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BXBCUnVB COMMTTTEB 

 (Bj Congf txIniMl Dl»trlct«) 



lldl WUliwn Webb, Route On*, JoUM 



1th G. F. Tullodi, Rodrfard 



3th C B. Bunbaraugh, Pldo 



4th W. H. Moody, Port Byrai 



Sth ; B.H. Tnlor, Rapatoe 



6th A.«. Wrl(ht,V>rna 



7th .' F. D. Bwtao, Cornell 



Sth R. F. Kerr, Iroquois 



«th J. L. Whlanend, CSierUetoa 



0th Cherlee Borcelt, HeTene ■ 



1st Samuel SorrcUs, Raymond 



Ind Frank OeansT, Waterloo 



Jrd W. L. Cope, Salem 



: 4th Charles Marshall, Belknap 



R. K. Loomla, Makanda 



gfaiwsffiiyaiwiB'WB' 



OPFICBRS 



PrsWdasit, Earl C. ScBith Detroit 



Vlcs-Preaident, Charles R. Finley .' Hoopeston 



Treasurer, R. A. Cowlas Bloomlnston 



, G«o. A. Fas Sycamore 



■ L.L.INOIS 



CCLTVBAL ASSOCIA1 



RECORD' 



r» arfwwio th^purpoMfor mhich thm Wmrm Bur^mu wm» mgmn- 

 ls«irf, nam«ly, to promote, protmct and represent thm busings*, 

 metinomic, woeUii and adueationat IntwrmMiM of thm farmmrt of 

 IttkwU and thm nation/and to dm¥€lop agHcultur*. 



DIRECTORS OP DEPARTMENTS 



Co-opcntiTC Acoountlf^ Geo. R. Wicker 



Dairy Markctlns ; A. D. Lyn<^ 



Pinancc R. A. Cowles 



Fruit and Vegetable M«rk«tlns A. B. Leeper 



General Office J. H. Kclker 



Information Harry C. Butcher 



Lcsal Counsel Donald Klrkpatri<dc 



Live Stock Marketing Wm. B. Hedgcock 



Organisation G. B, Mctxgcr 



Phoaphate-Llmestone J. R. Bent 



Poultry and Eu Markedly P. A. Goufler 



Taxation and Statlatica , J. C. WaCaon 



Tranaportation L. J Quatcy 



PabUahed once a month at 404 North Wcaley Are.. Mount Morrta, ntinoia, by the IlUnob Agricultuiml AaKMdation. Edited by DepartmeDt of Infonuatloo, Hany C. Butcher, Direetor, 006 South Dearboni 

 Street, Chioago. UliDoia. Entered a* aeoood-elaM matter October 30, I92ti at the post office at Mount Morria, lUinoia, upder the Act of March 3, 1879. Aooeptanoe for mailing at ipeoial rate of poatage providad 

 for ID Section 412, Act of February 38, 1936, authorised Oetober 37, 1936. The individual memberahip fee of the'IUinois Agricultural Aeaoeiation it five doUara a year. The fee inoludea pasrment of fifty oenta 

 for eubecription to the Illinoia Acriciilturml Aaeociation Rboord. Poetmaiter: In returning an un<^ed for or miaeent oopy, pleaae indicate key number on adoreae m ia required by law. 



Jj(ouble Taxation of Mortgaged 

 Real Estate 



i\ 



HY Relief Is Impossibie Under the Present 

 Constitution. 



J. C. HTaUsa. 



By JOHN C. WATSON 



D\/reetor, Department of Taxation and Statigtiea. 

 Illinois Agricultural Association 



UNDER the Illinois taxing system it is well 

 ktown that the owner of mortgaged real 

 estate is compelled to pay taxes 

 on the entire property. He can- 

 not deduct the amount of the 

 mortgage from the value of the 

 whole property and thus reduce 

 his taxes to his equity or the in- 

 terest which he has in the prop- 

 erty. 



