Robert Murray Haig.

The exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York online

. (page 26 of 31)
Online LibraryRobert Murray HaigThe exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York → online text (page 26 of 31)
Font size
QR-code for this ebook

of buildings as compared with land by the informal and illegal action of ■.
assessors, the only places where special land taxes have been adopted are
Pittsburgh, Scranton, Pueblo and Everett. The Everett measure never was
put in operation. The first steps were taken in the other three cities late in
1914. The cities of the United States, therefore, have little to offer to one
who seeks information as to the effects of special land taxes. Decidedly the
most interesting material is that offered by Houston, Texas, where by
methods entirely illegal the assessment of buildings has been carried very

A. Houston^ Texas

Changes have recently been made in the tax system of Houston, Texas,
in the direction of concentrating the weight of burden upon the land. Cer-
tain classes of personal property are exempted entirely and the tax on build-
ings has been materially reduced through the informal action of the city
officials and without the sanction of law. The result is the much advertised
" Houston System of Taxation."

Before 1911 there was little that was distinctive about taxation in
Houston. All property, under the terms of the law in force, was nominally
assessed at its cash value. (2) If Houston could be distinguished at all
from other cities where the general property tax was present, it would be
on the ground that the administration of Houston was even more careless,
uneven and haphazard than in other places. Undervaluation, inequality of
assessments and evasion were here present to a very great degree.

(1) Serious attempts to secure legislation favorable to the special taxation of land
have been made, thus far unsuccessfully, in the cities of New York, Seattle and
Reading, and the states of Missouri, Oregon and California. The California pro-
posal was nominally a home-rule measure but was understood as a step toward the
single tax and defeated on that basis. Annals of the American Academy of Political
and Social Science. LVIII, Whole No. 147, p. 222 et sea.: Political Science Quarterh.
XXVIII, p. 19. r-x

(2) The constitution of Texas prescribes the general property tax and imposes!
the general rule of uniform valuation. " Taxation shall be equal and uniform. All i
property in this state, whether owned by natural persons or corporations, other than f
municipal, shall be taxed in proportion to its value, which shall be ascertained as may (
be provided by law." Constitution of the State of Texas, art. viii, s. 1. The charterJ
of Houston authorizes the council to levy " an ad valorem tax on all real, personal
and mixed property within the territorial limits of said city, and upon all franchises
granted by the city to any individuals or corporations." Charter of the City of
Houston, art. iii, s. 1. The provisions of the general state law are declared to apply.
Ibid., s. 4.


Probably there would be nothing even now to distinguish the tax system
of Houston from that of other cities, were it not for one individual, Mr. J. J.
Pastoriza. About the personality and actions of this man centers everything
which makes the Houston tax system peculiar and interesting. To under-
stand the Houston situation, one must understand Mr. Pastoriza. A few
statements about this interesting official are, therefore, almost necessary.

Mr. Pastoriza is an old resident of Houston. Until a few years ago
he was the proprietor of a prosperous printing establishment. He is an
ardent single-taxer. Long ago he was enough interested in the single tax
to pledge that, after he had amassed a comfortable fortune, he would retire
from business and devote his energy to forwarding the cause of Henry
George. At the age of forty-nine he sold his business and in 1911, after
a vacation abroad, was ready to undertake anything which promised to aid
the single-tax propaganda. He found a municipal election about to be held.
Some aspects of the financial administration of the city were open to criti-
cism. Mr. Pastoriza, feeling that he might better conditions, decided to
offer himself as a candidate for the position of " Finance and Tax Commis-
sioner." He made business efficiency the slogan of his campaign, promising
to give the city's business the same attention which had yielded such satisfac-
tory results when applied to his private affairs. He did not conceal his
views about taxation. The people knew that he was in favor of the single-
tax. On the other hand, he did not stress these views. He was elected for
a term of two years.

