plied to the total value of land and trees of a growing forest, resulting, if strictly administered, in grossly excessive taxation of forests, as compared with other forms of property yielding annual incomes;

(4) That, if at any time other conditions should become favorable to the practice of forestry as a private business enterprise, continuance of the prevailing property tax upon growing forests would prove an insufferable obstacle;

(5) That the remedy lies in the relief of growing forests from the rigors of the property tax, through the more or less complete application of the yield tax;

(6) That the attempt to promote forestry by tax exemptions, as embodied in earlier legislation, is quite futile;

(7) That the mature or virgin forest presents a distinct problem, toward the solution of which little has yet been accomplished.

Our first task now is to take stock of what progress has been made during the past decade. We note, first of all, that the principal conclusions of your previous committee, as just summarized, have stood the test of time and gained very general acceptance by those who have given attention to this subject, a result in which this association may take justifiable pride.

On the practical side of legislative achievement, the result is less gratifying. A few states have passed laws aimed to relieve the forests from the worst hardships of the general property tax, and in these laws there has been a timid application of the yield tax principle. (Note details of state laws since 1913.) But these laws have not gone to the root of the matter and they have failed to produce any important practical results. They have usually been optional, and for one reason or another have generally been ignored by forest owners.

In spite of the general acceptance of the principle of the yield tax as a theoretical proposition, there can be no doubt that the plan of the pure yield tax, as recommended in the report of the National Conservation Commission of 1909, has been generally regarded as too extreme and as involving too many practical difficulties from the viewpoint of the public revenue. There has developed an unmistakable public opinion to the effect that all forests must continue subject to the property tax, at least upon the land, and that the application of the yield tax must be limited to the trees. This position was accepted by your former committee, which in 1913 recommended for "new forests a combination tax, consisting of an annual tax on the land, valued as bare land and taxed at a rate equal to half the prevailing rate of the general property tax, together with a ten per cent yield tax upon forest products. It is safe to say that the fundamental idea of this plan has gained general acceptance among the advocates of forest tax reform.

And yet there has been a disapointing lack of legislation along this line.

On the other hand, the need of reform has increased alarmingly and is more widely recognized than ever before. The dependence of the nation upon timber and other forest products; the rapid decline of our forest resources, and the impending future famine are subjects which this committee feels it need not enter into, in view of the presentation made by Professor Chapman at the last conference (1921). These matters are of vital interest to the nation; attention has been given them by such bodies as the United States Forest Service, the Chamber of Commerce of the United States, the American Forestry Association, etc. The present crisis is not due primarily to taxation, but the burden of taxation has grievously increased in the past ten years and the necessity of reform, to clear the way for the practice of private forestry, was never so urgent or so well recognized as today.

The committee has, therefore, set for itself the task of answering these questions: Why has the progress of forest tax legislation been so slow? Is the plan proposed by the committee of 1913 still worthy of our recommendation? Is the lack of results to be ascribed to weaknesses in that plan? If so, how may the plan be so modified as to bring, not merely recognition of its theoretical correctness, but adoption by the legislatures of the states? In all of its inquiry the committee has had in view the same objects as were before the former committee, stated thus in its report:

"(1) It is proposed to place upon forest owners their fair burden of taxation as compared with other taxpayers. No subsidy or special favor to forest owners is contemplated. The legitimate objects of correct forest taxation may be obtained by a change in the method of taxation, without generally involving any reduction in the taxes paid at present.

"(2) The forest owner should be guaranteed that his burden of taxation will be reasonable and that its amount will bear a fairly definite ratio to the income from his forest and be fairly predictable in advance.

"(3) The various political bodies involved (states, counties, towns, etc.) should be guaranteed against any serious irregularity of income resulting from the changed method of taxing forests.

"(4) The method of taxing forests should be such as will impose no obstacle in the way of the best use of existing forests and the investment of capital in new forests. So far as consistent with the other objects stated, the tax plan should be a direct inducement to these ends."

It has become evident that the taxation of forests involves two distinct problems, relating respectively to growing forests and to

mature or virgin forests. We shall divide our following discussion into two parts accordingly.

II. THE TAXATION OF GROWING FORESTS

The idea of the former committee was to find a method of taxation that should take the place of all existing taxation upon forests. This meant practically to find an equitable substitute for the general property tax. It was recognized that theoretically such a substitute might be either (1) an annual tax on the original capital value of the forest-what the foresters call the "expectation value " -which practically amounts to the value of the bare land, or (2) a tax on the yield of forest products, whenever obtained. In the first alternative the rate of the tax should be the prevailing rate of the property tax on wealth in general. The yield tax, in order to impose a burden equivalent to the tax on other wealth, should be at a rate determined by dividing the prevailing rate of the property tax by the rate of interest. Thus, if the rate of interest were five per cent, an annual tax on original capital value at one per cent is equivalent to a yield tax of twenty per cent. Recognizing the practical obstacles to both of these alternatives, the former committee proposed a compromise, involving an annual tax on the land, at half the rate of the prevailing property tax and a ten per cent yield tax on forest products. This recognized the principle that a combination of the capital tax and the yield tax should impose the same total burden as would result from either of these taxes alone; hence the rates recommended.

