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UNITED STATES SENATE Washington, D. C , November 24, 1957. Dear Mr. Roosevelt: I enclose copy of letter I am sending the President with excerpt from the Record in reference to my resolution for a constitutional amendment exempting homesteads from taxation throughout the country. I also enclose copy of the resolution. I would be glad if you would look ifato the matter also, and to have your reaction to the idea. Yours very sincerely, (sgd.) Morris Sheppard. Hon. James Roosevelt, Secretary to the President, The White House, Washington, D. C. Washington, D. C. November 24, 1937. Dear Mr. President: In connection with your most praiseworthy proposal for increased home building throughout the nation, I desire to direct your attention to S. J. Res. 220, proposing an amendment to the federal constitution calling for the exemption of all homesteads throughout the nation to the extent of $5,000.00 in value, which I introduced in the Senate on November 16. I enclose excerpt from the Record of that date, in which the resolution is set out in full and in which immediately below the resolution is a statement by way of explanation. I also enclose copy of the resolution. Thirteen states have already made such exemption by constitution or statute. It would give a permanent basis for home building and for security of home ownership. I submit it for your consideration. Yours very sincerely, President Franklin D. Roosevelt, The White House, Washington, D. C. There is no question but what such a constitutional amendment would be all right. It would do no particular good on construction at this time as it would take a long time to get it through and therefore could be of no nelp in the present situation, A constitutional amendment providing for such exemption as proposed would eliminate from taxation & .very large portion of the present taxable property; some other form of taxation would have to be found to take the place or meet the loss of income, which would create a very difficult problem in view of the present high taxes in effect in almost every state, otherwise the alternative would be £or the Government to subsidize the states for their loss in revenue due to exemption. This would, of course, raise a very serious budget question. In the first place it would have to be in the form of a letter to bheppard from President Roosevelt and he naturally is not going to come out definitely for anything. Another suggestion - best: That the President acknowledge and say they are interesting suggestion butfex,however, they involve a great many questions such as (etc.) — means a great loss (include figures) in taxes in states, required to meet such loss by some other means; inasmuch as they have high property as well as income and sales tax, it would be difficult to meet it from that source; would be difficult for the Government ot meet such loss from the state as that would create a serious budgetary problem for the Government. THE WHITE HOUSE WASHINGTON December 7, 1937 Memorandum For: Governor M, S, Eccles Federal Reserve System Dear Governor Eccles: On my return to the office today I found this letter from Senator Sheppard. Would you look it over and let me have some suggestion to send along to him, if you think that is what I should do in the matter. With my best wishes to you, Ve/r sincerely; James Roosevelt ry to the President December 22, 1957. Honorable James Roosevelt Secretary to the President The White House Washington, £)• C« ^ dear lr. Roosevelt: In accordance with your recent note, I have looked over the resolution by Senator a constitutional aaeadaeat to exempt from 1 taxation all homesteads up to a value of 15,000. X have also had prepared O B the aabject a aeaorandua that, though l y no mema exhamrfcive, does raise a certain points apparently worth consideration. I inclose a copy of this aeaoranctoi. Perhaps It Hill he useful as a basis for your om coameats or perhaps Senator Sheppard would be interested. With my beat wiahea, sincerely M. a. Eecles Inc H>, I* Thettoveaeatto exempt from property taxation owner-occupied la the various 5tete@ has MylMUdsedj as d c s Senator Shepp eis the great desirability ftf substituting freehold, ownership of ho»s$ for tenant ocoupaacy* la drafting these notes, the writer would like to s&y, first of all, that be ie profoundly syop&thetic to that point of vi^w and believes that C-esiator Sheppard end others who are interested in the question are dealing with one of the mo&t fimdssseistal probleas of Marlcan social and economic structure* II• Presumably, an om©r etevpftMgr exemption i& designed to apply tax pressure ia favor of hosestesd ownership rnd to assist the lom&r incosae groups in acquiring hose earner ship. Regardless of the other Questions involved, an exenption of $5,000 is probably too high for such s purjpose* The census of 1850, bind oa tlae vary high v&lu«£ of 1M§« a median figure of •|>p<»ltl«1j |8f7f0 far nonfara onaed and rented . houses* The present value, of oaurft*f Is lower than that amount| and, ia addition, the m p t f i capitfel value of housingtiaitsoccupied* ssy by the lower 50 percent of the inconeHreeeiving group® ia the Goltad States would be well below the figure cited* Moreover, a f£,0OO exemption, if based on. aaeessed values, would in fact be an exemption conoid.erably ia excess of |StO00« Such • eonelusion follows fro® the faet that, except ia periods of sever© 4*pB*0*&M when propert;/ valuer tavt b©«a greatly rtrckieed* MHHMMti