Most of the printed cost tables which we have encountered have been used in support of two contentions: First, that forest lands should be freed from the burden of recurrent annual taxes because of the high figure to which the taxes compound; and second, that the Federal and State governments should assume the burden of bringing certain types of timber to maturity because of the long period required for that purpose. Granting the validity of the method employed it must be conceded that the arguments sound convincing. It would be possible to apply the same method quite as convincingly, however, in support of the contention that the Federal government itself would eventually face bankruptcy were it to engage extensively in the business of producing timber which requires a long time to mature.

Small wonder then that one well known forester exclaimed at one of the conferences held by your committee: "Compound interest has kept and is keeping more forestry out of the woods than the menaces of all the fires and taxation combined."

The Items To Be Compounded

In many of the cost tables which your committee examined a tendency was disclosed to place the original investment in land at a point somewhat in excess of the actual value of such lands as indicated both by sales data and expert appraisals.

In one table, for instance, $20 an acre was assumed as the cost of land and stocking. According to cost data on stocking submitted by one company which has set out about 1,000,000 trees, the total costs per acre planted, including 1,200 transplants per acre, freight and labor, averaged $13.80 in 1921, $12 in 1922 and $10.80 in 1923. Taking even the high average cost of stocking for 1921, the balance chargeable to bare land would have been in excess of $6 per acre in the cost table under discussion. A study of sales and appraisals indicates that the assumption of a bare land value of $2 to $3 per acre would have been more in keeping with actual conditions in the region to which the table was designed to apply.

In the matter of taxes also, the estimates include items running from 25 to 30 cents an acre for the entire period of compounding. Here again the estimates are somewhat in excess of the actual figures revealed in the towns studied. (See Chapter IV.)

The effect on the final results of the assumption of bare land values and taxes which are in excess of the actual figures is in arithmetic proportion to the amount of that excess. Doubling either of these items will also double the corresponding accumulations for any period and at any rate of compound interest which may be used in the table.

Whether or not it is justifiable to compound costs of protection, care and maintenance will depend somewhat on the circumstances. In the case of a going concern one which is at present cutting on a portion of its holdings - good arguments can be made for

charging all such items to current operation and maintenance on the ground that they are essential to providing and safeguarding the current supply of timber. In the case of many tracts, on the other hand, which are not being cut at present, it was found that the owners were expending nothing for care, and were relying on the State for protection against fire. In such cases, manifestly, a table of cost estimates which compounds annual costs for these items is not applicable.

Estimate of Credit Items at End of Period

Those of the tables examined which presented estimates of the probable cash value of the standing timber at the end of the compounding period as a rule multiplied the estimated volume by a conservative figure for the present stumpage values. In one case $6 per cord was assumed as the present stumpage value for cordwood in the region under consideration. This was no doubt a fair figure. There are several points to be considered, however, before it can be assumed that the fair present figure in that region is a fair figure for use in estimating the value of the yield several decades from now.

According to the December pulpwood statement compiled by the Woodlands Section of the American Paper and Pulp Association, the average contract price for peeled wood for 1924 delivery at New York mills was $20.77 per cord. A forest engineer in close touch with the situation estimated the cost of logging and transportation per peeled cord, including allowances for overhead and miscellaneous items, at from $12 to $15 in the areas of the Adirondacks where the more important logging operations are at present being carried on. This would indicate a present stumpage value for pulpwood in those sections ranging, in round numbers, between $6 and $9 per cord.

As has been pointed out, the estimate of $6 per cord which was assumed in the table may be a fair one for the region to which the table was designed to apply. It may well be that the region is at present so remote and inaccessible that transportation costs constitute an unduly large percentage of the value of the pulpwood laid down at the mill. Nevertheless, remoteness from market is not an irremediable condition. In forty years from now, when the available supply on plantations and second growth areas in the present high cost regions has assumed considerable proportions, it is by no means fantastic to assume that logging and transportation costs in those regions will have been considerably reduced. Even assuming that there will be no further increase in pulpwood prices at the mills- an assumption entirely contrary to all available facts-it would seem to be fair to multiply the estimated volume at the end of any future period by pulpwood prices considerably in excess of those used in the table in question.

Furthermore, none of the typical tables make any allowance for intermediate cuttings or thinnings in advance of the final cutting.

Both in second growth stands and in plantations, periodic cuttings and thinnings are beneficial and tend to increase the volume in the final stand. If it is defensible to compound all debit items to the end of the rotation period, why is it not equally defensible to compound similarly also the credit items?

