38 EIGHTEENTH REPORT. 



American system thau uuder the gross rental tax, ior site rent 

 is nearly all net rent whereas building rent contains a large ele- 

 ment of repairs, expenses of management, etc., which must be 

 deducted before capitalizing. Moreover site rent is usually capital- 

 ized at a lower rate of interest. So under a property tax there is 

 a tendency for a larger proportion of the tax to fall on the site 

 than under a tax on rental. 



There is a kind of incidence of taxation, if incidence be the proper 

 word, which results in certain tenants getting less accommoda- 

 tion than thev would if there had been no tax, and certain site- 

 owners being unable to earn any profit or site rent because of the 

 decreased demand of tenants. But in this case there is no tax 

 paid. If property becomes less valuable as a result of a property 

 tax, or if rentals decline as a result of a tax on them, then the 

 amount of tax paid is less; and where there is no tax it is incor- 

 rect to speak of incidence. This is not the case contemplated in 

 the present discussion. 



To summarize: (1) Any kind of a tax on the most profitable 

 mode of utilizing a site tends to reduce the value of the site to 

 that point where, under the circumstances, it becomes more i)rofit- 

 able to develop the site in some other way. (2) A tax on real 

 property is not necessarily divisible into a tax on the house and 

 one on the site in proportion to their respective values, but its 

 incidence depends on the willingness of the tenants as a class to 

 restrict their accommodations, or to change their nature, and on 

 the possibility of doing so. As a matter of observation it would 

 seem that, in the case of American cities with many computing 

 suburbs, the proportion of the tax on real property that falls on 

 the site value is usually greater than the proportion of site value 

 to the total value of real estate taxed. 



From this discussion it would appear that any attempt to draw 

 u\) rules for the proper apportionment of taxes so that after the 

 process of shifting is completed the taxes will be borne by those 

 whom it is desired to tax, must fail because of the complexity of 

 the problem. But one practical consideration makes the outlook 

 less discouraging. That is, that generally the benefits of local ex- 

 penditures will be transferred at about the same rate of speed as 

 the burdens of taxation, and if taxes are levied in the first place 

 on the persons who are directly benefited by their expenditure 

 they will ])robably fall in the end on the persons who receive the 

 ultimate permanent benefit. This would mean adopting the one 

 good feature of English local rates — assessment on the occupier. 