valmeg oa the average @re considerably less than the sale v&lue* All in all, an AMMMM^A^tmlM exemption M high M |§9000 li probably double the &s&ouat that coulci. b & Aost eo^viacingly etrgued for* That < would s©ess to be especially true of the Southern states* where average values are exceedingly low. ANHf the results of placing th© exeaptloo SO' high would, b i the fact tint Iteai ia IIMI upper IMMMMI gPtVjpf would e JLndiTldttally secure • ssueh greater benesfit fros the- SflBMptiw tiMMi those la the lower groups * for iaetance, aa&u&iiig a tax- rate of fSO to $1,000, t aiaa able to live in a 15,000 IMNHM would secure • tax benefit of $150 a year, whereas a person able to live Ia • i£,000 bouse would secwr® i tax benefit of oaly f60* that factor would be coupled with the additional eircuastaae© that there seeass little reason to grant f5,0OO of to a m&n able to afford, Bfcy« £ $50,000 r III* BHMm are a great maaj people who wsH rent for valid reasons* 8tas of them are oaly teaporerily located at various places because of tfcs charaei€tr of their bMiteMMNMt profeasioa©, trades» or the labor aarketj; a great bulk of thes are in such a poor incom© situation thsit no aethod we have yet discovered in, the Oaited Btat©s will ptfrait hoae ownership* Often their chief ft—H is their mobility. Morecnrer, in the cities of the country, the larger arroop of people MMt nec©s-s&rilj live in stultipie-unit est&blieiuaeniB, such as apartment houses, and we have not yet generally developed aiethods by which them people own their dwelling units. Kxeaption of owner-occupied hosie steads would thus have an unsatisfactory feature in that those able to own would be exempt, while those in rented places would not be exempt. Since, in the long run at least, investments ia rental real estate will h&ve to pay a return equal to other investment opportunities of equal risk, the tax levies on rental properties *ill be included in rents. It seenis, therefore, that an exemption would in considerable measure assist "he relatively better placed — those able to undertake the ownership of hoses — and to create a differential disadvantage for those often less well placed, who asist perforce occupy rented property, IV. In nearly all the States where a subst&nti&l hoseste&d exemption, has beea in operation for any length of ti;ae, substitute revenues of the consumption-tax variety have been necessitated. Doubtless there are kinds of selective sales taxes that could properly be mg*4 as a desirable substitute for property taxes; but, in so far as general consumption taxe§ are concerned, they fall isost heavily on those classes that amst spend all or nearly all of their iacoae for taxed necessities, A substitution of a general consumption t&x for the property tax would in large measure be edtaply a shifting of the tax burden froa the shoulders of those who are at least able to undertake the ownership of property to the shoulders of those who are even less able to bear it than property owners* This factor, coupled with the previously noticed disadvantage to renters, would apparently create a severely regressive treatment of the low-income groups. (1) The resolution intended for Semite consideration apparently exempts f£,QGu af each homestead frost all taxes, state and local, except levies for the service of prior bonded debt. Without arguing the case either way, it is nevertheless to be observed that such a provision, if enforced, would compel revolutionary changes in the governmental structure of js&ny states. The inability of localities to discover alternative revenues, would entail state grants ia aid or the assumption of local functions by the state governments. It would also be very likely to enforce quite quickly a different relation between the Federal and State Governments because the ability of the states to uncover revenues alternative to property taxes differs saterifclly; and it would be logical to expect & rapid development of Federal grantv in aid to the states. It may also be noted that a good many localities, aside fro® a bonded debt, have a substantial floating debt. The task of taking care of such £ debt on the basis of the reduced revenues implied by the- present resolution would be great if not impossible in aany instances. V. In the 2 O I run, a tax exemption woula h&ve a certain influence .Z& ia e&ttsing an increased supply of llppwr—till in or oa land. So far as lancl itself is concerned, a tax exemption th&t increased the A M M 6 »©«Xd eimply result in bidding up the price, since the supply of l&od will be fixed, to the aattit that real estate- ¥•]»•• M r * thus increased by an of lead valuer, the Stetes would be simply sacrificing their a order to provide IA bonus ( c way of increased prices) to the fy present o«ners of land* Future purciiaBers, so f«F as land values are concernedf would be in ao better position, because they would be uader the necessity of pay lag a higher price represente-d b/ the capit&li^atioa of the tax reiii&sioisu This* woisld b# a particularly laport&mt C0jssidferatlon i» U M Sooth, H M M S O aach of the; laBdec property of any ee-ononie isportaace la otiaed oatside the State. Ia the stimulation of housisg, sometiiiiig close to the foregoing pbe&oaenan MMHtslflg land is also true. The increase is housing proportionate to the total Sttpplgr of housimg can only t&ke place with co&ipara** ti^e slowness* l^vea so far as iaprovemeate <m l&nd are concerned, therefore, a boaeste&tL e-xefaptioo siaplj rsjrilts in a bonus to present owners.