bonds hereafter issued, by making them all subject to an annual tax of one, two, or more per cent, and by providing that the tax shall be deducted at the time of the payment of the interest. Is there any one who believes that these bonds will sell in the market at the same high rate that they would command if by law they were free from taxation?
We can also test the effect of an honest, uniform tax upon mortgages by providing that mortgages hereafter made shall operate to reduce for assessment the valuation of the land mortgaged to the amount of the mortgage, and that the mortgagor shall pay the tax on the mortgage, and deduct the tax from the principal or interest, when paid to the mortgagee. But who believes, under such a law, that any money would be loaned at the legal rate of interest?
A somewhat curious piece of practical evidence, in support of the truth of the above position, in respect to the taxation of mortgages, has been afforded by an experience of New Jersey. This State exempted, in 1869, all mortgages from taxation in certain of her counties and cities which lie contiguous to New York city; but this legislation, although operating to draw capital away from New York and into New Jersey, was not primarily effected for any such reason, but was brought about in this wise: New Jersey, in the first instance, enacted an honest, uniform law of taxing mortgages, and one, moreover, which could with the utmost certainty be executed, and similar in principle to that above suggested; namely, that the person giving the mortgage should pay the tax on it, and deduct the tax from the principal or interest in settling with the creditor. The result was that all mortgages falling due were immediately foreclosed, and as no new loans, moreover, could be made, the inhabitants of the growing counties near the city of New York, wishing to borrow money on land, or to sell land, found themselves in an uncomfortable position; so much so, that if the law taxing mortgages in this section of New Jersey had not been promptly repealed by the Legislature, the issue would soon have become a predominant one in the State elections; and hence the explanation of one of the most curious statutes in the history of American legislation which made one tax law for one part of the State and another and a different one for the remainder.[1] But the point of chief interest in respect to this whole tax experience to which attention should be especially direct-
- ↑ And all mortgages upon estates, chattels, or personal property, taxable by law within said counties of Hudson, Union, Essex, and the city of Brunswick, Middlesex County, and the county of Passaic, except the townships of West Milford, Pompton, and Wayne, for State, county, township, and city purposes, shall be exempt from taxation when in the hands of any inhabitant, corporation, or association residing or located in said counties or cities." (Approved April 2, 1869.)—Laws of New Jersey, 1869, p. 1225.
