PRACTICAL FORESTRY IN THE PACIFIC NORTHWEST PROTECTING EXISTING FORESTS AND GROWING NEW ONES, FROM THE STANDPOINT OF THE PUBLIC AND THAT OF THE LUMBERMAN, WITH AN OUTLINE OF TECHNICAL METHODS TEXT

under the present system of destroying the taxable source. 2. Sustention of present revenue to the highest degree compatible with permanence. 3. Assurance that the owner will do his fair part to make the land productive. 4. Assurance to the owner in return that future action by the community will not confiscate all profit resulting from his effort. 5. Division of risk, so both owner and community will seek highest production and safety from fire. 6. Demonstrable justice to all concerned, rather than subsidy which, while doubtless warrantable to secure the public good, affords less precise basis of legislation at the present time. 7. Simplicity in adoption and operation. A SUGGESTED SOLUTION These requirements can be met by legislation, following constitutional amendment where necessary, providing that where the owner of cut or burned-over land will contract with the State to insure reforestation and protection for a specified term of years, the State shall notify the county assessor that the land is separated for taxation purposes from any forest growth thereon. The land may continue to pay a fair dependable tax, but the crop shall not be taxed until harvested. To the end that cutting of standing timber shall be conducted so as to place the land in the best condition for reforesting, uncut forest land should be subject to examination and similar contract, and the separate classification for taxation should take effect within a year after the timber is removed in compliance with the contract. This would mean that when the owner of deforested land chiefly valuable to the community for forest production agrees to make it produce, he shall be taxed not on his effort but upon the results of his effort, and then exactly as other producers are taxed upon their results. He may pay tax upon his land, as other land owners do, upon its actual value, but without this value being enhanced for taxation purposes by reason of any crop thereon. COMPARISON WITH PRESENT SYSTEM IN RESULTS The community would get no less tax revenue, but presumably more, than it does under the present system. In either case the owner will really pay annually only upon the land value, not upon the growth; the only difference being that under the proposed system he would not be asked to, while under the present system _either there will be no growth to tax, or, if there is, he cannot afford to pay and the land will revert_. It must be borne in mind that while cut-over land is actually being held under the present system, it has seldom grown anything yet. No expense has been incurred to establish a crop, accidental growth is almost always destroyed by fire because it does not pay to protect it, and if it is not so destroyed it has not yet been accorded the expectation value which the assessor will be obliged to recognize in the early future if he really observes the present law. The inevitable tendency of the present system is continuance to pay on the land with speculative value for purposes other than forestry but _abandonment of land valuable only for forestry, with destruction of the forest growth in either case_, by purpose or negligence, because it means added cost of holding with no possibility of profit. Since the owner cannot be compelled to grow timber to be taxed at his net loss, no timber tax at all will be received by the community and its annual land tax will be confined to land worth holding without timber for purposes other than timber growing. Under the proposed system, the latter class would pay the same annual tax, the annual tax revenue from strictly forest land would be greater, and in addition to both would be the future yield tax upon the crop. AN OBJECTION MET A possible superficial criticism may be that, leaving the land out of consideration, the proposed yield tax at a personal property valuation of the crop means that but one year's tax is to be paid upon the timber. The fallacy of this, however, will be seen when it is remembered that it is a crop, having been produced from nothing by the owner, since his acquisition of the land and while he was paying taxes upon his land upon its value for productive purposes throughout the entire period just as any other crop grower loes. _It is not unearned speculative increment._ To tax it annually is exactly equivalent to taxing an agricultural crop 50 times during its growing period. The proposed plan does tax the annual production fully, although not until the crop is produced, for taxing its full value when grown is the same as taxing each year the increment added since the preceding year. If it is worth $150 an acre, after 50 years from seed, a 3 per cent yield tax would be $4.50. Each year since the first must have produced a fiftieth of the ultimate value, or $3, and had this been taxed at 3 per cent, or 