An experimental table of this type was set up for a sixty-year rotation, using 4 per cent as the interest rate.* Four thinnings were assumed at ten-year intervals, beginning with the twentieth year. Only the second, third and fourth thinnings were assumed to yield merchantable products. The compounded value of the products of the thinnings amounted to 73 per cent of the value of the final cut, and reached a larger total than the sum of all the compounded costs of carrying the timber for the sixty-year period.†

Validity of Results Obtained

In view of the fact that so many assumptions have to be made in formulating cost and yield tables, it is doubtful whether the data obtained by their use under present conditions can ever be accepted as conclusive evidence either as to the taxable capacity of forests or as to their desirability from the standpoint of the investor. Long before the information necessary for their accurate application can have been collected, it is probable that there I will be enough timber producing areas in the United States on a sustained yield basis to make it possible to estimate yields and costs without the use of long term compounding. In the meantime those who believe in the accuracy of the method will no doubt continue to use it in order to prove whatever preconceived notions they may happen to have. By judicious discrimination in the choice of interest rates, period of rotation and other factors in the method, those who believe in tax exemption or tax postponement can make up convincing tables in support of their belief; those who feel that the government should take cut-over lands off their hands at a price in excess of what such lands would bring at a tax sale, can prove that timber culture is a losing business for a private owner. Conversely, those who believe the opposite can sustain their beliefs admirably by applying exactly the same method with lower interest rates and other minor changes in its application.

At

While all this is going on, other men will no doubt continue to plant new forests each year at an accelerating rate and still others will carefully manage the second growth stands they have. any rate, such has been the experience of the State of New York during the last two decades.

* For full text of tables prepared by N. Y. State College of Forestry, see Appendix.

The committee is well aware of the fact that the U. S. Forest Service com

pounds intermediate yields in arriving at the " expectation value" of the government's holdings. Its criticism is not directed at tables of that type but simply at those tables used by advocates of changes in existing laws which pile up debit items and ignore or minimize credit items.

C— RELATIVE TAX BURDENS BORNE BY FORESTS AND OTHER FORMS OF RURAL PROPERTY

Many of the ardent and sincere group of individuals who in some circles have come to be known as "ultra-conservationists' overlook the fact that the problem of forest taxation cannot be considered as a separate and distinct problem. It is part and parcel of a very much larger problem that of taxation as it affects all groups and classes in the community and not simply the forest owners.

Your committee, now in the fifth year of its study of the problem of taxation in the State of New York, has had this fact brought forcibly home to it, as its several reports clearly indicate. Whenever specific problems have been attacked, those engaged in the occupation in question have frequently been loud in their protestations that their own burden of taxation is far in excess of that imposed on other occupations. In certain cases, but not in all, these statements upon careful investigation proved to be well founded. In its recommendations for reform in the methods of taxing these occupations, the committee found itself forced, however, to consider not only problems of tax relief for the occupation immediately concerned, but also the probable effect of the change in the law on the tax burden imposed on other groups.

In keeping with this general method of procedure, your committee has endeavored to keep in mind, in its study of forest taxation, not only the probable effect of the several proposals on the owners of timber lands, but also their effect on the other taxpayers in the communities where the forest lands are located.

In the nature of things, commercial forests are not located in villages or in cities. The problem so far as local taxes are concerned and those constitute the bulk of the taxes levied under the General Property Tax Law which the advocates of changes in forest taxation are seeking to have modified — is concerned primarily, therefore, with the problem of relative tax burdens on the occupations to be found in rural communities. Communities of this type are by no means homogeneous in character. There are a number in the Adirondacks where timber culture and its related occupations of logging, lumbering, milling and pulp making share the tax burden with property devoted to seasonal recreation, transportation and small retail merchandising. In the woodlot sections of the State, agricultural property assumes the most important place on the tax roll. Leaving out the property devoted to transportation which, in certain tax districts, looms very large, it is true that agriculture would bear the brunt of any change in the present law governing the taxation of timber. lands, whether the change involved an actual shift in the tax burden or merely a postponement of it. The position of agriculture in respect to relative tax burden under the existing law becomes one of prime importance, therefore, in a study of forest taxation.

The report of the State Tax Commission for 1922 contains some very interesting information on this point, based on an analysis of all individual income tax returns filed in this State for the year 1920.* Because of the fact that subdivision 3, section 360, of the Tax Law permits the deduction from the amounts taxable under the State Income Tax Law of taxes levied by Federal, State or local governments, other than income taxes and special assessments, it is possible to deduce from the majority of the returns. filed the amounts deducted for such taxes. From this it is an easy step to calculate the percentages of gross and net income represented by such deductions.

The bureau of statistics of the State Tax Department classified all the individual returns filed by persons working for themselves into forty-five occupational groups and distributed the total sales and income from business for each of these groups into net income and twelve deductible items of business costs, one of the twelve items being taxes.

The accompanying table is based on the work of this bureau, and presents in parallel columns the designations of fifteen of the forty-five occupations, the number of returns filed by individuals. working for themselves in each of the occupations; the number of returns in each occupation which proved susceptible of analysis; the percentage of the gross income reported on the returns analyzed which was deducted for taxes; the rank of the several occupations in point of taxes deducted with reference to the other forty-five; the percentage of the net income which was deducted for taxes; and the rank of each occupation among the forty-five in that respect.

* Report of New York State Tax Commission, 1922, pp. 473–481.