Oppressive Taxation of the Poor

THE most difficult problem of modern times is unquestionably how to protect property under popular governments. For the United States particularly it is growing graver day by day. So long as the large majority of voters are owners of property all goes well, but the moment those who are untaxed outnumber those who pay taxes, trouble begins. The direct interest of the untaxed class is to swell public expenditure to the utmost, and there is hardly a large city in the United States that has not suffered more or less from this cause. The whole subject is so old and has been so often discussed that there can be no object in enlarging upon it. No one is likely to question the statement that several hundred million dollars have already been practically confiscated, in the interests of the untaxed classes, through state and municipal extravagance and fraud.

In Massachusetts there is good reason to believe that between fifty and sixty per cent. of the voters pay a polltax only, while in Boston their number, it is said, reaches eighty per cent.; and the evil appears to be increasing. The obvious policy of a nation where universal suffrage exists is to encourage saving among the poorer classes by every expedient that is compatible with justice to all its citizens. The policy of Massachusetts has accordingly been to foster savings-banks; but there seems to be reason to fear that this course has not been in all respects judicious. Undoubtedly savings-banks are useful, but it is certain that the best interests of the State are not answered by having them monopolize the savings of the poor. A man who has money in a bank is apt to be a better citizen than one who has nothing, but his interests are not identical with the interests of other property owners. To begin with, he is exempt from municipal taxation; consequently he does not suffer directly from municipal extravagance. He has half exemption from state taxes; thus, state economy is of little moment to him. He may vote one year to swamp his town with debt; the next he may move away, after he has pocketed his share of spoil. Under such circumstances, if he is shrewd, he will gain more than he will lose by public extravagance. Land owners, on the contrary, cannot move away from their homes. They not only feel the whole burden of municipal and state taxation in a peculiar degree, but anything which tends to injure the prosperity of their town injures the value of their property. Their interest always points directly toward economy and good government. In every age and in all countries the most reliable and conservative portion of society has been the small land owners.

Strangely enough the State, while it has always favored depositors in savingsbanks, has discouraged the poorer classes from buying land. This statement may appear surprising, but its truth can be demonstrated.

In Massachusetts money lent on mortgage is taxed at full rates. As a matter of common sense, no proposition can be more preposterous. If a man buys a farm worth two thousand dollars, has but one thousand himself, and therefore borrows the second thousand, nothing can be more unreasonable than to tax him on two thousand dollars’ worth of property, and then tax the lender on his thousand dollars as well. One and one never did make three, and never will. Clearly there are only two thousand dollars’ worth of taxable property, divide it up between the two men how you will. The farm has the same value after as before the purchase. The man who owns it is in debt, it is true, but that does not increase the property which is in existence. Now the only possible way in which poor men can buy land is upon mortgage. A house near a city, or a house and farm in the country, costs on an average about two thousand dollars. A workingman seldom has so large a sum at hand, and it is most undesirable that he should have to wait until he can save it; for of all incentives that can urge a man to industry and economy, there is none stronger than the desire to clear his land from debt. As soon, therefore, as he has saved five or six hundred dollars, every encouragement should be given him to buy a home for himself on mortgage, and pay off the debt by installments.

Far from encouragement, however, the burden the State puts on him is crushing. By reason of the taxation of the mortgage, he is taxed twice. Double taxation is, in plain English, confiscation ; for if the State arbitrarily makes me pay on ray land double what it makes my neighbor pay on his, it confiscates my property to the amount of the extra tax. This double taxation is inevitable under our law. Money will always command its value. No one will loan money for less than it will bring in the open market. The government can now borrow at four per cent, because its bonds are untaxed. No one, therefore, will lend for a less net return than four per cent. Were government bonds taxed, the rate of interest would rise to just the amount of the tax; the return to the lender would be the same; the government would pay the tax in its interest. A good mortgage is as good security as a government bond, and ought to command money on as reasonable terms. An offer was publicly made, before a committee of the legislature, to loan any amount of money at four per cent, on good mortgage security, provided the borrower would contract to pay all taxes. No one came forward to borrow on such terms. The Labor Report for 1876 shows that the actual rate of interest for money loaned on mortgage to workingmen in the State of Massachusetts is seven and four tenths per cent. Therefore, were the tax on mortgages abolished, workingmen could probably borrow three and one half per cent, cheaper; or, presenting the proposition in another form, the amount of double taxation imposed upon them is three and one half per cent. on the value of their mortgage.

It is well, however, to err upon the safe side. In a former paper the burden of taxation was estimated at two per cent. On this basis, the abolition of the mortgage tax would fix the rate of interest on mortgages in this State at about five and one half per cent. The figure is certainly sufficiently high, as it is an advance of one and one half per cent. on government securities, and also on the offer just quoted.

The conclusion is therefore unavoidable that by this unjust and irrational tax the State confiscates a large portion of the savings of its most deserving citizens, for doing that thing which of all others it is most for the safety and the welfare of the commonwealth that they should do.

