412 misc. PUBLICATION 218, U. 8. DEPT. OF AGRICULTURE 
allowances are made for depletion of timber on principles generally 
similar to those embodied in the Federal income-tax law. The only 
State which has any special provision relating to forestry in its 
income-tax law is Wisconsin, where it is provided that costs of 
establishing, maintaining and protecting forest plantations on lands 
registered under the Wisconsin special forest-tax law as ‘‘forest-crop 
lands’? may be charged as current expense.* As pointed out in the 
discussion of the proposal to insert a similar provision in the Federal 
income-tax law, this exceptional treatment of a capital expenditure 
amounts to a subsidy to forestry. 
The indirect effect of State income taxes on forestry is beneficial. 
These taxes were generally adopted in order to make possible the 
reduction of taxes on real estate. While this result was not always 
accomplished, it is probably true that the property-tax burden on real 
estate would have increased more rapidly had it not been for the use 
of income taxes. In 11 of the 20 States with personal income-tax 
laws, the receipts from this tax contribute directly to the support 
either of local units of government or of the public-school system. 
In the other 9 they are treated strictly as revenues of the State 
(159, pp. 175-177). 
GENERAL 
At the present stage of development, taxation of income, whether 
by the Federal Government or the States, has but little direct effect 
on the business of holding or growing forests. The Federal income- 
tax system has been shown to favor forestry as an investment for 
wealthy individuals. In general the income tax is the ideal method of 
taxing forests from the standpoint of the forest manager and owner. 
Taxes are proportional to net income and do not have to be paid 
except in years when income is realized in cash or its equivalent. 
There is no piling up of interest on taxes paid in advance of income 
and no problem of financing such advance tax payments. The only 
difficulties on the side of the owner are in the accounting field. Ade- 
quate records must be kept to substantiate depletion deductions, both 
as a base for determination of profit or loss from sales of timber and 
forest lands and to show net income within the meaning of the tax 
statutes. From the public viewpoint, the inequalities in yield of 
income taxes between different years make them ill adapted as a 
principal source of meeting. public reyenue requirements. In years 
of depression revenues fall rapidly, and it is a hardship on the public 
to make up the losses by sharply increasing rates just when additional 
taxes are most burdensome. If income taxes are relied upon as the 
chief source of revenue for any unit of government, some plan is 
called for by which the sum available from this source each year may 
be stabilized by building up a reserve in years when the yield is 
heavy to be drawn upon in years when the yield is light. Such plans 
have been proposed but have never been tried (221). There appears 
to be no insuperable obstacle to the satisfactory solution of this 
problem for the larger units of government, but it is generally agreed 
that the income tax is not well adapted to the use of units smaller than 
a State or Federal Government. However there is nothing to prevent 
a State from using income-tax revenues to give direct aid to local 
units of government or to defray a part of the cost of public schools 
8 Wisconsin Laws, 1929, ch, 350. 
