FOREST TAXATION IN THE UNITED STATES 411 
has been held by the taxpayer for over 2 years. Naturally the deduc- 
tion for capital losses is limited in the same manner. This limitation, 
which was first introduced into the revenue laws in the act of 1921 for 
the purpose of removing an artificial obstacle to transfers of capital 
assets, has the effect of making forest growing an attractive invest- 
ment from the tax standpoint for capitalists whose income is subject 
to high surtaxes. At the 1932 rate, any person with a net income of 
more than $16,000 is subject to taxes and surtaxes of 13 percent or 
more on the excess of income over $16,000. In 1929 about 200,000 
individuals reported net incomes in excess of that figure (224, Statis. 
1929, table 3). Even in 1930, when the effect of the current depression 
had already begun to be felt, more than 60,000 persons reported net 
incomes of $25,000 or over (224, Statis. 1980, p. 5). To individuals 
of these high income groups there are few methods of obtaining relief 
from high surtaxes. Securities which are exempt from surtaxes are 
limited in supply and offer a low yield. An investment in land which 
is restocking to forest or which may be economically restocked may 
offer a very attractive opportunity to the investor with a large 
income. It enables him to invest his capital without realizing any 
current taxable income. Not only does he avoid the taxes on the 
current income which would have normally been realized on this 
capital, but he gains still further tax reduction because the State and 
county taxes and other carrying charges on the growing forest increase 
his allowable deductions from other income. It should be noted that 
such reductions in taxable income come out of the highest surtax 
bracket, thereby giving the maximum benefit. When the lands are 
eventually sold and the value which has accrued over a period of 
years is realized, the tax on the income is limited to 12% percent. 
Therefore, if lands can be purchased for growing timber on such a 
basis as to offer fair returns to the investor when the trees reach a 
size profitable for cutting, an investment in such lands has special 
advantages to the man whose income is so large that relief from high 
surtaxes is desired. Of course, it is true that the investor has no 
guarantee that this favorable provision will be retained in the income- 
tax law, although it has remained unchanged in substance since its 
incorporation in the 1921 revenue act. Also, the present high surtax 
rates on large incomes may not be permanent. However, if income- 
tax rates are low at the time the forest matures, the owner will not 
be restricted to direct sale in order to get the advantage of a moderate 
rate of taxation but can either liquidate through manufacture of the 
timber and sale of the land, or make the forest a continuous enterprise 
with annual or periodic yield. 
STATE INCOME TAXES 
The direct effect of the State income taxes on forest property is at 
present slight, because of the relatively low rates. A few States tax 
incomes of corporations only. There were, on January 1, 1933, 20 
States with personal income-tax laws, 19 of which appear to be 
sufficiently broad in scope to include income from forestry (159, pp. 
174-177). ‘The rates in nearly all of these States are progressive, but 
they stop at limits varying between 3 and 7 percent, except in Wis- 
consin, where there is a surtax of one-sixth of the normal tax after 
certain deductions. In determining net income under these laws 
