New-York tribune., 1901-03-04
BORROWERS AND MORTGAGE rAHEs.

BORROWERS AND MORTGAGE TAXES.
| Riverhead ,Long Island correspondent
| takes exceptions 10 our views concerning mort
| gage taxation and thinks our reasoning is
| entirely astray He asks: lis il honest and
| ''iust that the borrower on a mortgage should
| pay interest on II and then Roe taxed for the
| farm besides. and the lender escape all taxa
| ''tion on his capital? Perhaps il is not but
we do not see in the proposed law to tax
mortgages at a uniform rate anything TO cor
rect that injustice if ii exists. On the contrary.
il would leave the borrower still paying interest
on the mortgage. taxes on the whole value of
the farm aud in addition whatever new interest
or premium the lender might charge 10 renew
mortgage which would be taxed when the term
of the existing mortgage expired. Our CORE
| spondent says: The assessors should take the
amount of the mortgage off and put 1t on the
lender" But that is not the proposition under
consideration. and there is no possible chance
10 secure such divided assessment. so that each
person interested in a piece of real estate would
/ paw to the State directly in proportion TO his
equity. Even if such law were enacted it is
doubtful if il would be any great relief to the
borrower. The lender VINO calculates on getting
/ certain percentage on his money would simply
charge SO much more for the loan and shift the
burden back upon the land: nor would any legis
| lation avail TO prevent that shifting indirectly
!
though il might forbid il directly.
Our correspondent in his demand that the
borrower be taxed only on his equity recognizes
the truth. which some seem unable 10 see. that
there is no more property rightly 10 be taxed
because part of that property is pledged as
| security for a loan He sees that if his farm is
! worth $1,000 and he owes $1,000 of the pur-
chase price there will be $4,000 and not $4,000
worth of property involved i'm the transaction.
/ \
passed taxes would be levied on the theory that
| there was $4,000 invested there He would
be taxed on the S10ee0 in which he and the
lender had a joint interest and then the lender
| would be taxed again on hs $1,000 interest
/ That would be double taxation. 1t would GER
tainly be no relief 10 the borrower. whose taxes
| would he levied on the same assessment as now,
even if il should impose burden on the lender;
and the chances are that after adjusting himself
| TO the new law on the renewal of loans the
lender would pass To the borrower that bur
den. Whatever may be said for the abstract
Justice OF taxing equities. certainly the taxation
| of mortgages at any rate in addition 10 the
| taxation of land regardless OF liens upon il is
| Tot a step toward the attainment of that Justice
Il is instead the piling up Of additional taxes
upon that land.
Our correspondent thinks that with the gov
I
city banks paying per cent nothing on
| country bank balances the borrower on farm
| mortgage ought not, after paying taxes, TO pay
| interest at the prevailing rate. But govern
| ment bonds and farm mortgages are not alike.
The one is absolutely safe. is untaxable and
| instantly convertible. As Isaac ii. Bromley once
| said of a noted fnancier's assets the bonds are
las quick as a tivedollar bill" The farm mort
gage. on the other hand is subject to shrnkage
in land values. many a lender has learned to
his cost: payment of interest is not always
prompt, and costly proceedings must be taken
10 recover interest or principal in case the bOr-
rover is delinquent. Moreover. though the loan
be gilt edged" if the lender wants TO use his
money he may have difficulty in disposing Of
the mortgage. Consider the case of bank bal
ances. They are safe. they in the city bank
! as a convenience 10 the country banker who
wants 10 make city drafts. and they may be
drawn on at sight. The bank which holds them
cannot make time loans. and must in turn invest
them well as il can. subject 10 call There
fore mortgage interest rates are naturally higher
| Many lenders have said that if il were not for
| the liability 10 taxation under existing law
money would be loaned on mortgages AT from
| One-half of 10 per cent lower than the pres
| ent rates. Few mortgages are now taxed. but
the chance that any particular mortgage may he
assessed as personal property keeps up the rate.
| which would surely fall if mortgages like gov
| ornmcnt bonds were exempt. Tax the bonds.
| and tie per cent loans would not be made to
| the government. tax on all mortgages at a
low rate. as now proposed. would have about
the same effect on interest As the present Iiabl-
/ ity 10 the larger tax. Now the borrower pays
/ an insurance premium against taxation of the
lender. He would substitute the payment Of
the actual tax With mortgages totally exempt
however. he might get money as cheaply in
comparison with governments and banks as the
different nature of his security makes reason
able.