. The Boston or London
lender in Vermont, whose competition has
fixed this rate at six, can get that every
where on like risk and security, for the
price is everywhere in equilibrium. Sud-
denly he is told he must pay one per cent
tax in Vermont. every well" he replies,
" then pay me one per cent more interest,
for can get six everywhere except in YER
mont without paying an extra tax" " But"
says the debtor, that cannot be. Our
usury law prevents you from taking over
l SIN anu SUBJECTS you 10 forfeiture II you 90,
or If you require me to pay this tax" The
answer would be, " Certainly you cannot
, have my money one per cent cheaper than
, | can realize on it everywhere else. Nor am
, | going to assume any risks of forfeiture. If
| cannot take seven without this added risk
: you must pay me for that too. think it
, worth three per cent. Since you have
, usury law take the money at six, but you
; must pay me bonus of four per cent to
make up the seven and compensate me also
A M
not many non-residents would leave their
money in Vermont even on these conditions,
; for they do not like the risks of an illegiti-
mate business. In like manner Middlebury
, College has, say, half a million of exempt
loanable capital in mortgages realizing six
/, per cent When one per cent tax is laid
! on it, with prohibition that anything over
! six shall be charged on mortgage, that will
go where it can get six without paving a
| tax. So every man. lodging his tax, when
he finds it laid on him by this process, will
put his money outside, whereby he can get
, the six and dodge the tax all the better.
The savings banks also, paying before
; only half of one per cent tax, limited by law
; to the same interest charge and compelled
to pay full one per cent, besides never
/, knowing what their capital would earn,
! owing to various rates of taxation in diff
ferent towns, would withdraw large amounts
! from mortgage. Then if the borrower could
really get his money at six, the old rate,
and escape his former tax, it would be pre-
clSely equivalent to getting 1t one per cent
cheaper than before. This would give him
a new advantage over his competitors in the
world at large and would stimulate a great
additional demand. On the other hand, not
a single dollar of new capital is tempted into
, mortgages from anywhere. For the case
presumes this usury law effective in giving
the borrower the total benefit of the exemp-
ton. And if the borrower is to have it the
lender cannot, so he can have no induce
ment to put his money into mortgages which
he had not before.
What, then, do we have if the scheme
succeeds? A greatly reduced supply of
loanable capital for mortgages IA supply so
small that with no new demand its natural
rate would be seven per cent-a greatly in
creased demand-all coincident with cast
! iron law preventing any inducement being
offered to an additional supply by prohibit
ing rates at which money can be had. And
now who is in the strait Jackets it the
, creditor, who has the whole world besides
! to pay the old prices for his money or the
. borrower? | have assumed the rate in Ver-
mont to be six per cent. 1t is probably less,
+, for have heard of many mortgages at five
! and some at even less. If the average rate
is five, with a legal maximum of six, the
| evil have described will not occur, for the
, lender will simply raise his rate TO six and
, pay his tax, leaving the borrower really
~ nI L.. l..fnr n,.t ,,l,a