9 cents, the same aggregate revenue of $4.50 would have resulted. To also tax annually the value of proceeding years' production, like taxing a wheat crop twice a week, is exactly the confiscatory prohibition of forest growing which we should seek to avoid. When the essential difference of the two systems Is grasped--that the _crop is distinct from the land and the latter is still fully taxed_--it will be seen that but one tax upon the crop, at the rate other property pays, is all that is just and all that can possibly be paid in a competitive commercial business. The case is not analogous with our present system of taxing mature timber, in which land and timber together are assumed to constitute inseparable realty, _stationary in production_ and increasing only speculatively in value, therefore the comparison with one year's taxation under our present system has no weight. FROM THE OWNER'S STANDPOINT Nor does the proposed system by any means either subsidize the forest grower or assure him a profit. It merely puts on a basis similar to that of other enterprises a business more greatly handicapped by long-deferred returns, risk of loss, uncertainty of future prices, and continued current expense without current revenue. Only escape from fire and high future stumpage prices will permit profit at best. Otherwise, since the tax is definite and not upon income, the forest grower will pay the community for the honor of providing it a resource at his own expense. It is believed, however, that a more fortunate outcome is sufficiently promised in this region of rapid growth if we remove the single fatal handicap of uncertain confiscatory taxation. VIEWS OF EXPERT AUTHORITIES THEODORE ROOSEVELT: Second only in importance to good fire laws well enforced is the enactment of tax laws which will permit the perpetuation of existing forests by use. GIFFORD PINCHOT: Land bearing forests should be taxed annually on the land value alone, and the timber crop should be taxed when cut, so private forestry may be encouraged. NORTH AMERICAN CONSERVATION CONFERENCE, Washington, D. C.: Believing that excessive taxation on standing timber privately owned is a potent cause of forest destruction by increasing the cost of maintaining growing forests, we agree in the wisdom and justice of separating the taxation of timber land from the taxation of timber growing upon it, and adjusting both in such manner as to encourage forest conservation and forest growing. The private owners of land unsuited to agriculture, once forested and now impoverished or denuded, should be encouraged by practical instruction, adjustment of taxation, and in other proper ways, to undertake the reforesting thereof. GIFFORD PINCHOT, ROBERT BACON, JAMES R. GARFIELD, Commissioners representing the United States. SYDNEY FISHER, CLIFFORD SIFTON, HENRI S. BOLAND, Commissioners representing the Dominion of Canada. ROMULU ESCOBAR, MIGUEL A. DE QUEVEDO, CARLOS SELLERIER, Commissioners representing the Republic of Mexico. E. H. OUTERBRIDGE, Commissioner representing the Colony of Newfoundland. FRED. R. FAIRCHILD, Professor of Economics, Yale University, member International Tax Conference: Probably nothing more effectually discourages investment than uncertainty as to future costs. And whatever may be said of the present system of taxation, there can be no question of its arbitrariness and uncertainty. If to all the other risks of forestry we add uncertainty as to what the taxes are going to be, we cannot blame investors for some hesitation in embarking on an enterprise which may have to pay taxes fifty years before the returns come in. And more than this; the investor cannot safely base his calculations on the continuance of the present lenient administration of the property tax. As has been shown, the tendency today is toward a stricter enforcement of the law and a heavier burden of taxation. State constitutions stand today in the way of many plans for reform in State and local taxation. The movement toward their amendment is growing as part of the general programme of tax reform. The real problem of forest taxation is in connection with the future of our timber lands rather than with their past. The preservation of the forests is a matter of the utmost importance. So far our forests have been exploited with little or no regard for the future. But the present methods cannot last much longer. Forestry must come some time, and its early coming is a thing greatly to be desired. And whenever we are ready to seriously undertake it we will find our present methods of taxation a severe handicap. Strictly enforced, according to the letter of the law, the annual tax on the full value of the land and standing timber is almost sure to result in excessive taxation, and the timber owner cannot count on the continuance of the present lenient enforcement of the law. Even if the tax might not be excessive, its uncertainty would be a serious obstacle to investment. We can hardly hope to see the general