FOREST TAXATION IN THE UNITED STATES 535 
unprofitable to cut, otherwise the decision will be for immediate exploi- 
tation. 
It is an obvious corollary from the foregoing principles that what 
controls the owner’s decision as to the time of cutting is future carrying 
charges, not costs already incurred. Past costs—original purchase 
price, interest on the investment, taxes already paid—have nothing 
to do with the question. All that is water over the dam. In the 
example just assumed, it may be that the original cost of the forest, 
with all carrying charges to date, is $125,000. ‘The venture has thus 
been a losing one. But whichever cutting date is the more profitable, 
as determined by future carrying charges, will still be the one chosen. 
There will be a loss, of course, but a different decision would simply 
mean a larger loss. On the other hand, if the total cost to date were 
only $50,000, the choice of when to cut would be thesame. A profit is 
to be obtained in any event; the cutting date chosen will be that which 
offers the maximum profit. 
The foregoing analysis may be given a special application by assum- 
ing that all other carrying charges, such as interest, protection, and 
administration are fixed, as to a considerable extent they actually 
are—interest at the prevailing market rate, and the other charges by 
conditions not subject to much control. Inquiry may then be made 
as to the effect of changes in taxation. Referring again to the above 
mathematical example, suppose that all available information indi- 
cates a probable increase in the realizab!e value at the rate of 4.8 percent. 
The owner will choose to cut at once. Butif the tax rate were reduced 
from 1.5 percent to 1 percent, making the total carrying charges only 
4.5 percent, the decision would be reversed. Again, if the expected 
rate of increase in realizable value were 5.2 percent, it would be profit- 
able to postpone cutting. If now the tax rate were increased to 2 per- 
cent, making the total carrying charges 5.5 percent, the owner would 
decide upon immediate cutting. Taxation may thus, under certain 
circumstances, be the controlling factor in determining the time of 
cutting. But its influence operates only within definite limits. If 
(returning to the mathematical example) the forest property is not 
expected to increase in value at a rate faster than 3 percent, the choice 
will obviously be for immediate cutting, and that would still be the 
choice even were the forest entirely relieved of taxation. 
The validity of the principles thus developed would scarcely seem 
open to question. In their application, however, there may occasion- 
ally arise counteracting influences that will prevent the owner arriving 
at the decision that would normally be to his best interest. Thus 
taxation may sometimes, as in periods of extreme depression, force 
cutting which the owner would not otherwise find advisable, as the 
only possible source of money with which to pay the annual taxes. 
Of course, if the owner has no other resource, he must realize on part 
of his timber to pay his taxes, whether light or heavy, unless he is to 
be excused from taxes altogether. So far as the speculative holding 
of timber is concerned, this is not a condition peculiar to timberland 
owners. Ordinarily if timber values are expected to increase at a 
rate faster than the sum of interest, taxes, and other carrying charges, 
most owners would find some means of raising the annual carrying 
charges rather than to lose money by premature cutting. Failure of 
timber values to promise an increase at a rate greater than interest 
and other carrying charges (not including taxation) will thus be 
recognized as the cause of cutting, rather than the burden of taxes. 
