114) of the Forest Service of the United States department of agriculture, the industry was represented by an investment of nearly two and a half billion dollars and by the employment of nearly a million men.

According to that document, the most common industrial unit of the lumber industry combines the ownership of timber with logging and milling operations. On the other hand, vast areas of stumpage are owned by individuals or companies, whose economic function is limited largely to holding the raw material and selling it from time to time to loggers or manufacturers. Speculators in quan tities of public timber cheaply acquired, and the push of sudden development have carried timber values very high; indeed to a point presenting abnormal conditions puzzling to a resident of New England or Pennsylvania, where forest properties have been relatively stable.

From the same official source (p. 16) we glean the following facts:

"The tax burden varies greatly in different forest regions. In the South as a whole it has never been a serious factor. The yearly taxes on large southern pine holdings vary enormously but appear to average about 1.7 cents per thousand feet, or from three-tenths to five-tenths of 1 per cent of their value."

Compare this low ratio with the average tax of one to two per cent of true value paid on all property, and the under-assessment of timber, at one-fourth its real value, is readily shown. A hundred thousand dollars worth of timber stands on the tax books to yield $400; while the same value of other property in general pays $1600.

The report continues:

"Timber land taxes in various California counties average about 5 mills per thousand feet. . . . The rate in the Inland Empire averages about 1.7 cents per thousand feet. These yearly levies are equivalent to from one-third to 1 per cent of the present value of timberlands."

And the report contains the following interesting conclusion, confirming our indictment against prevalent haphazard methods:

"It is improbable that the general property tax system levies upon timberlands more than their just share of local revenue over any considerable forest areas. Unsuited by nature to this form of wealth, however, it tends toward heavier taxes than a sound forest industry can bear. Uncertainty as to the future extent of this burden is a menace to the stability of timber ownership."

Much has been said and written of late to show the peculiar character of forest property, as calling for special classification. If, it is pointed out, the uniform general property tax rate is applied upon standing timber at actual value, this annual burden of taxes prepaid in advance of income may easily absorb from fifty to one hundred per cent of the stumpage value of the timber at the time of cutting." 3 This stage is assumed to be in the remote future, upon the arrival of the stand at the degree of maturity most favorable to its commercial utilization.

But, as graphically demonstrated by a monograph on "The Cost of Growing Timber," by the well-known authorities on lumber, R. S. Kellogg, and E. A. Ziegler, of the Pennsylvania state forest academy, published by the American Lumberman, Chicago, in 1911, annual taxes, at the assumed average rate of one per cent of actual value (which according to the government report, heretofore cited, is more than twice what the average forest pays), are a minor factor in the economic cost. Other items-land and stocking, administration and protection, and especially interest on the capitalmake up from two-thirds to three-fourths of the final cost.

The problem to be solved, therefore, is practical rather than theoretical. The vast bulk of existing timber holdings are virgin or original growth, as against cultivated or reforested areas. The great plan needed, then, is one which will fit our fiscal formula to forest properties of enormous present value. The equivalent in other fields of industry enjoys no such quasi-exemptions as are proposed by advocates of special classification of natural resources of this species.

The property tax is an existing facta condition and not a theory. With the development of our multitudinous interests, a more elastic policy will doubtless be evolved, but in too hastily seizing altruistic principles for the benefit of posterity, we may overlook a more pressing duty toward society of today. To equate present burdens, to offset inequalities, which promote the unlawful gain of the few, is the social task of the hour.

The private ownership in many states of large bodies of matured timber, costing but little to produce, yet constituting taxable property, seems indeed a serious "obstacle", in the judgment of expert foresters, such as Dr. Herman H. Chapman, to the adoption of a long-sighted transitional program of reform which he so admirably sketched last year at the Bretton Woods conference. Truly, as this authority declares, "a gulf intervenes between the recognition of these general principles and their application in practice a gulf intervenes which has so far not been successfully bridged."

Prof. H. H. Chapman, in Proc. 14th conference National Tax Association, p. 39.

Exceptional instances are the general forest conservation law of Louisiana (Act No. 232 of 1920).

Revaluation is then desirable, whether forest properties are to remain in statu quo or to be subjected to new treatment. Automatic adjustment or merger of property tax and yield tax upon severance, allowing credit at that stage, for previous annual payments, through interest-bearing certificate of indebtedness, is a practical plan proposed by Mr. L. S. Murphy of the Forest Service. We shall not be "out of the woods," speaking literally as well as metaphorically, until that ideal point is reached-a consummation unhappily as yet quite remote. In the meantime, while striving constantly for approved reform in procedure under constitu tional amendment, due effort should be made toward uniformity under present conditions.

Commercial cruises, such as the government employs in the forest reserves and the state of Washington and Louisiana have found practicable and effective, may achieve the double benefit of smoothing out accumulated inequalities and paving the way for sound economic reform.

Conclusions

Our examination of systems now in vogue for the taxation of natural resources is far from exhaustive and satisfactory; but even a cursory review of the statutes and practices in the various sections of the country disclose certain elements of strength and many points of weakness.

