MICHIGAN ROADS AM) FORESTS. 



Ofccia! Organ of The Michrgtn Rod Miknt 

 SLITL 1 4 t. MAJESTIC BLILUINC 



DETROIT. MICHIGAN 



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With this issue the title of this publication is 

 changed from the State Review to Michigan 

 Roads and Forests. The new name of the pub- 

 lication is adopted as being nfore exactly expres- 

 sive of its scope and its purposes. Roads and 

 Forests are paramount interests in the State of 

 Michigan at this time and are bound to continue 

 so for a long time to come. As the organ of 

 those earnest people who are bent on bettering 

 the one and conserving and replacing the others 

 Michigan Roads and Forests hopes to serve a 

 useful and a beneficial purpose. 



REPEAL OF THE MORTGAGE TAX LAW 



(From the Michigan Investor.) 

 It has been one of the mysteries to thinking 

 men in this state for twenty years, why the 

 average agricultural intellect cannot appreciate 

 that the taxation of credits constitutes a sys- 

 tem of double taxation. The mystery is not 

 dispelled by the arguments which are being 

 advanced before the Legislature at Lansing in 

 connection with the present proposal to repeal 

 the mortgage tax law. Even the governor of 

 the state, himself a man of a good order of 

 intelligence, appears foremost in the number of 

 those who are opppsing the repeal of the 

 system of taxation of mortgages and other 

 credits on the ground that it will let some por- 

 tion of the wealth of this state escape the 

 bearing of its proper portion of the cost of 

 running the government, regardless of the fact 

 that under the present system that portion of 

 the wealth of the state which is represented 

 by credits bears almost twice its proper pro- 

 portion of the burdens of the state. 



One has but to take a sum of money in actual 

 currency, in the hands of an owner of capital, 

 and trace its relation to taxation. Once it 

 becomes invested in credits, from the moment 

 of the making of the loan to the point where 

 it settles with the tax collector, the money 

 itself and the property which represents it 

 in the investments of the borrower are 

 each taxed by the state in spite of the 

 fact that they represent but a single amount 

 of property. Take the man with ten thousand 

 dollars as his capital. If he has it in bank and 

 is honest in his statements to the tax col- 

 lector, or if he has it in the security of the 

 safe deposit vault and is equally honest, he is 

 recorded on the tax rolls as the owner of ten 

 thousand dollars, subject to taxation under the 



laws of this state, and under the general aver- 

 age of taxation now prevalent in Michigan he 

 pays an annual tax of a trifle over one hundred 

 and seventy dollars as his share of the cost 

 of the protection which government gives his 

 money. Let him withdraw his ten thousand 

 dollars from the bank or f,rom the recesses of 

 the safe deposit vault and invest the same in a 

 stock of goods, brought into this state from 

 outside its borders. He exchanges his money 

 in hand or in bank for an equivalent quantity 

 "i goods, the money going outside the jurisdicT 

 lion lit' the state to add to the currency wealth 

 of some other community and the goods com- 

 ing into the jurisdiction of the state to add to 

 its material wealth. If this former owner of 

 money, who has now become the owner of 

 goods, continues to be as honest with the tax 

 assessor as he was before, or if in default of 

 his honesty the assessor is acute and vigilant, 

 his ten thousand dollar stock of goods is listed 

 upon the tax rolls and becomes liable for the 

 payment of its share of the cost of the main- 

 tenance of government, which is, also, at the 

 general average rate of taxation now prevail- 

 ing, about one hundred and seventy dollars 

 per annum. 



