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added to the capitalization. As the whole enterprise in 1987 is left to the city, the price of purchase from 1947 is reduced proportionately. The Berlin underground also agreed to pay 2 per cent. on a yearly net income of $240,000 to the city, and an increased percentage on a larger income. Moreover, the company agrees to pay to the city in the years in which its income is above 6 per cent. of the invested capital 50 per cent. of the surplus. The company is required to run its trains every five minutes and during the hours of the heaviest traffic at the rate of three trains every ten minutes up to midnight.
THE OLD BERLIN ELEVATED.
Apparently unmoved by this rebuff, the Grosse Berliner Strassenbahn Company presented another proposition to the city of Berlin. On condition that its franchise was extended, it expressed its willingness to build a subway, costing millions, to run through Leipzigerstrasse and to the Spittelmarkt, two chief streets where its street cars are now running. The magistrate and city council, however, declined to accept the proposition, for it was maintained that it was submitted only to increase the value of the stocks of the street-car company on the Bourse, and, what is more, to compete with the project of the Siemens subway, which has since obtained a franchise from the city to extend its line from the Potsdamer Platz to the Spittelmarkt. But since this controversy was precipitated the Grosse Berliner Strassenbahn Company has made strenuous efforts to win the favor of the suburbs. It recently offered the suburb of Pankow to extend to that place one of its lines, and to pay the cost of paving between the tracks. It also agreed after sixteen years to turn over to the community 10 per cent. of its net profits. For a term of twelve years the company, which heretofore has always demanded guaranties for the street-car extensions, is willing to pay 2 marks (48. cents) for the running meter (39.37 inches) of single track, and 4 marks for the double track. In return for this the 'company desires a franchise until 1949.
The Prussian state is now seriously considering the electrification of the Stadtbahn, the elevated belt-line running around Berlin. The system to be used has not yet been chosen, as the state is now closely following the building of a similar line which is now being laid between Hamburg and Altona, to be opened next year. The traffic on the Stadtbahn, which in the first years of its installation was very remarkable, since the building of the surface line and the underground has decreased somewhat. But lately it has again been engaged to its fullest capacity. The electrification of the Stadtbahn will cost about $12,000,000, or about $1,920,000 per kilometer.
BERLIN'S SUBWAY RAILROAD.
In 1895 the city made a contract with the firm of Siemens & Halske to build the first underground railroad. Into the municipal treasury was to be paid a sum much less than that imposed on the tramway companies, but the city authorities reserved for themselves the right of purchasing the concern at a price twenty times the amount of the net profits after thirty, forty, or fifty years. Since then, as has already been stated, the city has granted Siemens & Halske a franchise to extend its line from Potsdamer Platz to Spittelmarkt, Alexander Platz, and Schönhauser Allee. This contract will last as long as the original line continues, that is, until the year 1987, although the city is entitled to buy the line at the end of every thirty years. That is, it will have this right for the first time in 1927. The city has reserved the same right for the new extensions which the underground company will build. It is also agreed that if Berlin buys the line before
A HANGING RAILROAD.
A private company has asked Berlin for franchise to build a hanging railroad (Schwebebahn) to the suburb Rixdorf. A similar line is now in operation for a distance of about thirteen kilometers at Elberfeld, running across the River Wupper. The company claims that the construction of such a line will be much cheaper than other systems. It is proposed to run these trains every five minutes, and in the early morning and evening hours every ten minutes. It is believed that such a line would do much to prevent the streets being torn up and defaced, and it is proposed to build the depots and viaducts in such a way as to conduce to an artistic appearance.
MUNICIPAL OWNERSHIP OF STREET CARS IN
Probably more than any other German municipality the beautiful city of Breisgau, Baden, in southern Germany, believes in the principle that public utilities belong to the
⚫ people. In its last annual report this municipality states that a city which gives up this control over such important means of communication as street cars loses every possible means of influencing the traffic in its confines. For, while a city in its agreement with the private companies can reserve a certain veto right, and when the income from it is within a certain sum obtain a percentage, still when there is a surplus differences of opinion frequently arise regarding the amount to be paid by the company. What is more, even the most carefully worded contract cannot anticipate for years ahead 'the needs of a city for the future. Usually the introduction of new inventions which would be of great advantage to the public leads to protracted discussions, for before the companies will introduce such innovations they raise the question whether these plans can be united with their own financial aims, and if the answer is favorable the city will nevertheless have to buy these advantages at a financial sacrifice. There are cities which originally intended to extend a franchise for only twenty or twentyfive years, and which have been compelled to prolong it for forty or fifty years. On the other hand, when the city controls such lines, it has its own free will to decide what shall -be done to extend this important means of communication. If new extensions are needed, they are considered not exclusively in a financial sense, but only so far as they are in the interests of the general welfare of the community.
