580 MISC. PUBLICATION 218, U. S. DEPT. OF AGRICULTURE 
a forest is converted to a shorter income cycle, ultimately reaching the 
regular property tax level for an annual sustained-yield forest. 
This end might be accomplished by any one of several possible 
means. As the simplest and most practicable device, it is proposed 
that this result be accomplished by merely omitting the expected 
costs other than taxes from the expected value increment. Thus, 
item (2) above may be subdivided into (2, a) taxes and (2, 6) other 
costs. The expected value increment less item (2, 6) may for con- 
venience be called the ‘‘adjusted value increment.” It is proposed 
that this adjusted value increment (rather than the entire value 
increment) be exempted from the property tax. Under a property 
tax thus adjusted, the adjusted value increment would be gradually 
eliminated and the full property tax burden restored as the forest 
passed from deferred yield to annual sustained yield. 
It must be recognized that this proposed adjustment of the prop- 
erty tax is in the nature of a compromise, in that it does not com- 
pletely counteract (as would the exemption of the entire expected 
value increment) the tax disability under which a deferred-yield for- 
est suffers as compared with one on an annual sustained-yield basis. 
In the latter type of forest each year’s expenses are met by the year’s 
income, and expenses do not therefore involve investment which 
must be carried forward with compound interest. In the case of the 
deferred-yield forest, on the other hand, expenses must be incurred in 
advance of the receipt of income, requiring investment which must 
be carried forward with compound interest until income is received. 
The adjustment of the property tax as composed includes no adjust- 
ment on account of such advance payment of expenses other than 
taxes and so fails to equalize completely between the deferred-yield 
forest and the annual sustained-yield forest. 
It should be clearly understood that the income or net-yield tax 
also fails in precisely the same way to make a perfect adjustment of 
the tax burden of the deferred-yield forest. When expenses are in- 
curred in advance of the receipt of income, the expenses themselves 
are of course deducted from the income when later received, but no 
deduction is allowed on account of the (constructive) interest accu- 
mulated on such advance payments. 
The fact that existing personal income taxes permit deduction of interest 
actually paid by the taxpayer to others is beside the present point. The owner 
of a property pays interest because his property has been obtained in part by 
means of borrowed money. In other words, the equity in the property is divided 
between the nominal owner and his creditor. While the nominal owner is per- 
mitted to deduct interest paid, the creditor is required to pay income tax on the 
interest received. Considering the property as a whole, there is therefore allowed 
no deduction on account of interest, any more than would be the case if the 
entire property were in one undivided ownership. The income tax which is 
being considered in the present analysis, as has been emphasized heretofore, is 
a tax upon the income or net yield from the property as a substitute for the 
property tax. Under such an income tax no deduction for interest paid would 
be permissible. 
Conformity to such a widely accepted standard of taxation as the 
income tax is a decided advantage of the adjusted property tax here 
suggested and goes a long way to justify the failure to equalize per- 
fectly the tax burden between deferred-yield and annual sustained- — 
yield forests. 
Finally, a positive advantage of the modification proposed is that 
serious administrative difficulties are avoided by eliminating costs 
