40 CIRCULAR 899, U. 5. DEPARTMENT OF AGBICUI/TUBE 



of unclassified property not subject to the forestry provisions have 

 been offered the same security through, the opportunity to classify 

 their lands whenever classification might be to their advantage. 



There are two fundamental questions regarding the nature of a 

 yield-tax law : Should the yield tax provide a subsidy to forest land- 

 owners ! Should a minimirm level of forest practice be required of 

 timber owners subject to the yield tax \ 



The question of subsidies is a difficult one. Before discussing it 

 the concept of subsidy should be clarified. As the term is customarily 

 used in connection with a yield tax a forest landowner receives a sub- 

 sidy if his total tax payments, including the annual tax on land and 

 the yield tax on his harvest, are less than he would have paid under the 

 general property tax. If these two totals are equal no subsidy has been 

 granted even though the largest part of the payment has been post- 

 poned. It is payment according to the principle of an income rather 

 than an ad valorem property tax. 



The first question in relation to the problem of subsidies is whether 

 timber owners would need a subsidy if they were to practice forestry. 

 Some of .them unquestionably would — those who own land character- 

 I by such poor quality, low growth rate, inaccessibility, or other 

 factors that the returns from growing a crop of trees would not equal 

 the costs under present or prospective conditions. But a further ques- 

 tion is whether these lands shoidd be devoted to forestry for commer- 

 cial purposes. "Will the Xation need the products from these lands I 

 And could the public buy more in the form of timber production by 

 encouraging more intensive forestry on the better lands ? These ques- 

 tions cannot all be answered here, though it can be stated generally that. 

 in view of the optimistic attitude of owners who have engaged in for- 

 estry, many do not require subsidies and many would not want them. 



A second question is whether the subsidy granted through tax 

 reduction would raise many forest lands from the submarginal to the 

 marginal class so that forestry would pay its way. This would depend 

 in part on the size of the subsidy. Total abatement of taxes could 

 not raise some forest lands to the marginal level, and for many other 

 lands taxes are such a minor element in the cost-return balance that 

 tax reduction would have little effect. 



Even assuming that subsidies are needed to encourage forestry and 

 that the granting of subsidies would have the desired effect, a 'third 

 question is whether the proper way to provide such assistance is 

 through tax reduction. There are strong arguments against such 

 hidden subsidies. Their removal from the yield-tax laws would re- 

 move one objection to these laws and give them an opportunity of 

 wider acceptance. And if subsidies are needed to stimulate forestry 

 they could be provided in other and more direct ways. The advan- 

 tage of the direct method of subvention is that the public knows what 

 the real cost is and the individual who is receiving the subsidy knows 

 what he is getting. 



A further advantage in keeping subsidies out of yield-tax legisla- 

 tion is that the effect in reducing current revenues to local taxing 

 units is reduced and the net long-run effect is no reduction in revenue. 

 Any diminution of the effect on local tax revenues helps to remove 

 objection^ to the yield-tax principle and makes the administration 

 of the tax simpler. 



