FOREST TAXATION IN THE UNITED STATES 603 
DIFFERENTIAL TIMBER TAX 
THE PLAN IN GENERAL 
To meet the situation in States where there might appear to be 
obstacles to the acceptance of the preceding plans, there is offered a 
third plan, which has the outstanding merit of extreme simplicity. 
The object of the differential timber tax is to lower the tax on timber 
which is being grown or held in reserve to a point which would make 
proper allowance for the necessary deferment of income in the typical 
case and would remove the tax incentive to nonforestry use. Owing 
to the extent to which the conditions vary from the typical within a 
given State, the adjustment offered by this plan would in most cases 
cepart more or less from the standard of an income or net-yield tax. 
However, this adjustment could be accomplished with only a slight 
modification of the property-tax system. 
In brief, the plan leaves the land subject to the ordinary property 
tax but classifies the timber for differential assessment. Separate 
assessment of land and timber values would of course be necessary. 
A fixed percentage, definitely stated in the law, would be deducted 
from the assessed value of the timber, determined in the ordinary 
way, in order to obtain the taxable value to which the regularly de- 
termined tax rates would be applied. The determination of this per- 
centage, which may for convenience be called the ‘‘reduction factor’’, 
would be the principal problem confronting the legislature in enacting 
a law to carry.out this plan. In developing the detailed aspects of 
the differential timber tax, it will be convenient to treat separately 
the second-growth and the old-growth forests. 
SECOND-GROWTH FORESTS 
The reduction factor for all second-growth timber within a State 
would be a uniform percentage of the assessed value. It should be 
obvious that no such reduction could result in a perfect adjustment for 
every individual property. The most that could be accomplished would 
bea fair adjustment for thegeneral run of typical forests without too 
ereat discrepancies in the more exceptional cases. Even for the 
general run of forests, there is no way of determining exactly what 
the reduction factor should be. Precise determination would require 
exact information as to a number of controlling factors. These 
factors are value of land, property tax rate, interest rate, rotation, 
cost of regeneration, annual expense, intermediate income, and income 
cycle. If the property tax rate is assumed to be constant, it is pos- 
sible to construct a formula which would give, under specified con- 
ditions as to all of these factors, the precise reduction factor which, 
if applied to timber only, would result in the same tax burden as an 
equivalent income or net yield tax. Such a formula has been devel- 
oped and is presented in part 3 (formula 17). 
It would be quite impracticable, however, to use such a formula 
in the actual operation of this plan. Ascertaining the values of the 
several factors required would be a very difficult task, requiring 
laborious investigation of present facts and more or less arbitrary 
assumptions as to future trends. The complexity of the formula 
itself is a serious obstacle. Moreover the use of such a formula in 
the application of the plan is not necessary. 
