The Fargo forum and daily republican. [volume] (Fargo, N.D.) 1894-1957, 1914-01-14
STATE GOVERNMENT
HAS BEEN ECONOMICALLY
Continued From Page Three.

TAX, or he may make no effort to shift
1t because he prefers to invest in his
own neighborhood. This Professor
Adams found to be true at least for
rural regions when the tax rate is low
and land values possess reasonable
stability.
A very low ate is such a rarity,
however, that such a situation infre-
quently presents itself. Laws enacted
to prevent shifting are impracticable
and injure rather than benefit the
debtor for whose protection they are
intended. AS far back as 1879 Cali
fornia made a vigorous effort to pre-
vent the shifting Of the tax. A pro-
vision was inserted in the constitu-
ton and repeated in the statutes that
every contract hereafter made by
which the debtor is obliged to pay any
tax or assessment on money loaned,
or on IN mortgage, deed of trust or
other lien, shall be null and void The
law provided, however, that the mort
gage should be taxed as interest in the
property which prevented the iniquity
Of double taxation. But as to the at
tempt to prevent shifting of the tax,
Professor Plehn conclusively shows
that the effort resulted in total fail
ure. From statistics compiled by
Professor Plehn it is. found that the
average rate of interest in San Fran
cisco during the period 1S80-1S90 on
first class mortgage loans which were
taxed SCI per cent, and on first class
commercial paper held by San Fran
cisco banks, which were practically
untaxed, was 4.73 per cent, the differ
ence being 2 per cent. The average
rate of taxation in San Francisco for
the same period was slightly less than
II per cent or oven one-thlrd or l
per cent less than the difference be-
tween the two interest rates. In 9TH
er words, the interest rates on taxed
credits exceeded the a on untaXed
credits by an amount qua TO the
average tax rate and an additional
one third of / per cent to cover the
cost of shifting the tax from the cred
itor to the debtor. The borrower was
therefore not only compelled to pay
the mortgage tax, but the cost OF
shifting it onto him as we'll.
Concerning the California law, the
Wisconsin tax commission in its re-
port for 1908 has this to say:
''There seems to be a sort
of fatefu1 irony in the fact
that the experience in that
state, the only state which has
any long-continued effort
to prevent such shifting, is
now usually cited as a shining
example to support the proposition
that a. tax upon credits is ordinarily
shifted to the borrower. In 1910 the
people of Californit adopted an amend
ment to the state constitution Whlcn
provides that a mortgage: Iced OF
trust. contract or other obligation by
which a debt is secured when land is
pladeed as security for the payment
thereof. together with the money rep
resented by such debt shall not he
considered property subject TO
tom. The California State Board OF
Equalization in it's report for the bi-
ennial period 1909-1sl0 says: AFTER
thirty years, the provision for the
assessment of mortgages has been
stricken from the state constitution,
and the popular vote which accom-
plished that result has registered the
verdict Of experience that the trainers
OF the organic law made a mistake
when they inserted the mortgage tax
requirement. From the very inception
of this tax, the money lenders began
it's evasion by raising the rate of 1n-
terest to such pei cent as would in
sure a return of all taxes paid on
money loaned. and not only that, but
in most instances the interest," rate
was made high enough to cover anu
cipated increase of the levy OF special
taxes. It is notorious that out or ev
cry loan the lender recouped from the
IL ~
per cent in interest more than he paid
out in taxes" ,7 #.. 81
While the. Wisconsin law does not
specifically exempt mortgages from
taxation like California, the result is
the same. Mortgages are taxable as
an interest in real estate and parties
to a mortgage are permitted to make
a contract concerning he payment of
taxes. Similar laws are found In
Connecticut. Massachusetts and New
Jersey. Oregon and Michigan had
laws which were construed 10y the
courts to permit such agreements, but
in both states these laws have been
repealed.
The result Of the plan in Wisconsin
is that the borrower will almost in
yariably elect to pay all taxes himself
in order to secure the loan at the low
est rate of interest that them market af-I
fords. AS far as the practical re-
suits of the law are concerned, mort
cages are exempt from taxation. Prior
to the passage of this law in 1903.
Wisconsin taxed mortgages as general
property to discuss the experience Of
Wisconsin under that system would be
merely a REPETITION of what has mere
ly been said concerning this method