The sun., 1915-10-28
THE TAX PROBLEM.
Mr.. Victor Morawetx's Opinion Of the
Situation In New York.

From statement made 10 the Leoisidny,
Committee nOtr in session.
The revenue requirements for STATE
purposes and for local purposes prob.
ably will increase In the future as they
have Increased In the past II Is Ger.
tain that these requirements will not di.
minish. Therefore the taxes OF no one
can be reduced without increasing the
taxes payable by Others All that can
| be done is to devise a system OF dis
tributing the aggregate burden OF taxa
ton more eQuitably and more wisely
than II Is distributed under the exist
ing laws, and to provide a practical bic
and fair means OF decreasing the burden
Of taxation in the future
| At present the greater part Of the bur-
den OF taxation is imposed upon real
estate and only relatively small
amount OF the aggregate revenue for
state purposes and local purposes Is
raised by direct taxation OF personal
property or by indirect taxation in vari-
ous forms. The important question
arises whether this division OF the ag-
gregate burden of taxation between real
estate and other objects OF taxation
should be changed.
There are some who urge that the en-
tire burden of taxation or the bulk of
II should be Imposed upon land accord
ing to Its value without improvements,
because practically the entire value OF
land Is due 10 the community at large
ana not to the owners OF the land on
the other hand owners OF real estate
contend that the rate of taxation OF real
! estate. whether improved or unimproved,
is much too high, and that II should he
| largely reduced by imposing a greater
share OF the aggregate burden upon
others
To my mind neither OF these views Is
sound. Private ownership of land was
established by law and has existed with
the common consent and agreement Of
| the community from time immemorlal
In fact, the ownership OF most OF the
, land In the United states was acquired
by purchase from the Government or
under governmental grants on the faith
that the purchasers or grantees should
have all the benefits of private owner
ship including any Increase OF the value
OF the property acquired To change
our system by throwing upon land "A
very much larger sharr Of the burden
OF taxation would In effect amount to
conhscation and would he "A plain breach
of public faitr sha. say nothing
about the economic consequences OF
such action.
However, land values have been fixed
and improvements Of land hav. beer
made in view of the prevailing system
Of taxation and Of the prevailing divi-
sion OF the burden OF taxation between
real estate and other objects Of taxa
tion. To transfer from the owners Of
real estate to others any considerable
share Of the burden OF taxation heretu-
fore imposed upon real estate would
really amount TO making gift to the
Owners OF real estate at the expense OF
the community.
nf d
improved real estate and OF unimproved
lots In many sections Of the ely OF New
York has not been due TO 4 change in
the distribution of the burden OF taxa
ton. 1t has been due principally &c
the construction OF too mary new apir;-
ment houses. office buildings lofts ana
shops and the increase OF the aggregate
supply OF these facilities In excess Of any
increase Of the aggregate demand fer
them. Other contributing caU-'- + 'he
fall In rents and OF real est. llu,s
have been the depression o. - 'esi
geissrdlly, the collapse 8. -' era
speculative boo n of :, me years aga. y "
rise OF the inters st rate on cap.'ri and
the shifting OF centres of hus ness and
OF population by reason OF the c'u-
scruction OF rapid transit lines. of
course these causes have operated with
varying force upon different classes Z
property and In different sections of the
city.
The owners o. real estate took thcs"
risks when they acquired their property
and obtained the chances Of an increase
of its value !: Is certainly no part of
the function OF government /" recoup
owners of real estate for their losses by
imposing a greater share of the agCre-
gate burden OF taxation upon others.
Besides. it il probable that the depres-
- - las.
in general has been quite as large as
ihe depression Of real estate values
The immediate effect Of "A reduction
OF the tax rate on real estate would he
to benefit landlords, but not tenants,
except in those relatively few cases in
which tenants under existing leases have
agreed 10 pay taxes in addition TO rent.
Rents of city real estate, and in great
measure it's value, are fixed by the sup
ply Of dwellings. shops, lofts and offices
OF different kinds In different localities
and by the demand for them. This de-
mand In turn is governed largely by
the increase of population. by business
conditions and by the amount OF rent
or purchase price which lessees or pur-
chasers can afford TO pay.
The ultimate effect which chance
Of the tax rate would have upon rents
and upon the value Of city real estate
would depend upon its effect upon the
construction OF new buildings and the
consequent increase OF the supply Of
them. SO far as a tax upon real estate
bears upon unimproved land II operates
a. an incentive to owners TO build ~
az to earn carrying costs and II tends
ultimately 10 lower rents by increasing
the supply of buildings.
On the other hand. so far as the
tax bears upon buildings or improve
ments. it's tendency H. the other way,
for by reducing the net profits derived
from capital invested in buildings II
dimnishes the incentive to their con-
struction. IL a reduction OF the tax
rate on real estate should stimulate the
construction OF new buildings and thus
increase the supply of dwellings, shops,
lofts and offices of the kinds desired.
1t would thereby cause fall in rents
and would again bring down the value
Of improved real estate to the level re-
sulting from competition In supply and
demand.
As the fall in rents and OF real estate
values in New York has been due in
large measure To the construction Of
new apartment houses, shops, lofts and
office buildings. IL seems evident that no
reduction of the tax rate on real estate
is needed In order to stimulate the con-
structon of new buildings However
there may be good reasons for holding
that the rate OF taxation on real estate
values should be kept stationary as far
az practicable at the rate prevailing
In recent years. say / 8 per cent. in the
city of New York, and that any neces.
sary public revenue that cannot be OBJ
tanned from this source should be raised