78 • Wetlands: Their Use and Regulation 



would be materially harmed by the drainage.'^ 

 These findings were to be made on a farm-by-farm 

 basis and to continue for 1 year unless a Govern- 

 ment agency offered to purchase or lease the wet- 

 land. If such an offer was made but rejected by the 

 landowner, the prohibition was to terminate 5 years 

 after the Secretary of the Interior's finding. 



In 1977 President Carter issued Executive Order 

 11990 requiring all Federal agencies to minimize 

 loss of all types of wedands. As a result, ASCS cost- 

 sharing for draining wetlands was eliminated in 

 1978. Also, SCS employees were limited officially 

 in the technical information they could provide 

 about wetland drainage.' More recent regulatory 

 changes have been made that give SCS "additional 

 flexibility in providing technical assistance to alter 

 wedands when denial of assistance could lead to det- 

 rimental consequences on soil and water resources 

 or on human welfare and safety. "° The rules 

 strengthen the requirements to utUize all practicable 

 measures to minimize impacts on wedands resulting 

 from SCS-assisted projects.* 



When private drainage occurs, information by 

 SCS may improve the efficiency of drainage. In ad- 

 dition, if SCS designs the drain, there is an oppor- 

 tunity that the constructed drain will affect only part 

 of the wetlands while preserving the remainder. 

 Technical information could aid in protecting wet- 

 lands in this way. Regardless of stated policy, how- 

 ever, it will continue to be difficult to control ef- 

 fectively the distribution of technical information 

 about drainage. 



Comments about the impacts of USDA cost- 

 sharing on drainage varied. Those feeling that the 

 impact was substantial cited the subsidy, stating 

 that its elimination has to have an impact. Others 

 feel that Federal and State governments still sup- 

 port drainage only in attitude. Information collected 

 from OTA case studies suggests that Executive 

 Order 1 1990 has probably not had a significant af- 

 fect on drainage (2). 



«I6 U.S.C. S.590, p. 1. 

 '7 CFR, pt. 650.26. 

 '7 CFR, pt. 650-Summary. 



^Federal Register, vol. 44, No. 147, July 30, 1979— 650.26(c) (2) 

 (i) (B) and (C). 



Present Policies That Reduce Costs of 

 Wetland Conversion 



Federal Income Tax. — Numerous studies have 

 pointed to Federal income tax writeoffs for all types 

 of development activities as an important incentive 

 to farmers to clear and drain wetlands for agricul- 

 tural use. These provisions enable farmers to shift 

 a portion of the investment costs of wetlands con- 

 version to the general taxpayer. The incentives 

 include: 



• tax deductions from taxable income for land- 

 clearing costs of up to $5,000 or 25 percent 

 of taxable income (whichever is less); 



• tax deductions of up to 25 percent of gross 

 farm income for drainage expenses (expenses 

 in excess of this allowable limit may be de- 

 ducted in subsequent years); 



• investment tax credit equal to 10 percent of 

 the installation cost for drainage tile. This is 

 a direct reduction of tax liability; 



• tax deductions for depreciation on all capital 

 investments necessary for any type of farm- 

 ing, including draining and clearing for bot- 

 tom land farming, up to 5.5<t per dollar in- 

 vested if the investments have an expected life 

 of 7 years of more; and 



• deductions for interest payments. 



Several researchers have provided examples of 

 how these tax provisions can lower the cost of wet- 

 land conversion to farmers. Using 1978 cost esti- 

 mates developed by Shulstad and May (5), Shab- 

 man (4) has calculated that the application of tax 

 provisions could lower the cost of bottom land clear- 

 ing in east Arkansas by about 30 percent (e.g., from 

 $311.67 to $2 18.1 7/acre). Shabman further calcu- 

 lated in a hypothetical example that a farmer in a 

 30-percent tax bracket, who financed this conver- 

 sion with a 20-year loan at a 10-percent interest rate 

 effectively could reduce that interest rate to 7 per- 

 cent and his annual loan payments from $36.60 to 

 $20.59 over the period of the loan, "a significant 

 (44 percent) reduction in cash-flow needs." 



Barrows, et al. (1), performed a similar analysis 

 of the effects of some tax policies on drainage costs 

 in Wisconsin and came to similar conclusions. 

 Without the tax incentives — the soil- and water- 



