152 FOREST VALUATION 



to forego taxing the full final value C and confines its tax to 

 present value A, in return for which concession the owner 

 agreed to undertake the growing of the crop. Past errors in 

 taxation will ordinarily have to stand. 



162. Scientific Taxation : Income or Products Tax. The tax 

 on income, correctly applied, is the mathematical equivalent 

 of the tax on capital, provided the controlling rate of interest 

 can be agreed upon. But the same difficulty is encountered 

 in computing this tax as was detected in comparing taxes on 

 forests A and C. Table II shows income taxes purporting to 

 represent the equivalent of 2 per cent on capital value, yet vary- 

 ing from 24.5 per cent to 38.4 per cent of the gross income. 



Net cash income from either form of forest, A, B or C, is the 

 same, provided interest on expenses is neglected, and totals 

 $161.99 per acre. The "net" income corresponding to the capi- 

 tal value is diminished in cases A and B by deductions for 

 interest, which accounts for these discrepancies. The question 

 is, will such deductions be permitted in levying an income tax 

 on present incomes? 



This question is open to the same solution as that proposed 

 for the taxation of capital values. If the income tax is to be 

 substituted for an annual capital tax on standing timber, the 

 full rate can be levied without injustice. But if the income is 

 not available until a distant future period on crops still immature, 

 the lesser rate should be promised and contracted for as a future 

 system of taxation binding on both parties. Future expenses 

 must be considered in a scheme of taxation. Past accumula- 

 tions of interest "cost" may be successfully ignored. 



This view is confirmed by the attitude of the U. S. Collector 

 of Internal Revenue in interpreting the income tax on corpo- 

 rations dealing in timberlands.* The ruling reads: "In cases 

 where lands are purchased for cash, the cost being the proceeds 

 of the sale of the capital stock of the company, the earning 

 value of the money invested, that is, the interest which might 

 have been received on this money had it been otherwise employed, 

 cannot be added to the initial cost of the land to represent its 



* Letter, Jan. 6, 1914, to P. S. Ridsdale, Sec. American Forestry Association. 