The assessments which Mr. Pastoriza found in force when he assumed
office are described by him as " chaotic." The greatest inequality prevailed.
Evasion was very common. For many years, additions and deductions to
the tax rolls had been made in the most arbitrary fashion. Hundreds of
buildings, Mr. Pastoriza testifies, were not on the tax rolls at all. There
were only a few weeks in which to work before the rolls for 1911 had to be
closed. These he devoted to an attempt to secure an equitable assessment
of real estate in the business district. Applying a unit-value system, he was
able to put the land value assessment for the business blocks upon a much
more satisfactory basis than had been the case before. He states that he
aimed at equality rather than fullness of assessment, however, the land being
assessed at only approximately fifty per cent, of its full value.

In the fall of 1911, work was begun on the 1912 assessment rolls.
First, the unit-value system was extended to the assessment of land through-
out the city. Two committees cooperated in the work, one from the Cham-
ber of Commerce and one from the Houston Real Estate Exchange. The
result was what seems to be the first accurate and systematic assessment that
Houston has ever known. Many encroachments and inaccuracies in state-
ments of area were revealed as well as gross errors in valuation. Now, for
the first time, could the property owners feel confident that the assessments
of land were free from discriminations.

Mr. Pastoriza saw an opportunity at this juncture to take a step toward


the single tax. Land and buildings had been assessed in a haphazard
fashion. In systematizing the assessment he proposed a discrimination. He
suggested that land be entered upon the 1912 rolls at approximately its full
value and that buildings be assessed at only twenty-five per cent, of their
value. So much opposition, however, developed to this proposal that it
was modified and land that year was assessed at approximately seventy per
cent, and buildings at thirty-three and one-third per cent. Moreover, fran-
chises of public service corporations(l) had been added to the tax rolls
and a definite policy of light taxation of personal property adopted. Cash,
notes, mortgages, credits and other evidences of debt, as well as household
furniture were totally exempted from taxation. So far as other types of
personal property were concerned the old policy of self-assessment, not
rigorously enforced, was continued. (2) This, slightly modified, is the pres-
ent Houston Plan of Taxation. The modification consists of a decrease
in the value of buildings assessed to twenty-five per cent, in 1914. The
1912 assessment of land was changed but little in 1913.

In 1914, however, a re-assessment was made and tax values were
greatly increased. It is true that the city limits were so extended at this
time as to double the area within them, but the land values within the old
limits were raised also. Mr. Pastoriza at this time made a strong attempt
to put the assessment of land on a one hundred per cent, basis. The opposi-
tion which developed was too strong, however, and the percentage assessed
remained seventy. This percentage, Mr. Pastoriza asserts, is based upon a
high speculative value of the land, so that after all the land is not so much
undervalued as might be inferred.

It is well understood by Mr, Pastoriza that the Houston plan involves
action contrary to the constitution. When the question was asked in his
second campaign (1913) if the constitution did not state that all property
should be assessed in proportion to its value, Mr. Pastoriza replied :

It is true that the constitution says this, but there is not a city or
a county in the state of Texas that has ever complied with this con-
stitutional requirement. Houston has never complied with it, so
what is the use of splitting hairs ? Why this sudden complaint, when
heretofore the same fault existed?

1^ In his 1913 campaign, Mr. Pastoriza made his tax policy a distinct
Vissue. " If the voters of Houston don't want the present plan of taxation
maintained," reads his political advertisement, " I will ask them not to vote
for me for Tax Commissioner. I don't want a job. I am running on this
taxation platform and no other, so I trust that you will not misunderstand
me. If you like the plan, vote for me ; if you don't, vote against me." He
was re-elected by a vote larger by 1,200 than that of any other candidate for

(1) The assessed value of franchises in 1912 was $1,783,500 and in 1913, $2,216,130.

(2) Machinery is classed as improvements and assessed at twenty-five per cent,
of its value (1914). Most of the personal property listed consists of merchandise
and automobiles.


The assessment data for a number of years back are given in the
following table:


... . ,"t

Percentage Percentage Percentage

of True Improve- of True Personal of True

Land. Value. ments. Value. Property. Value, (c) Total.




. $20,588,940






. 23,682,950






. 30,353,950





1908. . .

. 30,486,278






. 36,533,630





1910. . .

