FOREST TAXATION IN THE UNITED STATES 409 
of current expense regardless of its obvious capital character. Clearly, 
any treatment of capital investment as expense in determining taxable 
income is in the nature of a subsidy, as a sum equal to this capital 
investment thus escapes current taxation as income, and other tax- 
payers have to make up the loss in revenue. The amount of this loss 
in tax revenue is the product of the sum incorrectly treated as expense 
and the tax rate. The theoretical net gain to the taxpayer is some- 
what less than this amount, since eventually depletion allowances will 
be reduced by the amount of the capital expenditures currently ex- 
cluded from capital account, and taxable net income will be corre- 
spondingly increased. However, the increase in taxes on this account 
is so far in the future and so uncertain in amount that its present value 
is negligible. 
The present treatment of depletion is reasonably satisfactory as a 
temporary makeshift during the period in which the chief money 
income from forests is either from destructive cutting or irom more 
conservative operations which nevertheless involve material reduction 
in the existing wood capital. It is fairly easy of application and gives 
owners of unproductive forest properties the option of capitalizing 
taxes and other carrying charges, or of using them to reduce taxable 
income from other sources. While the treatment of capital expendi- 
tures is defective in that costs of natural regeneration may be charged 
off as current expense, this defective treatment is chargeable to the 
practical difficulty of determining and segregating the correct amounts 
of these capital expenditures rather than to any inconsistency in the 
law. The taxes lost are very small in amount, and the advantage of 
collecting them would be offset by the administrative difficulties in- 
volved in endeavoring to enforce the separation and capitalization of 
the items in question. 
The proposal to grant forest plantations an advantage of the same 
character by treating forest planting costs as current expense may also 
be defended on the ground that the amounts involved are small, but 
the argument based on administrative convenience does not apply. 
In fact a specific change in the income-tax law would be required in 
order to make this possible (222). The changing of the law contrary 
to sound income-tax theory in order to meet this special interest would 
be a dangerous precedent. Even if governmental aid by this method 
were otherwise des sirable, the amounts would be too small to have any 
substantial effect in encouraging forest planting and would be unequal 
as between different taxpayers. This contribution to private forest 
planting would be available only to corporations and individuals with 
current taxable income to be reduced by planting expenditures. In 
the case of individuals, the progressive rates on income would make 
the contribution larger for those with higher incomes. Under the 1932 
law, the aid would amount to 4 percent of the planting cost for tax- 
payers with net taxable incomes not in excess of $4,000, and a maxi- 
mum of 63 percent for those with net incomes of over $1,000,000; it 
would amount to 13% percent of the planting cost for corporations 
with taxable incomes. 
When annual sustained-yield forests begin to be established on a 
large scale 1t will be desirable to make provision by law or regulation 
for a change in the treatment of depletion for income-tax purposes 
applicable to such forests. Two different methods of accounting for 
depletion are suitable for sustained-yield forests. Either of these 
