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for many years in advance of an income from the forest, was a serious hardship. Now we are assuming that forests are to be subject to the individual income tax and the business tax, and we are seeking only an adaptation of the property tax. This is not the whole tax on forests but only a part of the system. The simple solution becomes practicable and not unduly burdensome; i. e., the annual tax on the land only, at the regular rate of the property tax. with entire exemption of growing trees. No additional yield tax is required so far as the property tax is concerned. With such a tax, there remains no necessity for any optional feature, for applica tions or inspections, for contracts or official interference with the owner's management of his forest. The law would apply to all lands and would simply have to provide that in assessing real estate no account should be taken of the value of growing trees.

The yield tax would appear, not as an additional tax in lieu of the property tax, but in the place of the business tax. The forestry business is fairly simple. It is doubtful if the complicated system that has been worked out for manufacturing and mercantile business is necessary or desirable for forests. The simple tax on the stumpage value of forest products corresponds fairly well to a tax on net income and would probably be the best means of applying the business tax principle to the forests. The rate of the yield tax should correspond to the rate of the business tax on other enterprises. Five per cent is suggested as a reasonable rate where circumstances do not indicate the proper rate.

We summarize our plan for the taxation of growing forests as follows:

(1) The law shall provide criteria for determining what is "mature timber ".

(2) All trees other than mature timber shall be exempt from taxation, and in assessing land no account should be taken of the value of any trees, except mature timber. Forest lands shall be assessed no higher than similar bare lands in the neighborhood.

(3) All forest products (with the exception of certain small quantities taken by the owner or the tenant for his own use) shall be subject to a yield tax, at a rate corresponding to the business tax on other businesses. The rate would perhaps ordinarily be in the neighborhood of five per cent. The yield tax should be administered by state officers, and the proceeds ordinarily distributed to the towns or counties.

(4) It is assumed that if there is an individual income tax, forest incomes will be treated exactly like other incomes.

(5) Certain administrative problems will arise, particularly in connection with the yield tax. Since this matter has been fully treated in previous reports and addresses, already referred to, the committee regards further discussion unnecessary. No serious obstacle is to be anticipated.

At two points this plan may require further defense. (1) The old general property tax was defective because (a) by taxing the total value of land and trees it imposed an excessive burden upon the growing forest and (b) it placed on the owner the inconvenient obligation to pay annual taxes for years before any income was realized. The first of these defects is avoided by exempting the trees. The second remains, though greatly reduced. Under all the circumstances it is felt that this inconvenience must be accepted by the forest owner. In return he is guaranteed a reasonable tax burden, made up of a small and fairly certain annual tax on his land and a yield tax at a definite rate.

(2) The chief objection to the yield tax, as already stated, is the irregularity of the resulting revenue. This difficulty is present in the committee's plan. It should be noted, however, that the irregularity resulting from a moderate yield tax (in the neighborhood of five per cent) combined with a steady annual tax on the land is quite different from the result of an exclusive yield tax (at the rate of twenty per cent or thereabouts). If nevertheless this difficulty appears serious, there are ways by which it may be avoided. Six possible methods were suggested by the chairman in his address before the sixth conference, in 1912. It is not necessary to rehearse them here. One of these suggested methods, involving advance annual payments by the owner, to be later deducted with interest from the yield tax, has recently been taken up and skilfully developed by Mr. Murphy of the Forest Service. The committee. believes that in most states the irregularity resulting from the yield tax as recommended will not be serious, whereas for any state which finds this a serious matter there are adequate remedies.


Our discussion thus far has related to the growing forest only, with the purpose of devising a method of taxation which shall be equitable to all parties concerned and shall not be an obstacle to the reforestation of cut-over lands or the development of new forests. The mature forest presents quite another problem. We are here dealing with a full grown product. Two cases appear, depending primarily on whether the timber is actually marketable or not. By marketable timber we mean mature timber which is accessible and so located, with respect to market and transportation facilities, that its immediate marketing is possible. Whether it actually is being marketed depends upon the owner's judgment as to the most favorable time. There is nothing in the theory of the property tax to affect adversely marketable mature timber. A property tax fairly drawn and administered with even-handed justice upon all owners of taxable property would give the owner of such mature timber no ground for complaint. Of course the obvious

rejoinder is: "there aint no such animal". This ideally perfect property tax exists only in the imagination. The real property tax. as we know it, is badly drawn and more badly administered. Its application is unequal and unjust. If forests of marketable mature timber are taxed more heavily in proportion to their true value than other classes of wealth, the forest owners have a grievance, but it is in no way different from the grievance of any other property owner, under similar treatment.

On the other hand, when timber is so located that its present marketing is not possible, the situation is in theory similar to that of the growing forest. We have here a form of capital whose income is deferred to the more or less distant future. It is true that the timber is mature, but if other causes beyond the owner's control defer its marketing, the result is the same. It is the fact of the necessarily deferred income, rather than the particular cause of that fact, which makes the annual tax on capital value work injustice. The reasoning in support of this conclusion has been presented heretofore in other reports by the chairman.2 There are in certain parts of the United States large forest areas containing mature timber whose location is so inaccessible or so remote from markets or transportation facilities that its marketing is now and may long continue to be a physical impossibility. To collect from such forest capital an annual property tax, assessed upon the true value from year to year, places an excessive burden upon the owners. This result is inherent in the nature of the property tax and not (as in the case of marketable timber) due to faulty wording or administration of the law.

