The Vermont watchman. [volume] (Montpelier, Vt.) 1883-1911, 1888-11-21
GNattbman T. Journal.
WEDNESDAY, NOVEMBER 81, 1885,,
Exemption Of Money.Lenders.

dnOtneI, uuuolldhSo w loSui"oo 'oA"oiOh
on mortgaged real estate. These bills
have one common object-the relief of
the borrower, either by reducing his
taxes or by lowering the rate of inter-
est. This question was prominently
before the legislature in 1884, in the
Douglass bill, the main features of
which are embodied in the bill recently
introduced by Mr.. Childs of Weybridge.
The main reliance of the advocates of
these proposed laws is the fact of the
enactment of a mortgage exemption
law in Massachusetts in 1881 and the
claim that a material reduction in the
interest rate on mortgage loans has
thereby been effected. We recently
wrote to Henry VIM, Esq, of Boston
for information as to the existing terms
of the Massachusetts law and its gen.
eral effect on the interest rate on mort
gage loans. Mr. VIM is an expert in
questions of taxation, familiar by study
and long experience with every phase
of the subject. We make the follow
ing extracts from his answer to our in
quiries:
Ihave your inquiry concerning our Massa-
chusetts law which practically exempts
mortgage loans. While 1t pretends to ex-
empt the lender ON his note and then to per-
nit the borrower to report the tax on his
mortgaged land for assessment on the
lender, it yet provides for an agreement be-
tween the parties as to who shall pay it,
And every mortgage is made with clause
compelling the borrower to bear the tax
the lender going free. l know of no excep-
ton to this. Therefore the borrower is
made to pay all the taxes he did under the
old law and more, too, because his land is
assessed towards making up the tax the
lender is excused from. And he pays no
less interest by reason of the change. 1t is
one of the frauds of this law that it tanta-
lizingly holds out to the borrower the prom
Use Of an exemption which well-known
economic laws prevent him from getting,
and then seeks its justification in the lying
pretence that it has given him chance of
exemption of which he has voluntarily sur
rendered the benefit to the lender. But
why, you will ask, is the borrower under
such law compelled to shoulder the tax of
the lender without getting a reduction of
interest in return? The lender, you may
say, who before paid tax can afford to
free and, if he holds back the borrower
can make him through competition of lend
ers DESTROYS to get this advantage of exemp-
ton who can only get it through consent of
the borrower. Plausible, but entirely fall
lacious. Space prevents full answer, es-
pecially as l gave the reasons in your col
umns at somewhat tiresome length in 1884.
But will state some OF the causes.
The exemption of loanable capital in YER
mont will not compel the lender to cheaper
Lie u. tl.A
exemption of Vermont cows would compel
the dairymen to sell butter cheaper, of which
the selling price is fixed in Quincy market.
The price for the use of loanable capital
is fixed by the demand and supply through
the world. London will lend in Vermont
at the London rate, plus exchange, and
plus the cost of assuring the European capt.
talist that his loan is safe. London thus
fixes the interest rate in the world at large,
and it will not be pretended that Vermont
produces such an over-supply of loanable
capital that it can be emancipated from
control of the foreign supply in its price.
Granting this, the interest charged by the
Vermont lender ON land mortgage is such a
rate as foreign capital loaned in Vermont,
or ready to be loaned there, compels him to
accept. Should you pass law like ours
which compels every borrower to pay the
tax on his mortgaged land when mortgaged
to foreign creditor, plainly he would have
to pay the current interest rate and his
land tax BESIDES for he cannot compel the
foreigner to pay his tax. Therefore the
Vermont lender could exact that current
rate for his loans and make the borrower
pay his own land tax, since that is what the
foreigner eXacts. That would be the price
of the loan and it would be totally mma-
terial whether the lender should escape the
tax on his lent money or not. The borrower
would neither get his loan at less interest
nor escape his land tax, whatever foolish
hope the law might inspire that he could
compel the creditor to pay that tax.
You may try various expedients to help
the borrower, but you will fail unless you
are willing to exempt all mortgaged land
outright, whether mortgaged to native OF
foreigner, without attempting to hale in q
creditor to assume an equivalent tax when
you take one from the farm. For example
suppose you exempt the Vermont lender
on his mortgage note but assess the mort
gagged land to him and vary from our law
by prohibiting the borrower from covenant
ing to pay the land tax himself. The lender
would simply charge additional interest
enough to take the tax indirectly from the
borrower. If your tax is one per cent, one
dollar on the grand list, you would see
home-placed mortgages bear one per cent
higher interest than mortgages to foreign
ers. For since you cannot tax the foreigner
the borrower must pay the land tax. AnC
paying the land tax plus the current rate is
just equivalent to paying the home lender
Onc pcI Cthu IL ic pay
the tax.
Or should you adopt the plan of limiting
the rate of interest by usury laws, exempt
ing the borrower on his land and providing
that the tax might be deducted from tn,
debt when the creditor is paid, the result
would simply be that the law would drive
out from mortgages all foreign capital, al
tax-dodging capital, all exempt capital
and the borrowers wouldbe terribly pinched
as in New Jersey and Oregon. In New
Jersey they clamored for an extra session
of the legislature to relieve the pressure o
the law, unable to wait the regular time.
Mr.. Winn lays down the theory tina
capital would be driven out of mort
cages by any law that taxed it, or re
duced its interest revenue, for the SAX
of exempting the borrower. Price
fixed by demand as well as supply, an
if any exemption of lenders should, b
some strange chance, reduce the inter
est rate below the current rate, neN
demands for capital would arise whic
would soon restore the rate to the poir
where the lenders would reap substar