New Means of Analysis Required for Policy Decisions Affecting Private Forestry Sector

GAO examined the relationship of federal capital gains tax treatment to overall timber production and reforestation by the private sector and the production potential of nonindustrial private forest lands. The forest industry has long contended that the timber capital gains tax provision has encouraged reforestation of the Nation's private forests. However, the tax law does not require that capital gains benefits be applied to reforesting or improving management techniques. Tax benefits are based on income from timber cut rather than on what the taxpayer spends for site establishment, reforestation, and timber management.

Those cutting and selling timber from public forests may well be realizing capital gains benefits without contributing to long-term investments in the land or replacement stands. No source GAO contacted could provide firm evidence to support this claim. The lack of alignment between actual timber production and distribution of capital gains benefits suggests that Congress needs much better information to evaluate the effectiveness of existing tax policy. Significant tax expenditures are being made in conjunction with federal timber sales with no real understanding as to their distributive effect. Significantly different analytical techniques, including a private sector forestry policy model or analytical framework, must be adopted to resolve these issues. There is no adequate estimate of potential timber production on privately owned land. It is likely that only a fraction of that acreage could be managed for increased timber production. Future assessments should take into account the identification of economically and biologically productive acreage, production of timber within a reasonable distance of existing or potential markets, and whether the owner's objectives support increased timber production. Congress has authorized and is considering federal assistance for site establishment and reforestation expenses. Better cooperation is needed among organizations that provide forestry assistance.

Recommendations

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