Careful investigation made ten to fifteen years ago, to which reference has been made, showed that on the whole, forests had not up to that time been taxed excessively. Probably they had, on the whole, been assessed more leniently than other classes of wealth. But it was pointed out at that time that the epoch of lenient taxation was drawing to a close and that heavier and even excessive taxation might be expected in the near future. The past decade has fully justified this prophesy. Tax burdens in general have become enormously heavier, and there is plenty of evidence to show that in the great virgin timber states at least the burden has been increasing more rapidly on timber than on other wealth. The owners of large tracts of mature or virgin timber have reason to be alarmed.

What makes the matter one of public interest is this: The mature forests represent a national resource of vital importance to the well-being of the people. This store of wealth has been gradually built up by nature during many past years. Its utilization has

2 Cf. Report of the National Conservation Commission, 1909, Vol. III, pages 611-615; Fairchild, "Forest Taxation," Proceedings Nat'l Tax Conference, 1908.

for some time been proceeding more rapidly than its restoration by natural growth and plantation. The store is diminishing and virtual exhaustion may be foreseen in the not distant future. It must be repeated that taxation is not the cause of this condition and that no change in tax methods will materially alter the situation. This is not primarily a tax problem. Taxation becomes a consideration in one way only. If, through the faulty administration of the property tax, mature timber is subjected to an excessive burden of taxes, the owner, already burdened with heavy carrying charges, may find himself forced to market timber before the economical time, suffering loss himself and hastening unduly the depletion of the nation's forest resources.

Of course, by this same token, the forest owner would benefit and the exhaustion of the forests be perhaps retarded by special favors in the way of reduced taxes or entire tax exemption. But this is a program which your committee has refused to consider, standing firmly on its purpose to find a tax system which shall place on forest owners their fair burden of taxation-no more but also no less-as compared with other taxpayers. It is not believed that the public interest as a whole has anything to gain through the granting of special tax favors to this class of taxpayers.

On the other hand, the forest owner is entitled to fair treatment. He has the right to ask two things: (1) that his total tax burden shall not be excessive, as compared with other taxpayers, and (2) that the amounts exacted from him shall not be arbitrary and uncertain. The latter consideration is possibly even more important than the former. It is especially vital to the forest owner whose income may be long deferred, while interest and other expenses run steadily on. There is danger that the just taxation to which the forest owner is entitled may be denied him, either through the inherent defects of the property tax as applied to forests whose cutting is necessarily deferred, or through the assessment of marketable timber at values relatively higher than are placed upon other taxable wealth.

The problem of taxing mature timber has not received the study which has been devoted to the taxation of growing forests, and the solution is not so obvious. The former committee (in 1913) made certain tentative recommendations, while admitting frankly that it was not prepared to say that its plan would fit the conditions in those states of the Pacific coast, the south, and the extreme northeast where the most extensive areas of virgin forest are found and where the problem is most serious. The sub-committee of the National Conservation Congress also made suggestions, likewise somewhat tentative.

In seeking a solution, your committee starts with these principles: (1) Mature timber should be taxed so far as is equitable and possible on a par with other wealth and business. (2) If there

is an individual income tax, it should relate to forest income the same as any other income. (3) Where there is a special business tax, it should take the form of a yield tax for forest enterprise. These principles are the same as have been recommended for growing forests and their discussion in that section applies generally here. (4) The property tax as applied to marketable mature forests should be the equivalent of an annual tax upon the land and trees, assessed in the same ratio to true value as prevails for other taxable property in general, and at the same rates as are applied to other wealth. (5) The property tax, when applied to forests of mature timber which will not be marketable till some time in the future, should take account of the fact of defered income.

It is the practical application of the last two principles which presents the difficult problem. As has been pointed out, the owner of marketable mature timber has no reason to complain if the property tax is applied to his forest on even terms with other kinds of property, but this is not enough for the owner of unmarketable mature timber. Yet the legal separation for taxation of these two classes of mature timber is probably impracticable. There would be too much of personal judgment involved, and disputes and unequal treatment would almost certainly follow. What we must seek is an equitable method of applying the property tax or its equivalent to all mature forests.

From the point of view of the forest owner, the most favorable solution would probably be the pure yield tax, but the pure yield tax will not do, for two reasons at least. (1) The owner of marketable mature timber, who chooses to hold it uncut, for sale in the distant future or as a pleasure park or hunting ground, must not be permitted thus to postpone his tax contribution indefinitely or avoid it altogether. (2) The resulting irregularity of public revenue would be a serious matter, especially in those localities where virgin timber composes a large part of the taxable wealth, these being the very communities where the problem of the taxation of mature timber is most acute. As has been observed heretofore in this report, there are ways of adjusting this irregularity of revenue, but nevertheless the public appears unwilling to take the chance. There are other serious difficulties, both theoretical and practical. We are quite safe in concluding that the pure yield tax is not the solution.

The combination of an annual land tax and a yield tax meets about the same objection. The principal value of a mature forest is in the timber rather than the land. Introduction of the annual land tax, therefore, fails to meet the objections to the pure yield tax. At best it mitigates them slightly.

Taking everything into consideration, your committee is of the opinion that the only practicable solution of the problem of taxing mature forests is to seek to make the property tax as equitable and

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