. 36,627,205






. 46,916,176






. 61,389,670







. 61,125,550







. 77,853,670







(a) The statistics are presented as they appear on the tax rolls. The content of
the terms " Improvements " and " Personal Property " has varied from time to time.
Thus in 1913 the sum of $989,000 was listed as personal property vi^hen it should really
have been listed as improvements. This fact, of course, seriously impairs the value of
the figures for comparative purposes.

(b) Land in the business section was assessed in 1911 at approximately fifty per
cent, of its fair cash value.

(c) No attempt is made to tax bank deposits, credits or house furnishings. Such
personal property as is reached is assessed at substantially the value declared by the

It will be observed that the imposition of the Houston Plan involved no
decrease in the tax base. On the other hand, the base has steadily increased.
Moreover, it is the testimony of assessment officials that the remarkable rise
in land values recorded in the table has been distributed fairly evenly over
the entire city. Nowhere in the city, it is said, have there been any con-
siderable reductions in value.

The tax rates for city purposes since 1904 are shown below. Here it
will be noticed that the reduction in the assessment of buildings in 1912 was
accompanied by a decrease in the tax rate. Moreover, no increase was
necessary in 1914, when the second reduction was made.

(Dollars per $100.00)

1904 $2 00

1905 2 00

1906 1 90

1907 1 80

1908 1 80

1909 1 70

1910 $1 70

1911 1 70

1912 1 50

1913 1 85(a)

1914 1 85(b)

(a) $0.65 for debt and $1.20 for general purposes.

(b) $0.70 for debt and $1.15 for general purposes,
rate was for debt and one-half for general purposes.

Prior to 1913, one-half the


The assessed values and the tax rates given above are for the city of y
Houston only. The property in the city, however, is subject to a second
assessment by county officials to provide a base upon which county and
state taxes are levied. In the county of Harris (in which Houston is lo-
cated) in 1913 the total assessment was $129,673,750. Of this sum real
property accounted for $101,040,825 and personal $28,632,925. The county
retains what Mr. Pastoriza describes as " the same rotten system the city had
prior to 1911." What percentage of true value the assessment represents is
impossible to say.

Upon property in Houston, as assessed by the county, is levied a rate
for general state purposes, for state school purposes, later redistributed
to the localities, and a rate for county purposes. These rates for some years
back are given herewith. To get a true estimate of the tax burden it is nec-
essary, of course, to take these rates into consideration.


(Dollars per $100.00) hl^r<A/yUKv^^'

State — General. State — School. County. Total.

1907 $0,125 $0.20 $0.55 $0,875

1908 .0625 .1666+ .38 .6091-f

1909 .05 .1666+ .45 .6666

1910 .04 .1666+ .5333+ .74

1911 .125 .1666+ .57 .86166+

1912 .10 .1666+ .57 .8366+

1913 .28 .17 .70 1.15 '

1914 .175 .20 .665 1.04

' ' ^,

The property tax is the main source of the city's revenue. The total

general revenue in 1914 (year ending February 28th) was $2,482,095.56.

The property tax was responsible for $1,791,705.06, or seventy-two per cent. \>^S^-,xr'^^^^-

of the total. Water works revenues amounted to $233,004.09 and subven-^V

tions for schools to $154,902.72. The other sources of revenue, M*clading /

specialjassessments, occupation, poll and franchise taxe s, yielded only trifling

sums. ~~ -^

As will be seen from the following statement the importance of the
receipts from the property tax has not changed greatly in the last five years.
The place occupied in the revenues remains approximately the same as it
was before the changes were made by Mr. Pastoriza.

Total Percentage

Revenue from Ordinary of Total

Property Tax. Revenue. Revenue.

1910 $1,024,599 52 $1,523,969 42 67

1911 1,083,693 78 1,582,451 76 68

1912 1,314,04108 1,910,019 70 69

1913 1,444,158 70 2,163,772 03 67

1914 1,791,705 06 2,482,095 56 72


There is no evidence that the system has been bearing heavily upon the
taxpayers. Little difficulty is experienced in making collections. Taxes
become delinquent on December 31st. If still unpaid on July 1st, the city
files suit. By the end of the year, 94% of the 1913 taxes had been collected.
During the next two months this amount had been increased to 96%.(1)
This record is about the same as that made in the preceding year. (2) It is
true the item of " Taxes in hands of Assessor and Collector " on the general
balance sheet is large, $405,324.70, but this represents the unpaid taxes for
a period extending back to 1877.(3)

