406 MISC. PUBLICATION 218, U. 8. DEPT. OF AGRICULTURE 
The Revenue Act of 1926, which was made applicable to 1925, fixed 
a normal rate of 1% { percent on small incomes ($4,000 or less) and 
surtaxes up to a maximum of 20 percent applying to the excess of 
net incomes above $100,000. In addition, in the years 1924 to 
1931, the amount of the tax was further reduced by 25 percent of 
the tax on ‘‘earned income”’, as defined from time to time in the 
revenue acts. <A special reduction of 1 percent in the normal income- 
tax rates was allowed for 1929 only, giving the small incomes of 
that year the benefit of a rate of only 0.5 percent. In 1932 the 
normal rates were again increased to 4 percent and 8 percent, the 
lower rate applying to the first $4,000 of net taxable income, the 
earned-income credit was discontinued, and the personal exemptions 
were reduced. At the same time, high surtaxes were restored, the 
rates reaching a maximum of 55 percent applicable to the excess of 
incomes beyond $1,000,000. 
The income tax on corporations has had a similar history. There 
were increases in rates in 1916 and 1917, and a maximum burden 
was reached in 1918, when heavy excess- -profits taxes were imposed 
in addition to an income-tax rate of 12 percent. Beginning with 
1919 there was a marked reduction in these taxes; in 1922 the excess- 
profits taxes were discontinued, and the income-tax rate was in- 
creased to 12% percent. During the period 1928 to 1931 the rate 
was 12 porcentt with a drop to 11 percent in 1929. In 1932 the tax 
on corporations was increased to 13%; percent. More detailed 
information as to these rates may be found in the publications of 
the Treasury Department (225, 226, tables A to D). 
While the rates will undoubtedly vary from year to year, it appears 
that a fairly heavy Federal income tax must be reckoned with for 
a long period to come. 
In general, the Federal income tax is levied on incomes only 
when realized in cash or its equivalent. This feature makes it ap- 
propriate to the business of forestry, since the amount and due date 
of the tax are automatically adjusted to the irregular character of 
the income afforded by the unorganized forest properties of this 
country. However, there are some practical difficulties in the 
application of the income tax which will be discussed at this point. 
THE DEPLETION ALLOWANCE 
In the process of manufacturing lumber, pulpwood, or similar 
goods, a capital asset, standing timber, is converted to an article 
of commerce, such as lumber or pulpwood. A similar phenomenon 
takes place when coal or metallic ore is removed from the mines, 
or oil from its natural storage grounds. The reduction of capital 
assets involved in the conversion of these materials from their natural 
state is known in accounting terminology as depletion. In the 
meaning attached to income by accountants and Federal income- 
tax law, income does not include any receipts which represent the 
value of a capital asset which is thus used up in the process of man- 
ufacture. Therefore, to reflect correctly income for a definite 
period, such as a year, it is necessary to make allowance for this 
depletion. In the case of a lumber ‘business, the depletion for a 
given year is the stumpage value of the timber felled during that 
year. In other words, to determine the net taxable income of a 
lumber manufacturer owning a timber supply, there is deducted 