In contrast with its treatment 

 of tangible property, the revenue 

 system of Illinois carefully re- 

 lieves intangibles of. double taxa- 

 Owners of money, notes, mortgages, trust 

 jtorkp \-~.il:, or other evidence of in- 

 nes», sire cxvi >.■. >ly given the right to deduct 

 uue (leuU IiOiu the valuations of such 

 propel ty. Owners of real estate are denied the 

 right to deduct debts from the valuations of their 

 real es tate. The present constitution of the State 

 makes relief impossible. Until the constitution 

 is amended in such a way as to make a fair tax- 

 ing system possible, owners of mortgaged real 

 estate, whether farm lands, town and city lots, 

 or corporate property, including the railroads, 

 must c Dntinue to pay taxes not only on the equity, 

 but up an the entire property. In addition, wheth- 

 er the mortgages pay any tax or not, mortgagors 

 must I ay a some'^hat higher rate of interest on 

 the mc rtgages, because they are taxable. 



Vari ous remedies, either to ' prevent double 

 taxation of real estate or to relieve tax payers 

 from i a worst effects, have been proposed. 



It hi s been proposed that mortgages be exeippt- 

 ed fro:n taxation, as is now done in some states. 

 Without constitutional amendment, mortgages 

 cannot be exempted in Illinois. The pending 

 amendinent would permit exemption. But exemp- 

 tion is not the proper remedy, because an equitable 

 distribution of the burden of taxation is impossible 

 under i, system of exemptions. The proper remedy 

 is the t ixation of intangibles in such a way that the 

 tax cainot successfully be shifted. The only kind 

 of a tix which cannot easily be shifted by some 

 people ind usually cannot be shifted at all is the tax 

 on net ncome. Why this is true will be shown in a 

 later aiticle. 



It hs.s been proposed that disclosure of the 

 ownership of intangibles be forced by making it 

 by legal action to collect any debt 

 document evidencing the debt bears 

 ior's stamp or has other evidence that it 

 a tax. Such a law would force the dis- 

 of the ownership of intangibles, but it 

 Dot keep them on the assessment books, 

 such a law intangibles would rapidly be 



tion. 

 buna 



imposs] ble 



unless 



the asj 



has 



closure 



would 



Under 



paid 



the 



Why Farmers Should Support the Tax 

 Aknendment to Illinois Constitution 



(To bs voted on in November, 1926) 



If Real estate, although less than one-half — many 

 sayiless than 40 per cent — of the property in the state, 

 is njow paying about 80 per cent of all of the taxes for 

 mol t purposes. 



2. Tangible property, although probably not more 

 tha 1 one-half of the property in the state, is now pay- 

 ing: more than 92 per cent of all the taxes for most 

 purposes. 



3L A minority of the people of the state are now 

 paying all of the taxes for most purposes. 



4. Owners of some kinds of property easily can 

 ana do add their taxes to the prices of their services or 

 products. Owners of other kinds of property, notably 

 lanJ, cannot shift their taxes to others to pay. 



si Owners of mortgaged property are now paying 

 double or multiple taxes. They pay taxes not only on 

 their equities, but also on the value of the mortgages, 

 and pay « higher rate of interest on taxable mortgages 

 whclther the mortgages pay taxes or not. 



& Lack of personal interest on the part of most 

 people in the economical and efficient use of tax 

 moneys, and their belief that they are paying no taxes 

 of sjny kind, promote extravagance and a rapid increase 

 of deferred taxes in the form of bonded indebtedness. 



7f Taxes are rapidly increasing in Illinois partly 

 beciuse the population is increasing, but chiefly be- 

 cause of the demand for new forms of service. 



S* Under the present constitutional limitations 

 none of the inequalities of the present taxing system 

 desdribed above can be fairly or properly corrected. 

 The proposed amendment is a grant of power to the 

 General Assembly, enabling it from time to time to 

 cornect inequalities in taxation and to establish a 

 modern and equitable system of taxation. 



President, Illinois AKricultural Association. 



