TAXATION. 59 



If A buys a farm worth $10,000 and can pay $5,000, and 

 mortgages the farm to B fur the remaining $5,000, evidently A's 

 ability in this transaction with reference to assessment is $5,000 ; 

 B's ability with reference to the same is also $5,000, for he holds 

 a note and other security for that amount. Now to tax A for 

 only $5,000 would be in violation of a principle generally ac- 

 cepted, that real estate has an ability with reference to taxation, 

 represented by its value, however owned or encumbered. In the 

 State of Connecticut, it is true, A would be allowed an " ofi-set " 

 or " deduction of the amount of the mortgage, upon making it 

 certain that the mortgagee shall be taxed in the State for the 

 amount deducted ; " but in most of the States A would be 

 required to pay tax on the entire property notwithstanding the 

 mortgage. The question at once arises, shall B be taxed for the 

 amount of the mortgage? If taxed, is it not a case of double 

 taxation ? If not taxed, does B bear his part in the scheme of 

 taxation in propo'rtion to his ability? 



Again, if B is taxed on the mortgage will he not in consequence 

 obtain a rate of interest for the money loaned, which will virtually 

 impose the tax on A, and thus make A with an actual ability of 

 $5,000, pay a tax upon $15,000? These are questions often ar- 

 gued, but never settled. Like Banquo's ghost, they will not 

 "down " at our bidding. Whatever view be taken, we find our- 

 selves between two horns of a dilemma. If deductions are allowed 

 iu consequence of mortgages, the door is opened for an infinite 

 amount of fraud and deception. A practical difficulty arises also 

 when the land is in one town and mortgage is held in another 

 town, in consequence of the different rates of taxation. The case 

 is etill worse if the land is in one State and the mortgage is held 

 in another State. Considerations like these have induced most 

 States to levy the tax upon the full value of the land in the town 

 where it is located. But what shall be done with the mortgage? 

 Shall it be taxed or shall it be exempted ? The answer to this 

 question given by the Massachusetts Commissioners on Taxation, 

 (1875) which is but an endorsement of the Massachusetts system 

 iu relation to this subject, seems eminently wise and just. The 

 system which they recommend does not tax mortgages as such, 

 but as credits. A mortgage may be given to secure against a 

 contingent liability or to insure the performance of a certain act, and 

 would not be taxed to the holder, until "by some breech of con- 



