THE A B C OF TAXATION 
40 
1100 reduces the selling price of the land by the amount 
of the mortgage, $2,000. It is equally true that the 
tax charge of $100 reduces it by the same amount, 
$2,000; the mortgage and the tax together therefore 
reduce it by $4,000; and you will buy the land at 
$2,000, the value of the equity which remains after 
both mortgage interest and tax have been paid. This 
$2,000 is the capitalisation of the annual value of the 
lot to you after all charges have been met. 
(b) In purchasing you will assume both mortgage 
interest and tax and will pay them, but you will pay 
them out of the gross income of $300, and not out of 
the net income of $100 from your investment of $2,000. 
Therefore no part of the $2,000 which you pay for 
the equity will be taken from you in taxation, either 
as principal or interest. 
(c) The lot of land will thus cost you for use: in 
terest on your purchase price ($2,000 at 5 per cent), 
$100; plus mortgage interest ($2,000 at 5 per cent), 
$100; plus taxes, $100; and these together aggregate 
$300, what the land is worth for use, the same as before. 
(d) It follows then that, under the present system, 
assuming free competition, the selling value of land 
is an untaxed value,* and land owners who invest 
to-day are exempt from taxation — not indeed upon 
their land, but upon its annual net or income value 
to them, or, in other words, upon their investment. 
The gross value is a taxed value. The net value is an 
untaxed value. 
(e) As this exemption of the present owner holds 
* Assessors make use of the selling value of land as the basis for their levy 
because it is more easily ascertainable than the gross value, but in reality and 
effect the levy is upon the gross value, which, if land were not taxed at all, 
would be also the selling value.