[BIrief articles in support of the points stated above will be 

 printed in later iasut-s of THE Record. Questions relative to the 

 propSsed tax amendment are invited and will be answered through 

 Thb Rbcobd.] 



converted into tax exempt securities, or would be 

 invested in other states or even in other countries. 

 The supply of credit would be drained away, re- 

 sulting in foreclosure of mortgages, reduction of 

 property values, and stagnation, both in produc- 

 tion abd in commerce. It would reduce taxes on 

 real eetite by making it impossible for real estate 

 to carry the present burden. 



It has been proposed that owners of mortgaged 

 property be taxed only on their equities. Under 

 this remedy it is held that the remainder of the 

 tax would be paid by the holder of the mortgage 

 either through taxation of thp mortgage or 

 through! taxation of his interest in the property. 

 Undei*the first method as shown above, either the 

 tax would be shifted or the supply of credit would 

 be drained away either into other states or coun- 

 tries or ^to tax free securities. In the same way, 

 if the niortgagee were taxed on his interest in 

 mortgaged property, he would force the mort- 

 gagor to pay the tax either directly or through 

 a higheif* interest rate. Otherwise he would re- 

 fuse to ta&ke the loan. 



Taxing owners of mortgaged property only on 

 their equities would result in a heavy reduction 

 in valuations of property actually paying taxes. 

 This would be true even if the remedy would not 

 cause wholesale foreclosures, loss of property, 

 and reduction of property values. It is a well known 

 fact that loans on farm lands usually do not exceed 

 one-half of the current value of the land, though re- 

 cently, due to the refunding of floating indebtedness, 

 loans on lands often exceed one-half of their present 

 value. It is also well known that loans on city 

 and village property often exceed fifty per cent of 

 current values. This is especially true of mort- 

 gages given to building and loan associations. It 

 is also true of such large city properties as busi- 

 ness houses, hotels, and apartment buildings. It 

 is also well known that corporations and large 

 business enterprises, including the railroads, are 

 usually operated largely on borrowed money. In 

 many cases the bonded or mortgage indebtedness 

 is much larger than the capital stock or equity in 

 the property. Owners of farm lands would prob- 

 ably gain less from taxation only of the equity 

 than owners of other real estate. 



It is now generally believed that farm mort- 

 gages in Illinois have a total face value of about 

 35 or 40 per cent of the value of all farm lands. 

 The proportion of mortgage or bonded indebted- 

 ness is probably even larger in the cities and in 

 corporation property. If taxation of equities only 

 is established for any of these properties, it must 

 be established for all of them. The reduction in 

 taxable valuations could not be made up from the 

 mortgages, bonded indebtedness, or from any 

 other property. The rdeult would be a heavy 

 increase in tax rates. If the reduction in valua- 

 tions amounted to 40 per cent, it would require an 

 increase of 66-2/3 per cent in tax rates to produce 

 the same amoupt of tjxes. If the reduction in 

 valuations were^SOlpel* cent, it would require an 

 increase of 100 per cent in tax rates. 



Even if taxation of equities lonly would not re- 

 sult in wholesale destruction of property values, 

 it would force such an increase of tax rates as 

 largely or wholly to offset the reduction in valua- 

 tions. Owners of small equities in property would 

 gain some advantage. Owners of large equities 

 in property would be worse off than they are 

 now. Owners of unencumbered property would 

 be crushed by the burden of taxes. They could 

 escape only by mortgaging their property, and 

 the degree in which they would escape would be 

 measured by the size of the mortgages. 



Until the present constitution is amended so as 

 to permit fair and effective taxation of money 

 and credits, without shifting of taxes, owners of 

 mortgaged real estate must continue to pay double 

 and multiple taxes. The pending amendment if 

 approved by the people of the state will permit 

 a fair taxing system and gradual relief from the 

 unfair burden of taxes real estate is now carry- 

 ing. No change in the taxing system can be made 

 which would give immediate relief. 



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