practice of forestry as long as the present methods of taxation continue. To be equitable, taxation of timber lands like taxation of anything else should be based on income or earning power. With regard to its effect on revenue, there is little to be feared from the tax on yield. Eventually, revenue will be increased by a method of taxation which does not prevent the development of forestry. Forests paying a moderate tax are better than waste lands abandoned and paying no tax at all. The tax on yield has many decided advantages. It avoids the evils of the general property tax. It is equitable and certain. It is in harmony with the peculiarities of the business of forestry, and will be a distinct encouragement to the practice of forestry. Its adoption by the States would remove one obstacle to the perpetuation of the nation's forest resources. NATIONAL CONSERVATION COMMISSION, appointed by the President of the United States: It is far better that forest land should pay a moderate tax permanently than that it should pay an excessive revenue temporarily and then cease to pay at all. We tax our forests under the general property tax, a method of taxation abandoned long ago by every other great nation. In some regions of great importance for timber supply, and in individual cases in all regions, the taxation of forest lands has been excessive and has led to waste by forcing the destructive logging of mature forests, as well as through the abandonment of cut-over lands for taxes. That this has not been even more general is due to under-assessment, to lax administration of the law, but to no virtue in the law itself. Already taxes upon forest lands are being increased by the strict enforcement of the tax laws. Even where this has not yet been done, the fear that it will be done is a bar to the practice of forestry. We should so adjust taxation that cut-over lands can be held for a second crop. We should recognize that it costs to grow timber as well as to log and saw it. From now on the relation of taxation to the permanent usefulness of the forest will be vital. Present tax laws prevent reforestation on cut-over lands and the perpetuation of existing forests by use. UNITED STATES FOREST SERVICE: It is evident that the old method of taxing forest property, as well as other property, at its supposedly full value will, as the value of timber increases and is recognized, put a premium on premature and reckless cutting, and will hinder any effort to reforest cut-over lands. No business man will engage in an undertaking where the returns are so long deferred and the risks are uninsurable unless he can estimate the probable expenses and a reasonably large profit. That the forests themselves, irrespective of their ability to stand taxation, are of great value to the communities in which they are located, for water protection, lumber supply, and scenery in resort regions is undoubted. The fundamental difficulty is that the tax should be in proportion to yield or income and not in proportion to the market value of the land and standing timber. Economists are substantially agreed that this principle is applicable to the taxation of all kinds of property with certain exceptions. Where there is a reasonably certain annual yield or income the market value is theoretically dependent upon it. A woodlot or forest, however, usually in this country has no annual yield. It is unjust to require the owner to carry the full annual burden of taxes, risk and protection in every year for the chance of a yield once in fifty years, and it is impossible for the owner to do it, for the taxes with compound interest would confiscate his entire capital. INTERNATIONAL TAX CONFERENCE, held at Toronto: _Resolved_, That it is within the legitimate province of tax laws to encourage the growth of forests in order to protect watersheds and insure a future supply of timber; and legislation, or constitution amendment where necessary, is recommended for these purposes. AMERICAN FOREST CONGRESS, Washington, D. C.: _Resolved_, That we earnestly commend to all state authorities... reducing the burden of taxation on lands held for forest reproduction in order that persons and corporations may be induced to put in practice the principles of forest conservation. PENNSYLVANIA DEPARTMENT OF FORESTRY: Tax assessors have differing ideas of value and their assessments vary widely. The only remedy for the forest owner is to appeal from the assessment to the county commissioners, and, if here unsuccessful, to the county court, a matter involving both time and expense and frequently more costly than the differences in taxes to be gained; _but at the same time_ the fact is well recognized that forested land is both unequally and unfairly taxed. H. S. GRAVES, Chief Forester for the United States: The forest areas now owned chiefly by lumber companies will cease to be devastated as soon as fires are stopped. They will not, however, be handled to any large extent with a view of future production