Freiburg has proved by its own experience that municipal ownership is not alone possible, but also offers advantages which enable a city to do good from a humanitarian standpoint. Freiburg, for instance, has erected for its street-car employees private dwellings, consisting of three and four rooms each, at a cost of 350,000 marks. Every dwelling has a kitchen and conveniences, such as gas and water, cellar, laundry, garret, and garden. The city is now considering the building of similar dwellings in other localities. Municipal ownership has also proved a decided success in one of the most prosperous cities of Germany, the Rhenish city of Düsseldorf, with a population of 200,000 people. Its financial returns since the assumption of the street-car lines have been most favorable, and in 1905 it succeeded not only in paying a deficit of the previous year, amounting to $79,000, but also in leaving a balance of $600 in the treasury. At the head of the Düsseldorf municipal street-car system is a
managing director, who runs the line practically independent from other parts of municipal administration. All the employees are under his management. He makes the contracts, but with the consent of the mayor. He has charge of the correspondence, but is not allowed to leave his post without the permission of the city. He has the right to give the employees leave of absence for a week. Every year he submits to the city council an outline of his plans for the coming year. He carries out the new projects and is responsible for the rolling stock, etc. Owing to the rapid growth of Munich there soon arose in this city a demand for the extension of its tramway system. The streetcar company agreed, in case its franchise was prolonged, to build these new lines, but the city council would not consent, deciding to build itself. The contract between the city and the street-car company expires on June 13, 1907, and on that day the whole system will pass into the possession of the city.
The city of Bielefeld in the last year operated its street cars with a net income of $82,000, while the cost of operation was $63,000, leaving a balance in the treasury of $19,000. But this sum was not sufficient to pay the interest on the invested capital, and so a balance of $7000, derived from the electrical works, was utilized for this purpose. The report says: This economic result cannot be considered a favorable one when one bears in mind that a reduction of the cost of operation is not possible without impairing the standard of the service. The only possibility, therefore, to obtain a satisfactory result would be introducing a new system of fares, such as has been done in other places."
Frankfurt assumed its street-car lines in 1898. In its last annual report (1905) it is stated that in spite of improvement of wages, reduction of labor, establishment of welfare institutions for the employees, and paid interest on the investment, the city has a balance in the treasury. "Therefore, the past development and present condition of the street-car line has shown that municipalization is a great boon for the community, and has proved very beneficial. Not a single reason given against the practicability of municipalization has on investigation been found to be true."
As in Freiburg, Frankfurt has not only increased the wages of its street-car employees, but also by erecting dwellings has done a great work. The rents for these
houses are much lower than elsewhere. The city spent $79,000 for forty-eight houses. The annual report states that Frankfurt was glad to spend this money, as the employees have a difficult and trying occupation.
At the end of March, 1903, the municipal street cars of Cologne paid the sum of $65,000 into the city treasury, while in the year ending March, 1904, the same amounted to only $4400. The deficit was due to the fact that interest had to be paid on the building of new lines, which in 1903 cost $432,000. It must also be borne in mind that the sum to be annually paid to the street-car company increased by $60,000. But even these expenditures Cologne does not consider serious, but attributes the large reduction in its in
GERMAN EXPERIMENTS WITH THE LAND TAX.
BY WILLIAM C. DREHER.
THE American people are just now deeply interested in studying how great fortunes are accumulated. They want to know how millionaires are made. Where they find that methods have been used that are injurious to the public interests they want to apply a corrective. One way of growing rich that has long been called in question by the people and by economic students as well is that of land speculation, especially in and around growing cities. Everybody is familiar with it. Everybody has observed cases where speculators buy up lands adjacent to cities that seemed to have a big future, and wait for the population to come and increase the value of their holdings. In most cases the population does come; the newcomers create wealth as producers of commodities, as traders, or as workers in shops. They must be fed and clothed. They must have schools, churches, street cars, banking facilities,-in short, they make the town grow and prosper.
The industry and thrift of these newcomers cause a new value to be set upon land in and around the city. They need houses, they need working room, they need parks and new streets. When they want to take up land for these purposes, however, they always find that the speculator has got ahead of them. He has been waiting for them, sometimes ten, or even twenty years. In many
come to the strike of its street-car employees in May, 1903.
