owners from managing and conserving their forests for long-term private and public benefits. Further complicating the matter is the imposition of complex passive-loss rules which attempt to eliminate the practice of deducting expenses of one activity against income earned from other sources. Changes that would help alleviate these problems include eliminating the passive-active rules; allowing private nonindustrial-forest landowners to deduct normal annual stewardship expenses against current income; and indexing to the inflation rate all expenses that must be capitalized (thereby eliminating taxation of arbitrary inflated gains). Tax credits also could be considered for landowners who invest for purposes other than timber and related forest products.

Reforestation Investment Tax Incentive

In 1980, the Recreational Boating and Facilities Improvement Act authorized investment tax credits for reforestation. For up to $10,000 per year of reforestation expenses, investors are allowed a 10 percent investment credit plus deduction of the expenses over an 8-year period. The credit cannot exceed $1,000 annually. The U.S. General Accounting Office (1990) estimated that the credit reduced federal revenue a modest $80 million annually. The reforestation tax credit is widely used by nonindustrial private forest landowners. In nine southern states, Royer and Moulton (1987) reported 59 percent of the landowners who planted trees claimed the tax incentive. The credit also augments rates of return on investments. For landowners in the 40 percent tax bracket in 1983, rates of return on loblolly pine increased from 6.9 to 8.4 percent and for Douglas-fir from 7.3 to 8.2 percent because of the tax credit (Dennis 1983). Expanding the tax benefit to $25,000 per year would increase the deduction commensurate with inflation. Consideration should also be given to expanding the application of the credit to timber stand improvement activities and possibly other important public interests in private forests.

State Tax Policies

Federal tax policy is not the only concern of owners and managers of private forests. Local governments rely upon property taxes to raise revenues. In the colonial agrarian society, land was a true measure of wealth. Cash crops came directly from the land. Today's nonagrarian society still bases local taxes on land values. Land value is often based on the most highly valued use of the land. That determination generally refers to the assessed value of the land if it were sold on the open market for industrial, commercial, or residential development. Demand for open land to develop for an increasing population has raised the land values substantially over the recent decades. Now, the value of land for development is far greater than the value of land for agriculture or tree growing. Thus, the land



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