Fortunately statistics exist which make it possible to show very nearly how great a wrong is done. The figures on whien the following estimates are based are taken from the Report on the Statistics of Labor for 1876. They are of course reliable. There are in Massachusetts about 450,000 skilled and unskilled laborers. Of these twenty-three per cent. own houses, and forty-four and a half per cent. of those owning houses have borrowed money upon mortgage to pay for them. There are therefore 103,500 laborers who own houses, 46,000 of which are mortgaged. The average mortgage is for $977.57. Two per cent., it is remembered, equals the mortgage tax which the borrower is forced to pay in the shape of advanced interest. Two per cent, on $977.57 is, in round numbers, $20, that being the amount of double taxation to which the average mortgagor is subjected. The total is of course 20 ⨯ 46,000, or $920,000. In other words, the State yearly confiscates the savings of her most deserving workingmen to the enormous value of $1,000,000. One million dollars is the whole direct state tax.

There is also another class of wagereceivers beside day laborers, which suffers,— clerks, book-keepers, salesmen, and all who earn salaries. Their average income is shown in the Labor Report to be about $1000. Forty-eight per cent, of all the houses owned by such men are subject to an average mortgage of $2452 at seven and four tenths per cent. Unfortunately, these returns are imperfect, and exactness is impossible. Still some estimate may be made. The census appears to indicate that there are in the neighborhood of 75,000 receivers of salaries in the State. This seems reasonable, as it would give an average of six wage - laborers to one salaried person. Estimated on this basis, the extra tax paid by this class in the form of interest on mortgages would be between $450,000 and $500,000 a year.

The State of Massachusetts, therefore, by taxing mortgages, wrings nearly $1,500,000.a year over and above their just burdens from those classes of her citizens whose incomes average less than $1100.

By the last State Auditor’s Report it appears that the tax upon savings-banks yielded $1,814,623; a sum not very much larger than the amount raised by this extra tax from these two classes of the population. Savings-banks, however, are by no means exclusively used by the people for whom they were intended. In fact, only about forty-five per cent. of the whole amount of deposits belongs to wage-laborers; the remainder is distributed among the capitalist classes, who look on savings-banks as good places for investment; therefore the whole amount of tax paid by the savings of laborers deposited in savings-banks is $816,580 a year, against $920,000, which represents the amount of unjust and excessive taxation which is borne by workingmen who own land.

Had Massachusetts turned its whole attention toward discouraging the increase of small land owners, she could never have devised a more effective system. That this is one of the chief causes of the present discontent admits of little doubt. Probably nothing has caused such misery as this tax. The position of the workingman whose land is mortgaged is a hard one.

By the Labor Report for 1876, pages 24 and 76, it appears that the laborer’s family is of about five persons. Average wages for a laborer are $482. But where a whole family are employed their yearly earnings amount to $636.89, divided as follows: —

Wages of father . . . . . #425.64

Wages of wife and children . . 211.25


To this must be added for income from all other sources . . . . 38.00

Total income . . . . . $674.89

By the Report for 1875 the average family expenses without rent are put at $620.35, divided as follows: —

Food . . . . . . $422.16

Clothing and dry goods . . . 104.28

Fuel . . . . . . 43.91

Sundries . . . . . . 45.00

Light . . . . . . . 5.00


The Report of 1876, however, fixes $550 as the yearly sum for which a family of five may be maintained. Rent is fixed at $93, but no other item is given. The Report of 1875 shows that the wages of young children under fifteen years old, who ought to go to school, amount to about sixteen per cent, of the family wages. Assuming the latest figures to be correct, the account stands as follows: —


Total family income . . . . $674.89

Less wages of young children at school 101.00



Cost of living by report of 1876 . . $550.00

Less rent . . . . . . 93,00


Add interest on mortgage and taxes on $2000 at $12 per $10001 . . 100.00

Total expense . . . . $557.00

Balance . . . . . . $16.89

Three things are demonstrated by these figures: (1.) That children’s wages are necessary for the support of the family. (2.) That a workingman with a mortgaged house can just cover expenses by his own wages and the wages of his older children. (3.) That all payments on the principal of the mortgage debt must be made from earnings of the children under fifteen years old, who ought to be at school.

If the mortgage tax were abolished, twenty or thirty dollars would be saved on the interest account. The young children can earn a few dollars a year in vacations and after school hours, especially by doing farm work in the country, and thus some fifty dollars a year might be saved toward extinguishing the mortgage.

Nothing can establish more clearly the impolicy as well as the iniquity of this tax. By this unjust and discriminating impost on this class of citizens, the laboring man is forced to choose between denying his family a home and depriving his children of their education. That the workingmen of a republic should not own the land is dangerous to the State, but that they should grow up ignorant is ruin.

