50 MISC. PUBLICATION 218, U. 8. DEPT. OF AGRICULTURE 
_ The tax ratio, as previously defined, is the ratio of taxes to net 
income before taxes, both compounded or discounted, as the case 
may be, to the same point in time, and both covering the same income 
cycle. For the present, the income, Y, the regeneration cost, C, and 
the taxes, X, are considered as the only items of income and expense 
connected with the forest. Incomes from thinnings, and expenses 
for administration, protection, etc., are brought into the analysis at 
alater point. The tax ratio, = in the present simplified case is there- 
. xX 
fore equivalent to el 
_ Underlying the entire discussion of tax ratios is the general assump- 
tion that only one set of conditions determines present worth in each 
case and that these conditions are fulfilled by that case. 
INCOME TAX 
In discussing the income tax as compared with the property tax, 
confusion may be avoided if it be kept in mind that reference is not 
to the United States Federal income tax. In this connection, an 
Income tax is regarded as a substitute for the property tax and as 
applied to properties rather than to persons. Consequently it is 
assumed in this discussion that each property is taxed as a separate 
entity and that the tax is calculated with respect to that property 
alone, regardless of the financial situation of the owner or any limita- 
tion on his equity in the property. Itis therefore necessarily assumed 
that this tax is levied at a flat rate (not at a progressive rate). It 
is also assumed that there are no other taxes, or that all other taxes 
are included in the expense items without distinction from the other 
expenses. Such an income tax on property might be called a tax on 
net yield in order to distinguish it from the personal income tax. 
It should also be noted that the income tax or tax on net yield is 
principally of theoretical interest, as setting a standard by which the 
tax burden under other tax systems may be judged. The objections 
of a practical nature to the direct substitution of an income tax on 
property for the property tax appear to be insuperable. The ac- 
counting necessary to a proper determination of net income from the 
irregular forests that prevail in this country would be too difficult 
for most owners, and the revenue from such a tax would be too 
irregular to meet the needs of government. 
For an annual sustained-yield forest or a depletion-yield forest, the 
tax ratio of the income tax is always equal to the rate of the income 
tax. Since the income tax, assuming a constant rate, always takes 
the same proportion of each year’s income, the discounting or carry- 
ing forward to the same point in time of both taxes and income before 
taxes does not affect the ratio of one to the other. In terms of the 
interest rate, p,and the corresponding property tax rate,7, the income- 
tax rate, and therefore the tax ratio of a forest yielding an annual 
income, is aes . This rate is equivalent to the property tax rate, r, 
in the sense that it gives the same tax when applied to an annual 
sustained-yield property. 
In the case of a deferred-yield forest, if there were no expenses con- 
nected with its regeneration, maintenance, and improvement, each 
item of income received would be net income before taxes. 