All the street-car companies in Hamburg and Altona are private concerns. The Hamburg state is now planning an underground road to cost $7,840,000, which will probably be built and operated by Siemens & Halske, of Berlin, who have also built the underground in Berlin. The plan proposes to connect all the suburbs of Hamburg with the city. It will take ten years to carry out the idea, for Hamburg occupies an area equal to that of Paris. Engineers have closely followed the building of the suburban electric line connecting Blankenese with Ohlsdorf, as it is the first city and suburban railroad in Germany introducing the single-phase system.
busy community; while others were working to create value he was taking his ease, waiting to reap the harvest of other men's labors. When his opportunity finally comes he knows how to use it to the limit. He often doubles his money in a few years; he sometimes quadruples it in ten or even less. In some cases, however, he will not sell at any price. If the community has done so well by him hitherto, he thinks, it will continue to enrich him in the future. Hence, he holds on to his land; but he will lease it to any man that will build upon it and pay him a regular rental upon its newly accrued value. The great Astor fortune will occur to most readers as a typical illustration of speculation in land by holding on to it. That family owns thousands of houses in New York city, built by other people upon lots that the various generations of Astors bought at extremely low prices as compared with present values.
Now all these speculators, whether intending to sell or hold on, act upon the correct assumption that other men's work will add value to their investments, and that if the speculation succeeds at all it will be owing to the combined activity and growth of the community, and not,-except to a very remote degree, to their own exertions. They do not, at least need not, perform any service to
value created for them. This new value is than a year after that territory was acquired. accordingly called by economists the un- When the colonial budget came up for debate earned increment." For want of a better in the Reichstag speakers of all parties except term it will be convenient to retain it in the the Social Democracy indorsed the governpresent article. ment's course; and thus the German Parliament became the first legislative body in the world to vote for this form of taxation,—a fact little known outside of Germany.
That there is a certain injustice to the community involved in such speculation most persons will admit who do not profit by it. Not a few economists have argued that the community has the right to take measures to restrict it. In most European countries such a check has been applied in the form of a tax upon transfers of real estate. The highest tax of this kind is collected in France, where it reaches nearly 7 per cent. of the value. In Belgium it is only slightly less. It is claimed that the relatively low price of lots in Belgian cities is due to this tax; and the result is that even many workmen can live in houses of their own.
TAXING THE UNEARNED INCREMENT."
It was reserved for Germany to adopt a bolder and more direct curb upon land speculation. Here the idea has been widely accepted that the new value added to land by the activity of the community as a whole is a fit subject of taxation, since such a tax merely restores to the people a part of the latent accumulation of wealth created by them. This doctrine is decried by some persons as socialistic, or at least semi-socialistic; but in Germany people are not easily frightened. away from doing a reasonable thing by such cries, usually raised by interested parties. Germany has departed widely from the unrestrained individualism which still prevails in the United States, but which our people have at last begun to correct, the individualism which gave our railroads, trusts, and corporations generally the opportunity to do things harmful to public interests. In Germany, on the other hand, the community idea is strong; the individual man is regarded more as a member of a great or ganism, to which he owes service and obedience. If his activity is not good for the community, legislatures and town councils are much more ready than in America to put pressure upon him to compel him to do his part toward the public welfare.
It was but natural, therefore, that Germany should be the first country to try what is called "taxing the unearned increment." The beginning was made, however, not in Germany itself, but in the German colony of Kiaochou in China. This was done by decree of the imperial government in 1898, less
ACTUAL MARKET VALUE AS A BASIS OF
After this experiment was launched in Kiaochou it was certain to influence action in Germany itself. Nevertheless, six years elapsed before the first German city adopted the new tax. But agitation was going on, and a land-tax reform of a different character, but also designed to compel supinely. waiting speculators to bear a just share of community burdens, was preparing the way for its introduction. This latter is the assessment of real estate at its actual market value. The prevailing land tax in Germany is based, not upon that value, but upon the revenue derived from the land. This system obviously favors the real-estate speculator,seems, in fact, to have been invented for his special benefit. Moreover, as if to render his game all the easier, no assessments upon adjacent property to pay for betterments, like street building, sanitary and other improvements, are levied in Germany.
