[Congressional Record Volume 147, Number 78 (Thursday, June 7, 2001)]
[Senate]
[Pages S5979-S5982]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself, Mrs. Lincoln, Mr. Murkowski, Mr. 
        Breaux, Mr. Hutchinson, Mr. Miller, Mr. Craig, Ms. Landrieu, 
        Mr. Smith of Oregon, and Ms. Collins):
  S. 1002. A bill to amend the Internal Revenue Code of 1986 to modify 
certain provisions relating to the treatment of forestry activities; to 
the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise today to introduce the Reforestation 
Tax Credit Incentives Act of 2001, and I am pleased to be joined by 
Senators Lincoln, Murkowski, Breaux, Hutchinson, Miller, Craig, 
Landrieu, Gordon Smith, and Collins.
  The U.S. forest products industry is essential to the health of the 
U.S. economy. It employs approximately 1.5 million people, supports an 
annual payroll of $40.8 billion, and ranks among the top ten 
manufacturing employers in 46 States. This includes the State of Maine 
where 89.2 percent of the land is forested. Without fair tax laws, 
future

[[Page S5982]]

growth in the industry will occur overseas and more and more landowners 
will be forced to sell their land for some other higher economic value 
such as development. The loss of a healthy and strong forest products 
industry will have a long-term negative impact on both the economy and 
the environment.
  The legislation I am introducing today partially restores the balance 
between corporate and private landowners in terms of capital gains tax 
treatment, reducing the capital gains paid on timber for individuals 
and corporations. The bill is also intended to encourage the 
reforestation of timberland, whether it has been harvested or 
previously cleared for other uses, such as agriculture.
  Trees take a long time to grow, anywhere from 15 years to, more 
typically in Maine, 40 to 50 years. During these years, the grower 
faces huge risks from fire, pests, weather and inflation, all of which 
are uninsurable. This legislation helps to mitigate these risks by 
providing a sliding scale reduction in the amount of taxable gain based 
on the number of years the asset is held.
  The bill would change the way that capital gains are calculated for 
timber by taking the amount of the gain and subtracting three percent 
for each year the timber was held. The reduction would be capped at 50 
percent bringing the effective capital gains tax rate to 10 percent for 
non-corporate holdings and 17.5 percent for corporations.
  Since 1944, the tax code has treated timber as a capital asset, 
making it eligible for the capital gains tax rate rather than the 
ordinary income tax rate. This recognized the long-term risk and 
inflationary gain in timber. In 1986, the capital gains tax was 
repealed for all taxpayers. The 1997 tax bill reinstituted the lower 
capital gains rate for individuals, but not for businesses. As a 
result, individuals face a maximum capital gains rate of 20 percent, 
while businesses face a maximum rate of 35 percent for the identical 
asset.
  As this difference in rates implies, private timberland owners 
receive far more favorable capital gains tax treatment than corporate 
owners. In addition, pension funds and other tax-exempt entities are 
also investing in timberland, which only further highlights the 
disparity that companies face.
  Secondly, reforestation expenses are currently taxed at a higher rate 
in the U.S. than in any other major competitor country. The U.S. 
domestic forest products industry is already struggling to survive 
intense competition from the Southern Hemisphere where labor and fiber 
costs are extremely low, and recent investments from wealthier nations 
who have built state of the art pulp and papermaking facilities. While 
there is little Congress can do to change labor and fiber costs, 
Congress does have the ability to level the playing field when it comes 
to taxation.
  This legislation encourages both individuals and companies to engage 
in increased reforestation by allowing all growers of timber to receive 
a tax credit. The legislation removes the current dollar limitation of 
the $10,000 amount of reforestation expenses that are eligible for the 
ten percent tax credit and that are allowed to be deducted, and 
decreases from 7 to 5 years the amortization period over which these 
expenses can be deducted.
  Eligible reforestation expenses would be the initial expenses to 
establish a new stand of trees, such as site preparation, the cost of 
the seedlings, the labor costs required to plant the seedlings and to 
care for the trees in the first few years, as well as the cost of 
equipment used in reforestation.
  The planting of trees should be encouraged rather than discouraged by 
our tax system as trees provide a tremendous benefit to the 
environment, preventing soil erosion, cleansing streams and waterways, 
providing habitat for numerous species, and absorbing carbon dioxide 
from the atmosphere, the major greenhouse gas causing climate change 
according to the majority of renowned international scientists.
  Tax incentives for planting on private lands will also decrease 
pressure to obtain timber from ecologically sensitive public lands, 
allowing these public lands to be protected.
  I ask my colleagues for their support for private landowners and for 
the U.S. forest products industry that is so important to the health of 
our economy.
                                 ______