The record-union., 1896-09-25
THE MORTGAGE TAX AMEND
MENT.


MENT.
When the new Constitution was be-
fore the people Of California for ratifica-
ton the Record Union" opposed it and
one reason for it's opposition was the
feature of the instrument which pro-
vtdes for the taxation Of mortgages.
The Record Union at the time pre-
dicted that the borrower would pay the
tax charged against the mortgage; that
prediction has been completely verified.
In addition to the payment of the tax
upon the mortgage the borrower has
paid an amount in addition to the actual
tax as an insurance indemnity.
The rate Of taxation is variable one.
When the mortgage is made for five
years, the lender insures himself against
a raise of the rate Of taxation by adding
an amount to the interest rate which
would cover that raise. If the tax rate in
a county is one an1 half cents on the
dollar, the len - rwoper cent. addl-
tional rate into the mortgage note so as
to insure himself against the contin-
gency Of a raise in the rate. In this way
the additional rate of interest has ex-
ceeded the rate Of taxation and there
fore the borrower has paid more in in
tereSt than the lender paid in taxes.
But this it not all. Capital owned out
of the State cannot be borrowed with
real estate for security here because
under the Constitution the mortgage is
treated as an Interest In the land af-
fected thereby and the situs of prop
erty is with the location Of the land.
Objection has recently been raised to
the abolition Of the mortgage tax on the
ground that the note as a solvent credit
would be taxed to the lender. There Is
practically nothing in this suggestion.
Whether it be right or wrong, personal
property has a faculty of hiding itself
from taxation.
In 1861 the percentage of personal
property to the entire assessable value
OF property in this State was 1862, or
practically 90 per cent. Realty and per-
sonal property was divided about
equally with respect OF their value. In
1895 the ratio Of personal to real prop
erty was 1892, or practically IA per
cent. Thus for every 800 paid in taxes
$86 is paid upon real property and $14
upon personal property.
When the mortgage tax is abolished
the note will become personal property.
It will hide from taxation and in this
way the borrower will not be charged
with interest upon 1t because the len
der will feel reasonably secure that he
will not pay taxes upon it. The value of
the mortgages upon the real estate Of
California to-day is $21S,O0O,00O. We
hazard nothing in saying that if these
we're represented by notes merely and
not by recorded mortgages, that not
over $4,000, 900 of the notes would ever
be subjected to taxation. We are not
discussing question Of ethics. We
are not now saying whether this con-
dition of things ought or ought not to be
true. We are making an assertion con-
hrned by the common observation and
experience Of men and more fully con-
firmed by the statistical facts concern
ing the manner in which personal prop
erty has hidden itself from the view Of
the Assessor within the past two de-
cades.
From the year 1861 to the present
time there has been a steady decline in
the ratio Of value between personal prop
rty and real property. From 1862 it has
made a steady descent until in 1871 1t
was 32.17, in 1881 24.24, in 1891 15.29
and in 1895 1892.
Obligations represented merely by
notes and not confirmed and exposed by
recorded mortgages would, for the most
part, share the history Of other personal
property and, whether this be defen-
sible or indefensible on ethical grounds,
it is simply true; 1t follows therefore that
If the taxation Of mortgages is abolished
the borrower will be relieved from the
taxes now levied upon the mortgages.