In the opinion of your committee analysis of this plan brings to light two features to which may be ascribed its failure to gain more general acceptance. In the first place, the yield tax under American forest conditions would necessarily be irregular as a revenue producer. In spite of practicable devices for correcting this irregularity which were suggested,1 the public and the legislatures have been extremely cautious about accepting any plan which even remotely threatens to introduce an element of uncertainty or irregularity into the local revenue system. This is undoubtedly the chief obstacle to the practical acceptance of the yield tax.

The other feature which appears as an obstacle to the adoption of the former plan is this. The plan, as proposed, was a compromise between the annual land tax and the yield tax. As such, it gave a reduced land tax, at half the rate paid by other property, to be made up later by the yield tax. This was, at the start, a concession to the forest land owner. It could be granted only where there was reason to expect the future yield tax. It was essential to make careful provision to prevent resort to the law as a means

1 Cf. Fairchild, "Suggestions for a Practical Plan of Forest Taxation,” Proceedings of the National Tax Association, Volume VI, 1912.

of escaping taxation on agricultural or other non-forest land. The plan therefore involved complicated provisions, seeking to restrict its application to true forest lands, limiting it to lands not exceeding a certain value, requiring that the lands be properly planted or otherwise stocked with suitable species of trees and that the young forests be properly maintained. The special forest tax was optional, to come into force only after application by the owner and inspection and approval by the state forester, and to terminate whenever the owner should desire to withdraw or the state forester should decide that the forest was not being properly maintained. All of this meant complicated procedure and red tape and has doubtless gone far to cool the interest of the forest owners in the plan.

Of course any arrangement which involves a concession in the way of reduced taxation must be safeguarded in some such way as this. Some of the earlier plans of forest tax reform involved special favors to the forest owner, in return for certain specified management of his forest, under a contract with the state. Forest owners have been very reluctant to bind themselves by such contracts and the laws containing this feature have everywhere failed to produce results. But even where there is no intention to give any ultimate favor to the forest owner, the presence of an initial concession requires some safeguard against abuse. Hence nearly every plan of forest taxation that has appeared in the last ten years has involved restrictions upon its application similar to those contained in the plan of the former committee. This is believed to have been the chief reason for the failure of all these plans to obtain more general acceptance. Your committee believes that it is of the utmost importance to develop a plan which shall be of universal application; which shall be compulsory and not optional, and which shall not be hedged about with the red tape of applications, inspections, and official sanctions.

This goal, which seemed quite unattainable to those of us who were working on the problem ten years ago, has we believe been brought within our reach by certain developments of the past decade in the general field of taxation. Two things have happened. One has been the unexpectedly rapid disintegration of the general property tax, with the corresponding rise of taxes upon incomes and earnings. The other is the development of new ideas regarding the whole system of state and local taxation, under the inspiration and guidance of the model tax committee of the National Tax Association.

These developments have greatly simplified the problem of forest taxation. The old general property tax was intolerable in its application to growing forests. The task was to find some substitute. assuming that the general property tax would long continue for

other property in general. The one great achievement of our earlier efforts was to develop the idea of the yield tax. Yet, rather curiously, the practical outcome has been not the adoption of a special yield tax for forests, but the remarkable spread of the income, earnings, or yield basis for taxation in general. While we have been struggling to secure the yield principle as a special concession to the forests, the general tax reform movement has caught up with us.

The problem of today is no longer to find a special method for taxing forests in lieu of all other taxation, but to fit the taxation of forests into a general tax system which is itself destined to rest more and more on the yield or income basis. For example, the model tax committee proposes a system of state and local taxation resting on three foundation stones: (1) the individual income tax. (2) the property tax, upon tangible property only, and (3) the business tax. The individual income tax would of course treat forest incomes like any other income. The forest owner can have no grievance here. So far as the peculiarities of his business are concerned this is the most favorable kind of tax for him. There is no special problem for us here. Likewise the business tax, where such a tax is in effect, will rest upon the income or yield basis, the one best suited to the peculiarities of forest enterprise. Some special adaptations to the business of forestry may be desirable, but at any rate the yield principle is secure.

The only problem remaining is to find a modification of the property tax which shall be suited to the peculiarities of forest enterprise. The weaknesses of the ordinary property tax as applied to growing forests have been carefully studied and the results presented in previous reports and papers before these conferences, to which reference has been made. Reference has also been made to the generally accepted remedy; namely the combination of an annual tax on the land and a yield tax. As has been pointed out, the annual tax on the land, at the rate of the ordinary property tax. is all the burden that can fairly be placed upon the growing forest. To impose an additional yield tax is excessive. Those who have proposed this have apparently had the feeling that to grant entire exemption of growing timber, without any compensation, was too great a concession or else have had in mind the mature forests. which as we shall show must be called upon for more than the land tax. As regards growing forests there is no principle either to justify a yield tax or to measure its amount, if the land is already subject to annual taxation like other property. Such an additional yield tax is justified only in consideration of a reduced rate of the land tax, as proposed by the committee of 1913.

When we were seeking a special forest tax, in lieu of all other taxes, it was felt that the annual land tax at the regular rate, paid