" The effect resulting from the partial exemption from taxation of per-
sonal property and improvements upon land in Houston, Texas, has been
magical," declares Mr. Pastoriza.(4) The data submitted in proof of this
assertion consist mainly of building statistics, assessments, bank clearings
and population statistics. Such data as could be gathered is submitted here-
with in order that as fair a judgment as possible may be formed as to the
correctness of Mr. Pastoriza's optimistic conclusions as to the effects of the
system. In the first place, something should be said of the general economic
characteristics of Houston.

The city is located within fifty miles of the Gulf, upon a navigable
inlet from the sea called Buffalo Bayou. The location of Houston upon this
bayou is the most significant element in its economic history. Without the
accessibility to salt water thus afforded, Houston undoubtedly would be of
relatively slight significance economically. To-day the Houston Ship Chan-
nel, constructed by dredging the old bayou, is admittedly the city's greatest
commercial asset. This inlet from the sea has always from the earliest times
been used to a considerable extent for commerce. Through a series of im-
provements by the United States Government begun as early as 1871(5)
the inlet was rendered much more serviceable, the channel being made one
hundred feet wide and twelve feet deep. The summer of 1914 saw the
completion of a more elaborate improvement involving the dredging of the
bayou to a minimum depth of twenty-five feet and a minimum bottom width
of one hundred and fifty feet. The cost, which amounted to $2,500,000,
was divided equally between the United States and the Harris County
Navigation District. Under the agreement the city of Houston is to main-
tain free wharfage facilities. This ship channel gives to the city the im-
portant advantage of " water rates." The annual traffic, most of which is
cotton, already amounts to $53,000,000. It is estimated that the decrease of
freight rates made possible by the construction of the ship channel saves
$6,000,000 annually to those who ship goods out of Houston.

(1) City Book, 1914, p. 211.

(2) Reports, 1913, p. 99.

(3) City Book, 1914, p. 170.

(4) The Reason Why Houston, Texas, is Growing (circular), June 18, 1913.

(5) City Book, 1914, p. 11.


Houston claims to be the largest railroad centre and deep water port
combined in the South and to have the most extensive railroad facilities
south of St. Louis. " Where seventeen railroads meet the sea," is the city's
" slogan." Of the seventeen, three — the Southern Pacific lines, the Inter-
national and Great Northern and the Belt and Terminal Railway — have
direct connections with the ship channel.

Houston is primarily a cotton center. In the season of 1912-13,
3,098,044 bales, the bulk of the crop of Texas and Oklahoma, were marketed
in the city. But Houston is also a great lumber market. The east Texas
timber belt lies close at hand, which supplies large quantities of long leaf
yellow pine. It is estimated that the value of the annual lumber cut is
approximately $40,000,000. Sugar and rice are other products which are
marketed through Houston. The annual rice product turned out by the
seven modern rice mills in Houston is valued at over $6,000,000. Oil is
another important commodity. The city is near the Texas and Louisiana
fields and is the converging points for several pipe lines.

However, the city is not merely the marketing place for raw products.
The Chamber of Commerce publication states(l) that the city contains 352
factories which manufacture 283 articles of an annual value of approxi-
mately $53,000,000. Nearly 11,000 individuals are employed in factories,
and the annual pay rolls are, on the average, $10,500,000.

All in all, it will be seen that Houston is a city of considerable economic
importance whose growth is largely dependefrupon its transportation facili-
ties recently improved and upon the development of the great natural
resources of surrounding territory, which has been going on at a rapid rate
during the past few years.

The following table presents the building statistics of Houston:



1905 $1,738,256 00

1906 1,975,189 00

1907 2,334,525 00

1908 3,431,372 00

1909 3,346,665 00

1910 3.695.145 00

Number. Value.

January 139 $506,300 00

February 133 155,635 00

March 188 547,788 00

April 143 224,280 00

May 200 181,187 00

June 161 200,135 00

19111 July 185 232,720 00

August 171 306,572 00

September 200 238,842 00

October 167 632,659 00

November 143 197,593 00

December 86 161,757 00

1,916 3,585,468 00

(1) City Book, p. 49.