The fact that a mortgage necessitates child labor may be proved in another way. Among families supported by the labor of the husband and wife but twenty-nine per cent. owned their houses. Among those families supported by the labor of the father and minor children thirty-nine per cent. owned the houses occupied. While among those families where all members were forced to work forty-six per cent, owned their houses.

These figures were collected for another purpose, but they show the pressure of the mortgage tax distinctly. The progression is significant. Where most houses are owned, there most child labor is found, for half the houses of laboring men are mortgaged.

There is a terrible contrast between the workingman who has invested one thousand dollars in a house, and has borrowed another thousand on a mortgage, and another workingman who has one thousand dollars in the bank. The State taxes the latter seven dollars and one half, the former forty-four dollars, a year.

When times are bad this heavy interest charge becomes insupportable. It is more than the family can earn, beyond the cost of living, and thousands of industrious men have seen the savings of their whole lives swept away, because they could not pay both the interest on their mortgage and their faxes. The double tax just turned the scale. Indeed, it is difficult to realize the suffering which is caused in times of depression by the levy of one million dollars a year over and above their just burdens on fifty thousand workingmen. Nor does the mischief end here. Through the medium of the banks, which are the chief lenders upon mortgage, one half the working class become the creditors of the other half. When large numbers of mortgagors fail in their payments, the land is thrown upon the banks, and that land for the moment has lost its value. The banks cannot meet the calls of their depositors, and then, as happened last winter, a stay law is rushed through the legislature, payments cease, and creditors and debtors are involved in common misery.

Who could wonder, under such a strain, if the very foundations of society should be shaken? There is discontent now, and not without good cause; but nothing can inspire more respect for the good judgment of this people than the patience with which, upon the whole, they have borne their sufferings. No other impost could work the mischief of this hateful mortgage tax. It burdens the industrious; it ruins the small land owner; it hampers building; it raises rent; it breeds ignorance; it is hostile to free institutions. Yet the mortgage tax is only the most striking instance of that vicious system which fetters the enterprise and weighs down the energy of Massachusetts. The injustice and impolicy of that system have often been ably exposed, but hitherto without avail. The whole fabric of tax legislation is based upon a false foundation. Double taxation is not the exception, but the rule, within the commonwealth. The error of the system lies in the proposition that every citizen is to be taxed according to his ability to pay. A mortgage is part of a man’s property; hence he must be taxed on the mortgage, otherwíse he would not contribute his proportion to the State. All this reasoning is manifestly fallacious. Property is what should be taxed, not men, unless upon their polls. The supposed ability of certain citizens is entirely beside the question. Taxable property is something that has intrinsic value. There is a certain amount of property within the State such as houses and land, goods and merchandise, cattle, gold, silver, and machinery. This constitutes the wealth of the citizens. Notes, bonds, mortgages, and the like are simply evidences that the holders have lent money upon the faith of the property having intrinsic worth. In themselves these notes and bonds have no value, any more than paper money has in itself value. The taxes upon these evidences of debt are all necessarily double taxes; since to tax property at all it is worth, and then, if it is pledged, to tax the money raised upon it, is clearly to tax it twice. Moreover, the difficulty with all this taxing of debts is not only that it is absurd in theory, but that it is iniquitous in practice. The borrower always has to pay. If four per cent. is the market rate for money, and taxes amount, to two per cent., we have seen that the mortgagor can borrow only at seven per cent. The capitalist will collect the tax for the government, but he pays himself at the expense of the borrower for his risk and trouble in so doing. No statute can change this law of trade. The only effect of taxing loans is to raise the rate of interest. Thus it is that taxation in Massachusetts cramps industry and works injustice. The debtor class is doubly taxed throughout the commonwealth, and the debtors are precisely those who are least able to pay. It is bad enough for a man to have every third dollar taken from him by the State, but when besides he has to pay three per cent. of extra interest above the market rate on every dollar he borrows, the position of the debtor becomes well-nigh desperate.

The only hope lies in popular education. Could the people be made to understand the merits of the question, the present tax laws would not disgrace the statute-book one day after the next meeting of the legislature. The danger consists in ignorance. Workingmen who cannot pay their mortgage interest are wrought upon by demagogues and clamor at capital. They do not see the real enemy. Men feel that they are suffering, but do not know the cause. The educated and the wealthy struggle to repress discontent, but do not move a finger either to teach the people or to give them relief. There is peril in the situation. In any country but this, injustice such as is inflicted here would have brought on a popular explosion. It may be that the end is not yet. The tide may still rise higher. Massachusetts has done her best to strip herself of her natural defenders, to oppress, to enrage, and to ruin them. The small land owners have little reason to love their State. The numbers of non-taxpayers are daily swelled by ruined mortgagors; those who pay a poll-tax only are already in the majority, while the rich State, like a ripe prize for plunder, lies temptingly under their hand.

Brooks Adams.

  1. The estimated value of the house taken at $2000 is not from the Labor Reports or any official statistics.