[Congressional Record Volume 149, Number 100 (Wednesday, July 9, 2003)]
[Senate]
[Pages S9122-S9123]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself, Mrs. Lincoln, Mr. Smith, Mr. Breaux, 
        Mr. Miller, Mr. Chambliss, Mr. Pryor, Ms. Collins, Ms. 
        Landrieu, Mr. Shelby,  and Mr. Craig):
  S. 1381. 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 Act of 2003, and I am pleased to be joined by Senators Lincoln, 
Smith, Breaux, Miller, Chambliss, Pryor, Collins, Landrieu, Shelby and 
Craig.
  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 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 health 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 by 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.
  Specifically, 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 
7.5 percent for most 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. Tax bill enacted in 1997 and in 2003 
lowered the capital gains rate for individuals, but not for 
corporations. As a result, individuals face a maximum capital gains 
rate of 15 percent, while corporations face a maximum rate of 35 
percent for the identical asset.
  As this difference in rates implies, non-corporate 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

[[Page S9123]]

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 deduct 
all reforestation expenses in the year such costs are incurred. 
Currently, only the first $10,000 of reforestation expenses is eligible 
for a ten percent tax credit and can be amortized over seven years.
  Eligible reforestation expenses are 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 planning 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.
  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.
  Finally, the bill would notify the passive loss rules for small, 
closely-held landowners to allow them to deduct normal operating 
expenses pertaining to management of their timber lands.
  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 
the our economy.
                                 ______