FOREST TAXATION IN THE UNITED STATES 49 
By expected future returns are meant returns which buyers and 
sellers are reasonably sure to obtain from an average of a large num- 
ber of properties of similar character, and over a period of years which 
includes one or more complete business cycles. The returns from 
individual properties in certain years will, of course, vary from such 
an average. These variations constitute profit and loss. Buyers 
and sellers, however, cannot predict variations—in other words, 
buyers and sellers cannot justifiably introduce profit and loss into a 
calculation of value. Therefore, this section will not introduce 
profit or loss into any of its demonstrations or examples. 
Interest is taken in its pure economic sense as a payment simply for 
waiting and is symbolized 7, as, for example, 3 percent, or 0.03 when 
expressed as a decimal. Risk and all other elements of the so-called 
interest rate, as sometimes employed in popular discussion and busi- 
ness calculations, are excluded. It is assumed that noninsurable risk 
is allowed for in estimating the expected incomes and costs. The 
departure of the actual event from what was expected is what causes 
profit or loss, and profit and loss, as has been shown above, cannot 
be introduced into the calculation of value. 
Property taxes are assumed to be levied annually at a rate r on the 
value as of the beginning of each year, the taxes being payable at the 
end of the year. The sum of the taxes compounded at the p interest 
rate to the end of the income cycle is symbolized X. 
Income taxes are assumed to be levied on the income received during 
the year less expenses to date. Expenses are considered as accumu- 
lated without interest and written off as early as sufficient income is 
received. In computing taxable income, no allowance for interest 
paid is appropriate, since the income tax under consideration relates 
to properties rather than to persons. As a substitute for the property 
tax, the income tax would apply to all of the income from a property, 
even though a part were used to pay interest on capital borrowed by 
the owner to purchase or carry the propertv in question where the 
total equity was divided between owner and creditor. Income taxes, 
computed on net income of properties calculated in this manner, are 
assumed to be collected on the last day of the year. 
It is expected that major income Y will be received from the forest 
at the end of every n years, where n is the income cycle, and that a 
cost of regeneration C' will be incurred at the same time. The cost 
of regeneration incurred at the beginning of the first income cycle is 
regarded as part of the permanent investment, while the cost of 
regeneration incurred at any later time is regarded as an expense 
chargeable to the major income received at that time. The total 
net income before taxes for one income cycle with compound interest 
to the date of the major yield is called S. 
An assumption, not necessary to the mathematical analysis, but 
necessary to the proof that deferred-yield forests tend to suffer under 
the property tax, is that Y represents a reasonable expectation in 
excess of any regeneration cost. There are, of course, plenty of cases 
where the actual net income recewed from a forest is negative, but 
value, and hence property taxes, are based on expected rather than 
on received income, and the analysis here is hence predicated entirely 
on expected income. Expected income is, of course, positive, or the 
land would be without value. 
101285°—35——-4 
