"The Power to Tax . . ."

From 1909 to 1931 the common stock of Central Railroad Co. of New Jersey never paid less than $10 annually. Bluest of blue chips, the rich, little (1,155 miles) anthracite road had skipped only eleven dividends since it began operations in 1848. For 25 years (1905-30) the stock seldom sold below 200. In 1912 it hit a peak of 395; in 1928 another of 375. Last week it could be bought for 5. Sic transit. . . .

And last week Jersey Central went bankrupt, joined 81 roads (over 31% of U. S. railroad mileage) that have gone into receivership since 1931. Driven to the wall by seven consecutive whopping deficits, its first eight months' operations this year showed a $2,709,000 net loss. Of its once lush freight business, about 50% was coal and 40% manufactured goods, and neither recovered from Depression I. With heavy fixed charges on a bonded debt of $51,198,000, the strain of depression was too much. But the straw that broke Jersey Central's back was taxes.

To the State of New Jersey the railroad owed $11,651,000 of taxes unpaid since 1932. That was 40% of its tax bill for that period. It had paid the rest. Month ago the State threatened to go to court to collect its bill for 1932-1933 ($7,230,000 of taxes, penalties & interest). With only $2,360,000 cash on hand to meet the tax bill, Jersey Central escaped to the courts.

For more than 50 years New Jersey has systematically milked the nine major roads* that serve it. Ignoring the earnings of the roads, the State has assessed them a straight 100% on the assumed "real value of their property" (instead of the 30% to 60% base for other real estate). In 1937 the tax assessed was $9,902 per mile of line. It gave New Jersey the U. S. rail-taxing championship: nearly seven times as high as the U. S. average, 2 1/2 times that of the next highest State (Rhode Island). It amounted for Jersey Central to the equivalent of $682 per employe.

Owned 56.5% by Reading Co., which is in turn controlled by Baltimore & Ohio, Jersey Central is B. & O.'s cherished connecting link with New York City's metropolitan area.

Like the other eight New Jersey roads, however, Jersey Central has failed each time it went to court for relief from the State taxes. Altogether the nine railroads owe New Jersey approximately $50,000,000 in back taxes and penalties. Several months ago the State Senate passed a bill compromising that sum for $14,250,000. It never got through the Assembly. Last week the reason was known: like C. I. O., the railroads were the victims of the despot of Jersey City.

Pointing a long finger, Senate President Robert C. Hendrickson shoved it directly under the falcon nose of Jersey City's Mayor Frank Hague, charged that he alone was responsible for Jersey Central's bankruptcy. Reason: Boss Hague blocked the railroad tax compromise. Hague excuse: The bill was an attempted "tax steal." Roared he: "They are walking out with $35,000,000, and they are going to crucify Hague because he tells them they can't take that. . . . Mr. Railroads, just as long as the small taxpayers must submit, you'll submit. . . . Hague and Hagueism will haunt you. . . ."

The words had scarcely left the Democratic Boss's mouth before the Federal District Court came, for the first time, to the railroads' aid. Ruling that the State could collect no more than 60% of the nine roads' taxes for 1934-35-36, the court ordered a sweeping revision of New Jersey's assessment methods. Until all of the roads' properties were revalued, said the court, the 60% payment rule would hold. Too late to save bankrupt Jersey Central, the order was not too late to apply to the nine roads' 1939 tax bill ($18,261,000), due next month. It may save New Jersey from killing more of the roads which pay its golden taxes.

* Central Railroad of New Jersey; New York Central; New Jersey & New York; Delaware, Lackawanna & Western; Lehigh Valley; Pennsylvania; Reading; Erie; New York, Susquehanna & Western.

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