The Effects of a Federal Tax Reform on the US Timber Sector

Abstract

Under discussion in the US Congress is the desirability of reforming much of the US federal tax code. Recent proposals include lowering rates and broadening the tax base by, among other things, eliminating tax expenditure write-offs, preferences, and incentives. This study focuses on tax changes that might apply to the timber sector. The study looks at the effects of ending the capital gains treatment of timber, eliminating the timberland ownership form known as a real estate investment trust (REIT), restricting the deductibility of current management costs, and repealing the deductability of reforestation costs. Additionally, because our study focuses exclusively on the timber sector, it treats the rest of the federal tax system as unchanged except in one scenario, where we introduce lower corporate and individual income tax rates. We examine these changes using the Timber Supply Model, which projects their effects on timber sector investment, growing stock, harvests, prices, and international trade (net imports).