One of the reforms instituted by von Miquel, Prussia's greatest Finance Minister for a generation, was a law to enable the municipalities and communes to tax land according to its market value. This was in 1893. Strange to say, however, the towns were slow to exercise their option under that law. It was not until 1898 that they began, under the spur of ministerial urging, to reform their tax systems; but once the ball was set a-rolling it gathered volume rapidly. Already about 275 towns and villages have adopted it. The effects of the reform have been highly satisfactory from the standpoint both of municipal finance and the general welfare. A good illustration of its workings comes from the city of Spandau, where it was introduced about four years ago. There the owner of extensive suburban lands worth several million marks had been paying only $23 a year on their revenue derived from potatoes and garden truck. His tax was at one blow raised to $3330. He and similar speculators immediately began to sell lots at reduced prices, building operations became unusually active, and the community profited.
POPULARITY OF THE INCREMENT TAX."
This sudden zeal for land-tax reform opened the way for the more radical idea of taxing the new value of land created by the community. The Kiaochou example, too, began to influence the public mind through favorable government reports as to its workings. The city of Frankfort-on-the-Main was the first German municipality to attempt to apply this tax, having adopted it in the spring of 1904. Cologne followed a year later, and already about fifteen Prussian cities have introduced it. These include Essen, Dortmund, Naumburg, and the four Berlin suburbs of Weissensee, Pankow, Rixdorf, and Zehlendorf. The Berlin council has had under consideration for nearly a year a measure of the kind, but powerful opposition has been encountered, and it is uncertain at this moment whether it will be passed. The lower branch of the Bremen council passed such a bill last winter, but it has not yet become a law. The reform has thus already gained considerable momentum. It seems certain that many towns will adopt it within a few years.
Several German state legislatures have considered bills to tax this community-created value of land. When the Prussian Diet, at its last session, had under consideration a measure giving the Kreise (the lowest administrative districts in Prussia, corresponding roughly to our counties) the right to collect a graduated tax upon sales of land, an amendment was offered forbidding them to adopt the increment tax, as it is called in Germany. The movers explained that they did not oppose this tax; they only wished to have it reserved for the towns; but Dr. von Bethmann-Hollweg, the Minister of the Interior, opposed them, saying that as a friend of the increment tax he wanted to give it full scope to grow; and the amendment was rejected by a large majority. Hence the Prussian Kreise may at any time vote to place à special tax upon land sales, designed to recover to the community a part of the value accrued since the last transfer. The Teltow Kreise, which is just now creating new values on a large scale by building a capacious canal through the suburbs of Berlin, has already voted in favor of the principle of that tax. It will doubtless apply it soon and thus recoup itself for its expensive undertaking.
The state legislatures of Bavaria, Baden, Hesse, and Saxony have also debated meas
tax. The Saxon bill, introduced by the government about three years ago, made this form of taxation compulsory in cities of above 10,000 population; but opposition was then too strong, and the government had to withdraw its bill to await a more auspicious time. About two years ago the lower house of the Baden Diet unanimously passed a resolution favoring it for towns of 5000 population and above. Such a bill passed the lower house of the Hesse Diet, but the upper house, while not rejecting it, handed it back to the government for a revision at certain points, and it is expected that it will be passed at the next session. It is a noteworthy fact that in all these cases the state governments favored the tax.
VARIATIONS OF THE SYSTEM.
When we come to examine the various systems of the increment tax hitherto adopted we find striking differences among them. They differ as to the period that elapses from one transfer to another, and the length of such a period entitling the seller to a reduction of his tax; they differ as to the amount of the increment where the tax begins, as well as the tax rate itself. Some towns discriminate between improved and unimproved property, taxing the latter more heavily in order to hasten building operations; others make no distinction of this kind.
The system put into force in Kiaochou is a unique type, widely different from those adopted in Prussia. It does not wait until land is sold in order to collect the increment, but collects it upon all lands every twenty-five years even if they have not changed hands during that time. The proportion of the increment taken there as a tax is one-third, irrespective of the amount of accrued value. If the tax officials decide that a lot has gained only $15 in value for twenty-five years, the owner has to pay a tax of $5. This system is the only one that would strike holders like the Astors. In Prussia, on the other hand, small increases in value, usually those less than 10 per cent., are exempted; the amount of the tax is influenced by the rapidity with which the new value has been created and the period that has elapsed since the last transfer; and no attempt is made to recover the increment until the property changes hands. In Kiaochou, again, the tax is collected by the state; in Prussia exclusively by the municipality. A motion in the Bavarian Diet four years ago provided that the state and city should divide