until the taxes are placed on a fair basis. FILIBERT ROTH, Professor of Forestry, University of Michigan, State Fire Warden of Michigan (speaking of frequent local attitude toward non-resident owner): Though, in truth, these resident people often make their living from the tax money of the non-resident, and though the latter contributes toward every rod of road and every schoolhouse built, and other improvement, yet he is treated as if he were a wrongdoer, is taxed unmercifully, and, in addition, a trespass on his land or forest is excused and it is almost impossible in many places to get conviction. If the State and local people had treated the owners of timber honestly and had spent a reasonable part of the taxes in giving the protection which the owner had a right to expect under the Constitution, there would still be more than half of our pinery lands covered by forest. Forestry is no "sugar trust baby," as so many are trying to make it out. Forests can pay taxes as well as any other property. Forestry is like any other honest business, it cannot stand confiscation. Suppose you have a twenty-acre lot of sugar beets and the assessor would hang around until the beets are ripe and then figure: "The land is good; I assess it at $75 per acre, and the crop is worth $75 more, so that this property will stand at $150." What would you say? But the assessor who assesses the timber as part of the real estate and assesses the same crop of timber year after year does precisely this thing. He assesses land and crop for the owner of a woodlot and forest, while for all other farmers he assesses only the land. Let the State pass a few simple laws; provide for the protection of forest property as we provide for other property; prevent confiscation under the guise of taxation; stop forcing its poor tax lands on the market, and go ahead with a good example on its own lands, and instead of holding them in a waste land condition protect them and grow timber. A. T. HADLEY, President Yale University: We have it in our power to make intelligent forestry by individuals more profitable. The margin between business that succeeds and business that fails is a narrow one, and by just covering that margin by _differences in tax laws_, by differences in protective laws, by laws for the prevention of fires, we can make profitable an industry which the public needs, but which today is unprofitable. JAMES O. DAVIDSON, Governor of Wisconsin: It is to be hoped that laws will be passed encouraging owners to cut timber conservatively under forestry regulations, rather than oblige them to cut as quickly as possible to escape the injustice of taxation. PROFESSOR F. G. MILLER, University of Washington: Next to fire the most serious handicap to the progress of forestry is our unjust method of forest taxation. Laying as we do a yearly tax on both the growing crop and the land, the burden of taxation makes the holding of land for a second crop prohibitive as far as the private owner is concerned. The farmer pays a yearly tax on his land, and a tax on his crop each time he harvests one. This is usually annually. However, if through drought, insect invasion or other misfortune he loses his crop, he is not called upon to pay a tax upon it. SENATOR REED SMOOT, of Utah, Chairman Section of Forests, National Conservation Commission: One of the urgent tasks before the States is the immediate passage of tax laws which will enable the private owner to protect and keep productive under forest those lands suitable only for forest growth. In our discussion in committee meeting there was a question raised by a member present as to this recommendation, claiming that it would encourage great monopolies in securing larger holdings of timber, if an annual tax was not required on the timber itself. I have studied this question in foreign lands, particularly in Germany and Switzerland, and I find that the result has been exactly the opposite. It is a short-sighted policy which invites, through excessive taxation, the destruction of the only crop which steep mountain lands will produce profitably. Taxes on forest land should be levied on the crop when cut, not on the basis of a general property tax--that unsound method of taxation long abandoned by every other great nation. GOVERNOR NEWTON C. BLANCHARD, of Louisiana: Under the present tax laws of many of the States large assessments are put on timber lands, and this is forcing timber holders--the owners of the sawmills--to cut off that timber too rapidly. At least it is having much effect that way. Give them the encouragement to hold back and not force their product upon the markets, and then exempt, by a system of wise tax laws, cut-over lands devoted to purposes of reforestation. MARYLAND STATE BOARD OF FORESTRY: The present method is to assess woodlands under the general property tax, making the assessment high where the timber is valuable and placing it low where the timber has been cut off. There is in the operation of this system