FOREST YIELD TAXES 13 



is the current low rate of interest on capital funds. The higher the 

 rate of interest the greater is the advantage in postponing any re- 

 quired payment, whether the payment would be made from savings 

 or from borrowed funds. Current low rates of interest, therefore, 

 may be considered a general factor reducing the advantages of 

 classification. 



Another consideration that has been important in recent years is 

 the high level of income enjoyed by many forest landowners and the 

 high rate of income tax that must be paid on these incomes. Any 

 legitimate deduction that can be used to reduce high-bracket-income 

 taxes seems to be welcome. The annual payment of property taxes 

 on forest lands is such a deduction. Although the current payment 

 of property taxes will result in a smaller income-tax deduction at 

 the time of harvest than would be available if large yield-tax pay- 

 ments were made at that time, many owners prefer to take advantage 

 of an assured saving at the present time rather than count on a pros- 

 pective saving at a later date. They reason that by the time the 

 timber is ready for harvest, values and income may decline to a point 

 where income-tax payments will be relatively less important than 

 they are at present ; or that tax rates may be reduced by that time. 



A REAPPRAISAL OF THE YIELD-TAX PRINCIPLE 



It is possible that those who have expressed the greatest disappoint- 

 ment with yield-tax laws in operation have expected too much of 

 them. These high expectations in turn may have come from placing 

 an exaggerated importance on taxes as an obstacle to the practice of 

 forestry. The limitations of the yield tax must be considered if a 

 fair evaluation of the results of these laws is to be made. 



The yield-tax principle received its greatest support at a time when 

 the problems of cut-over lands and tax delinquency seemed to be among 

 the most important problems in forestry. This is- evident from the 

 statements of policy in many of the yield-tax statutes and from the 

 exclusion by many of the laws of merchantable timberlands from eli- 

 gibility for classification. Today it is recognized that the greatest 

 opportunities for forestry are not on the lands that have been logged 

 destructively but on lands that retain a growing stock sufficient to 

 produce continuous forest crops. It is also recognized today that 

 although taxes may be an obstacle to the practice of forestry, they 

 are not the only obstacle. 



Other factors that are discouraging to forestry are the risk of loss 

 from fire, insects and disease; the risk of future markets for forest 

 products; the apparent inability of some timberland to produce a 

 return on investment comparable to the return that could be obtained 

 from other forms of investment; economic pressure for current in- 

 come ; and a lack of knowledge as to the best way in which to manage 

 forest land at a profit. If all these factors are accepted as obstacles 

 to forestry, it is clear that the removal of just one — inequitable taxa- 

 tion — will not be sufficient to stimulate better forest practices. Other 

 factors must also be favorable. 



In appraising the results of the yield-tax laws it must be recognized 

 that they were not intended primarily to encourage forest practices 

 on stands containing mature timber or stands containing large vol- 