If, however, this capitalist, who is the owner 

 of ten thousand dollars in money, chooses in- 

 stead of using it actively in business himself 

 and purchasing goods therefor, to loan it to 

 some enterprising merchant who uses it to 

 purchase goods in exactly the same manner as 

 its owner might have done were he so minded, 

 a new estate is created for the purposes of 

 taxation under the operations of the existing 

 mortgage tax law. The borrower may use it 

 to send outside the state for the purchase of 

 goods which he brings within the jurisdiction 

 of the state and which becomes subject to the 

 taxing laws of the state to exactly the same 

 extent as if the owner of the money had per- 

 formed the same operation. That is to say, he 

 either informs the assessing officer or the 

 assessing officer informs himself that this par- 

 ticular citizen, who is the borrower of ten 

 thousand dollars, has acquired a stock of goods 

 equal in value to that sum, and he puts him 

 on the rolls for that valuation, subject to as- 

 sessment, and the state and its minor sub- 

 divisions extract from Mr. Merchant, who is 

 the borrower, about one hundred and seventy 

 dollars for the protection which it affords to 

 his stock of goods. So far as the money which 

 he borrowed to purchase the same is concerned 

 it has gone outside the jurisdiction of the 

 state and would seem to have become subject 

 to taxation in the new community to which it 

 has gone. Whether it has actually become 

 subject to such taxation or not is no concern 

 of the state of Michigan, because it has gone 

 outside of its jurisdiction. But the debt which 

 its passage from lender to borrower created 

 has made a new estate for taxing purposes 

 under our law and the lender thereof is made 

 the holder of that estate and made subject to 

 taxation. His mortgage or other form of 

 security is put on the tax roll, although the 

 property which represents it is already there 

 and the owner of the mortgage is made liable 

 for the tax upon ten thousand dollars' worth 

 of personal property upon which he must pay 

 another one hundred and seventy dollars to the 

 state, although the property represented by his 

 estate is already a taxpayer. Now this original 

 ten thousand dollars can only be within the 

 state and require its protection and receive 

 the benefits of government in one form, either 

 in the form of the money or the goods which 

 were purchased. Yet after this operation 

 which we have described, and though existing 

 in only one form, it is required to pay taxes 

 under two forms, one of the goods and one of 

 the debt created to purchase them. 



This is the basic logic of the objection to 

 the system of taxation of mortgages and 

 credits. If, instead of investing his money in 

 goods, the borrower buys a piece of real estate 

 worth more than ten thousand dollars with the 

 proceeds of his loan and gives a mortgage for 

 that sum of money upon it to secure his debt, 



he is forthwith- listed upon the tax rolls as the 

 owner of real property at whatever valuation 

 the assessing officer puts upon his holding. 

 Let us assume that his ten thousand dollar 

 loan has been made upon a pieee of property 

 of the value of twenty thousand dollars. Under 

 the general average of taxation now prevailing; 

 in this state his real estate holding pays about 

 three hundred and forty dollars per year taxes, 

 while the mortgage is held to be another piece 

 of property and is assessed as before at oner 

 hundred and seventy dollars, even though it is 

 represented in a part of the value of the real 

 estate upon; which it is placed. In this 

 the rate of taxation is not double, but is one 

 hundred and fifty per cent of what it ought 

 to be. A piece of real estate with a mortgage 

 upon it is no more liable to the results of 

 public disorder, or of lire, or to the dime- 

 which property owes to the public health or 

 to public education, than is a piece of real 

 estate which has no mortgage on it. Tin 

 elementary. Vet the fact remains in the 

 which we have cited and which is typical of all 

 cases of mortgage taxation that a mortgaged 

 property must pay fifty per cent more towards 

 the cost of government than an unmortgaged 

 one. 



It is held, of course, by our astute brethren 

 from the rural communities that it is the 

 owner and not the user of the money who 

 pays this tax. This is the sheerest nonsense. 

 The price of the use of money which men call 

 interest is determined not by systems of loeal 

 taxation or by other accidental circumstance-, 

 but by the law of supply and demand. Capital 

 is the most mobile thing in existence. It can 

 be transferred from Michigan to New York iit 

 fifteen minutes and to London in an hour. 

 When there is much money free and little de- 

 mand for it, the price of its use, or the interest 

 rate, is low. When there is a great demand 

 for money and not enough money to supply 

 the demand, the competition for it increases 

 the price which people are willing to pay for 

 its use, extending the interest rate upward. 

 Now, no person who owns money is bound to> 

 loan it in Michigan unless he can get as" high 

 a price for its use here as he can in New York 

 city, and no person who owns money will loaiv 

 it in Michigan unless the gross rate of in- 

 terest which he receives is sufficiently great to> 

 enable him to pay whatever taxes are levied 

 upon it and leave him as much net return front 

 the use of his money as he can get from it in 

 any free market. Therefore, the tax rate which 

 is levied upon money loaned on mortgage or 

 other form of security is simply added to the 

 net interest with which the borrower would 

 otherwise be content and constitutes thereby 

 an additional tax upon the borrower. 



This simple logic has been very difficult to 

 hammer into the majority of the people of 

 Michigan for the past twenty years. Luckily 

 there seems to be more light upon the subject 

 just now than there has been for a long time, 

 and that light has come' from a discussion of 

 the logic of the situation, coupled with knowl- 

 edge of the many opportunities and occasions- 

 for evasion of the law which come to those 

 who are lenders of money and who take ad- 

 vantage of the existing situation to procure 

 contracts for the highest rate of interest, and, 

 at the same time, arc sufficiently lacking in 

 conscience to adopt means of evasion of pay- 

 ment to the state of that portion of their in- 

 come which they have added to the burdens of 

 the borrower in self relief and which they do 

 not pay over to the state after having so ob- 

 tained them. These evasions constitute a dis- 

 tinct and a nasty chapter in the study of the 

 subject of the taxation of credits, and while 

 they should not be permitted to influence the 

 cold logic of the question, they have a bearing 

 as interesting sidelights. 



It is to be hoped that the legislature of 1007 

 will see through the inequity of the taxation 

 of credits. If it does so and repeals the mort- 

 gage tax law. it will have justified its exist -nr.- 

 better by this single act than by the sum of 

 all its other acts. 