January 171

February 224

March 259

April 296

May 306

June 215

July 246

August 262

September 185

October 236

November 233

. December 214



January 222

February 231

March 261

April 205

May 281

June 245

July 289

August 277

September 271

October 369

November 309

, December 239



January 333

February 352

March 419

April 481

May 419

June 436

July 307

. August 310


$415,644 00

971,382 00

221,415 00

706,885 00

287,250 00

273,255 00

693,105 00

522,315 00

318,340 00

282,830 00

247,650 00

399.745 00

e -i-inoif: (V)

$416,277 00

473,550 00

660.045 00

461,700 00

332,460 00

673,765 00

1,026.811 00

220.860 00

366.895 00

382,070 00

233.200 00

184,632 00

C/iio^fi^ 00

$204,605 00

352.416 00

261,998 00

367,079 00

493.741 00

273.666 00

1,087,580 00

153,177 00

The values given in the table are not merely the values stated by the
prospective builder when he applies for his permit. It has always been the
custom to modify these values before publication in order to eliminate the
undervaluation to which the builder is prone to resort in order to escape the
payment of fees. Fees, however, were discontinued in February, 1912,
about the beginning of the building boom attributed to the single tax, and
this temptation to undervaluation was thereby removed. Since this time,
according to the testimony of the employees in the building inspector's office,
building values have approached more closely real values than was the case
before. In making comparisons, therefore, it is necessary to discount to
some degree, just how much no one would consent to estimate, the statistics
for th.e months since February, 1912.

Moreover, on April 21, 1913, a new rule was put into operation which
required that applications for building permits be accompanied by the con-
tract prices and by the plans for the contemplated structures. This rule
has operated also to make the building values approach more closely the true


Some unusual fire losses were suffered in 1912 and 1913.(1) The fol-
lowing statement gives the damage to buildings in Houston :

1911. $124,373 40 1913 $407,137 23

1912 1,376,339 48

The losses in 1914 were trifling.

But taking the above qualifications into consideration there is still
adequate basis for the claim that building activity has been greater since
the " Houston Plan " has been in effect. It is not easy to establish a direct
connection, however, between the tax systems and this increased building

Mr. Pastoriza has made very definite statements as to the effects of the
system upon building. For example, when replying to Mr. Allan Robinson,
in the New York Evening Post, August 11, 1914, he said:

If he were here (in Houston) and present in the permit office
at City Hall a few days, he would hear almost every man who applies
for a permit make the statement that ' Pastoriza's plan ' has compelled
him to build, because he cannot afford to pay the taxes on near the
full value of his land without getting a revenue.

The investigator spent several hours in the permit office but heard no
applicant plead the pressure of taxation as a cause for building. Inquiry
was made of the employee in charge of the issue of permits. He stated that
he recalled a few cases where the tax plan was given as a cause for building
but that such cases were rare.

In the same article, Mr. Pastoriza states: " If he (Mr. Robinson) were
here, I would point out a six-story building, 100x150, and many smaller ones,
and take him to the owners, and if they don't admit it, then I'll give in."
The investigator requested Mr. Pastoriza to furnish him with the names
of some of these owners. Mr. Pastoriza suggested three names, including
that of the owner of the six-story building mentioned above. One of the
men could not be interviewed, being out of the city. The second, who was
not a single-taxer, testified that the tax system had influenced him in coming
to a decision to erect two buildings. He would not say that he would not
have built the buildings anyway ; but the land was valuable, the taxes high
and the knowledge that he would not be taxed much more if he put up the
buildings on the land influenced him to some degree.

The third man, the owner of the six-story building, denied flatly that
the tax system had been any influence at all. He had owned the plot for
nineteen years and had improved it with a temporary structure in anticipa-
tion of the time when he might improve it permanently. For ten years, he
said, he had been carrying on negotiations with various prospective tenants.
Finally he was able to make a bargain with a merchant who found it neces-
sary to find a new location and constructed his building.

Online LibraryRobert Murray HaigThe exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York → online text (page 26 of 31)