Criterion 7. Legal, Institutional, and Economic Framework for Forest Conservation and
Sustainable Management
National Report on Sustainable Forests—2010
Indicator 7.55.
Extent to Which the Economic Framework (Economic Policies and Measures) Supports the Con­servation and Sustainable Management of Forests Through Investment and Taxation Policies
and a Regulatory Environment That Recognizes the Long-Term Nature of Investments and
Permits the Flow of Capital in and out of the Forest Sector in Response to Market Signals,
Nonmarket Economic Valuations, and Public Policy Decisions In Order To Meet Long-Term
Demands for Forest Products and Services
What is the indicator and why is it important?
The sustainability of forests and the many benefits they are
capable of providing requires high levels of sustained investment in their management and protection. Investments are
driven by a number of economy wide factors and government
policies, including product or service costs and prices, capital
costs, management efficiency, forest land productivity, and tax
and incentive policies.
What does the indicator show?
The United States has a wide variety of investment and taxation
policies that favor long-term forest resource investments,
provide consistent market based incentives and signals, and
provide some payments for investments in nonmarket values.
These are provided at the national, State, and local level,
affecting income taxes, property taxes, and the production of
a variety of forest resource goods and services. The regulatory
environment is addressed in other indicators, and ranges from
strict regulations on public lands and mountainous West Coast
States to moderate regulations in the Northeast to voluntary
best management practices (BMPs) in States with mostly
private forest lands in the South and East. Prescriptive regulations occur at the Federal level for Federal lands, and State
level for State and private lands. These include requirements
for specific BMPs and for notification, harvesting permits, and
timber management plans in a few States.
Federal and State income tax policies for timber production are
generally more favorable than for other sources of income, such
as wages and salaries. For active investors, timber management
expenses may be deducted as a cost of business, similar to
agricultural operations. Timber income is currently taxed at a
long-term capital gains rate that is less than the marginal tax
rates for middle income or higher level individuals. Timber
income receives an accelerated tax deduction for reforestation
Last Updated June 2011 and planting, rather than waiting for the end of a harvest rotation to apply the deduction as a cost of business. This Federal
tax treatment is carried over to the State income taxes.
Property tax treatment for forest land owners is also generally
favorable for active forest land owners and managers, although
this does vary substantially among States and even within
States. Property tax rates without special tax treatment can
be almost punitive, at up to $30 to $50 per acre per year. But
most States offer current use of forest use valuation, which
reduces these high rates to less than $10 per acre, at least for
landowners who meet program criteria and guarantee to enroll
for a fixed program length. Some States also tax timber as real
property, but offset the increasing tax values by collecting a
yield tax on the timber portion of the asset, and only the land is
taxed at actual assessed values.
Many forest incentive programs also promote forest investments
in timber, conservation, or other environmental activities. The
periodic Federal farm bill has increasingly incorporated provisions for tree planting, crop retirement, and environmental land
use programs in each of its authorizations and appropriations
since the 1960s. Recent relevant Federal farm bill programs
included the Conservation Reserve Program, Wildlife Habitat
Incentive Program, Environmental Quality Incentive Program,
and the Forest Stewardship Program. Funding for forestry in
these programs has been somewhat limited, at least until the
2008 Farm Bill, which authorized more participation for forest
and wildlife practices, although actual implementation is pending. Almost 20 States also provide State incentive payments
to landowners who plant trees or perform qualifying forest
management and planning activities.
Informational and educational programs promote participation
in these programs, including program enrollment processes,
forest practice requirements, and cost-share payment rates.
Research and protection programs help ensure that these
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National Report on Sustainable Forests—2010
Table 55-1. Policy and Governance Classification.
Mechanism
Nondiscretionary/mandatorya
Informational/educationalb
Discretionary/voluntaryc
Fiscal/economicd
Market basede
Scale:
National (N),
Regional (R),
State (S),
Local (L)
Approach
Prescriptive
N, S, L
N, S
N
N, S, L
N, S, L
L, R, I, G
I, S, T
Process or
Systems Based
Performance or
Outcome Based
L, R
R, P, A
I, S, T, P
Private
Enterprise
L, R, G
R, P, A
S
I, S, T, P
C, W, T, E, M
Laws (L), Regulations or Rules (R), International Agreements (I), Government Ownership or Production (G).
Education (E), Technical Assistance (T), Research (R), Protection (P), Analysis and Planning (A).
c
Best Management Practices (B), Self-regulation (S).
d
Incentives (I), Subsidies (S), Taxes (T), Payments for Environmental Service (P).
e
Free enterprise, private market allocation of forest resources (M), or market based instruments and payments, including forest certification (C) wetland banks (W), capand-trade (T), conservation easement or transfer of development rights (E).
a
b
incentives and practices remain productive and secure, and
extensive Federal and State planning and program development
provide the foundations for program delivery.
Private market policy tools also address timber production,
ecosystem goods and services production, and environmental
protection for sustainable forest management. These specifically include market based programs such as forest certification
for sustainable forest management, wetlands banks for wetland
functions and values, cap-and-trade for carbon storage or
Endangered Species Protection, conservation easements for
fixed term or permanent protection from development, and
even outright purchase of forest lands by nongovernmental
organization or government organizations.
What has changed since 2003?
The American Jobs Creation Act of 2004 changed Federal
reforestation tax incentives for private forest landowners
Last Updated June 2011 somewhat. Landowners were allowed to increase the amount of
they could deduct each year, and the excess could be amortized
over an 8-year period. Landowners were also allowed to
receive capital gains treatment for timber income from lump
sum sales and for sales per unit of volume. Federal tax law still
taxed vertically integrated forest products firms at rates greater
than those for timber investment management organizations
and real estate investment trusts, which has been attributed to
leading partially to the sale of much land to timber investment
management organizations (TIMOs) and real estate investment
trusts (REITs).
State forest property taxes continue to fund State and local
services, and have increased in many jurisdictions as the
demand for services rises rapidly. Debates over tax levels and
equity occur, and changes in State laws for timber and current
use valuation occur periodically.
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