Our tentative conclusions from the study are:

1. Natural resources, because of their ancient origin and social importance, are largely a common heritage of the race; and because they are a wasting, non-reproducible asset, their gradual depletion works an irreparable loss. Hence, in the ascertainment of the peculiar and often hidden values of this species of property, modern scientific research and assistance is requisite, and to that end the periodic appraisal of all privately owned natural resources by competent, expert and disinterested appraisers and engineers is earnestly recommended.

2. The ad valorem system, under a constitution permitting classification of subjects, while not wholly adequate in the case of many ores and precious stones and exceptional classes of natural deposits, is an indispensable feature of fair taxation of the major mining properties, such as coal, iron, copper, zinc and bauxite, and of all non-operating mines.

3. The ad valorem system, modified and varied to avoid the undue burdening of cultivated timber and reforestation projects, is also a desirable method of taxing virgin and matured timber or timbered lands.

4. The severance tax and kindred exactions is an unexcelled method for taxing developed oil and gas properties and mines engaged in the extraction of precious stones and ores not readily susceptible of admeasurement in situ, though it is doubtful whether it should ever be the exclusive tax. Aside from the classes here referred to, the severance or output tax, if employed at all, should be merely nominal and supplemental.

5. No severance tax, as a revenue measure, should be imposed from motives of conservation merely; but this worthy policy should be worked out through other legislative channels.

CHAIRMAN MCKENZIE: Mr. L. S. Murphy of the United States forest service, department of agriculture, has been compelled to leave, and he has left a paper of three pages, with the request that it be read at the end of Mr. Vaughan's report. What is the pleasure of the conference?

C. P. LINK of Colorado: I move that we hear the paper.

(Motion seconded)

CHAIRMAN MCKENZIE: You have heard the motion; is there any discussion?

(No response)

(Ayes and noes)

(Motion carried)

SECRETARY HOLCOMB: (Reads the following paper by Mr. Murphy)

STATEMENT OF L. S. MURPHY, U. S. FOREST SERVICE,
CONCERNING SENATOR VAUGHAN'S PROPOSAL
TO LEVY A SEVERANCE TAX UPON ALL
NATURAL RESOURCES

If I understand Senator Vaughan's proposal correctly it is that he would levy, in addition to property and all other ordinary taxes, a super-tax upon natural resources at the time of their severance from the soil, in order that the public may get the benefit of the unearned increment accruing especially to owners of such property. It is not my purpose to discuss the merits or otherwise of such a tax, as a general proposition. I should, however, like to call attention to the need for properly safeguarding the levy of such a tax, where it is made to include standing timber.

It is extremely difficult, if not impossible, to draw the line between forests as a natural resource and forests as a crop. The one may merge almost imperceptibly into the other, particularly when

certain methods of cutting are employed. You are doubtless aware that the trees growing in the virgin forest vary considerably in size, from the smallest to the largest, even where all of the trees may be of marketable size. Let us say that the smallest sized tree that it would pay the lumbermen to take out under a given set of circumstances would be one containing twenty-five feet, board measure, whereas the average sized tree with which it was associated would run from 130 to 150 bd. ft. The difference in size would not indicate necessarily any great difference in age between the smaller and larger sized trees, but merely that the smaller had been at a disadvantage in securing enough growing space to enable it to develop normally. On the other hand, it is characteristic of much of this small sized timber that when some of the surrounding trees are removed, giving it more light and growing space, it will, notwithstanding its advanced age, start in and grow at a normal rate and ultimately attain a normal average size. Accordingly, it is good forestry practice, where circumstances will permit, for the lumberman to leave these smaller sized trees standing, when making a first cut in a virgin forest, because after a period of fifteen to twenty-five years, they can come back and make a second cut, gaining the advantage from the growth which has taken place in the meantime.

It must be understood that whenever this practice is employed it necessitates what amounts to an investment in forestry on the part of the timber land owner. This investment consists, (1) in the added cost incident to lumbering by this method, taking care to avoid injury to the trees which are to be left; (2) in foregoing a present income, which might be derived through cutting and utilizing the smaller timber as well as the larger trees; (3) in the risk involved, in that the trees which are allowed to remain standing are subjected to danger of destruction by fire, windstorm and the like.

Suppose now the severance tax, which Senator Vaughan is proposing, should be applied to standing virgin timber, without any limitations. The timber land owner about to cut his virgin forest will be confronted with this situation: if he cuts it according to forestry methods, leaving the smaller timber to grow, when he comes to cut the remainder of what originally constituted his virgin forest, assuming the 25 bd. ft. tree grows sixfold in size, to 150 bd. ft., he will be obliged to pay a sixfold greater tax on this portion of his forest than would be the case if he should strip the land clean in the first place. There is little doubt but that the average timber land owner, confronted by such a situation, would elect to strip his land at the first cut. This would not only be poor policy for the lumberman himself, but it would be poor policy for the state to impose a tax burden making such action a logical alternative.