[Congressional Record (Bound Edition), Volume 152 (2006), Part 18]
[Senate]
[Pages 23485-23486]
[From the U.S. Government Publishing Office, www.gpo.gov]




                             THE TIMBER TAX

  Mr. PRYOR. Mr. President, if I may, let me talk about this timber tax 
issue. Clearly, forests provide a lot of jobs for many people all over 
this country. For Arkansas, those jobs are very important to our 
State's economy. But also one thing that we often forget is these 
forests are extremely good for our environment. They absorb carbon 
dioxide, they clean waterways, they provide natural habitat for all 
kinds of species out there, and they help keep an ecological balance in 
our country.
  One of the great developments that has occurred in the last 
generation is that this country and the people in the timber industry 
have become much better, much more adept at managing the forests in a 
very good, long-term business way but also in a great way for the 
Nation's environment. In fact, when you look at Arkansas, the timber 
industry has done such a good job there that it is now the No. 2 
manufacturing industry in the State.
  I know that is the same in other States. There are many States that 
have very large timber industries, but we oftentimes take it for 
granted. I am looking around this room and seeing all the wood 
products. I am reading on one now and using one as a file folder and 
speaking behind one and standing on one. Often we take that for 
granted, but the wood products industry is very important for this 
country. In fact, you could say it helped build this country.
  Unfortunately, now the forestry industry, the wood products 
industry's health is in jeopardy. They have two major problems. No. 1, 
with globalization, they have a lot of foreign competition. The folks I 
talk to in the industry, they will understand that. They are ready to 
meet that challenge. They understand it is a new day and it is very 
competitive. They are getting a lot of pressure from places such as 
Canada and rain forest timber and materials that are coming out of Asia 
and Russia, and they understand that. They are willing to fight that 
fight if the playing field is leveled.
  But the other problem is internal. It is not from foreign 
competitors, it is, frankly, from the Government and it is the Tax Code 
and how the Tax Code works within the industry. If I can give one 
example, last week there was an announcement in Mountain Pine, AR. Now 
Mountain Pine only has about 772 people who live in the community, but 
there is a mill there that makes plywood. That mill just announced it 
is closing.
  Senator Lincoln mentioned this a few moments ago. That mill has 340 
jobs. That one employer in that town of 772 hires 340 people and 
employs them. It is closed. It is gone. Certainly, I hope at some point 
in the future the community can rally and find another use for that 
facility. Maybe they can get someone else in the wood products industry 
in. Who knows. But that is a symptom of what is going on because the 
owner of that facility is on the wrong side of the Tax Code.
  We talked about the timber tax. We have a fix that we proposed. 
Senator Lincoln and many others worked very hard to try to get this 
done. But because they are on the wrong side of the Tax Code, they are 
having to close plants. Frankly, it is causing a huge strain on their 
bottom line.
  One of the things I need to do when I am on that subject is to thank 
Senators Dole, Hutchison, and Cornyn, who have been very helpful in 
cosponsoring a bill that we think will help solve this problem.
  Price Waterhouse Coopers & Lybrand, in April of 2005, wrote a report, 
and they found that the U.S. corporate forestry tax burden is the 
second highest compared to seven major competitor nations. Analysis 
showed that the tax burden of the U.S. forestry industry is a full 16 
percentage points higher than the median of their competitor nations. 
We understand that in this country we have more responsible foresting, 
we understand we have stricter environmental regulations, and we also 
understand that our tax burden may be a little bit higher here and 
there. But the unfortunate thing going on here is it is disproportional 
within the industry depending on how the company is organized.
  Here is what I mean. If a company is a C corporation, it is taxed one 
way. If it is a REIT, it is taxed another way. That means the folks 
that are REITs have a big tax advantage over the traditional companies. 
This has a disproportionately difficult effect on small companies, the 
family-owned businesses in places such as Arkansas and Louisiana and 
the State of Washington and in other places where you have a lot of 
family-owned timber businesses, because they don't have the resources 
to recalibrate themselves in the form of REITs. It doesn't make sense 
for their business.
  What has happened, given our Tax Code, is basically the Federal 
Government says: Look, if you want to stay in the business, you have to 
organize yourself in a certain way. That is not fair.
  What is happening all around this country is that these timber 
companies are making business decisions based on the Tax Code. We have 
seen this happen. We know businesses are going to adapt to the 
conditions they have, and one of those conditions is the Tax

[[Page 23486]]

Code. They are always going to adjust and adapt according to that. But 
when they start to make decisions such as this which are so dramatic 
and alter their business models so much, bad things are going to happen 
eventually.
  If you look at the real estate bubble which burst back in the 1980s, 
a lot of those deals in the early 1980s which were done in the real 
estate market were done for tax reasons. They did not make any sense in 
the business world, but they made a heck of a lot of sense under the 
Tax Code. Finally, when the Congress got around to closing some of 
those loopholes and simplifying the Tax Code, the bubble burst.
  My concern with the forestry industry is that someday when we 
reconcile these problems, it is going to be too late for a lot of these 
companies, especially the small family-owned businesses.
  This is not strictly an Arkansas problem. The latest employment 
figures I have from my State are that the industry employs about 43,000 
people, with an annual payroll of $1.3 billion. That is a lot of money. 
That is a big part of our State's economy. However, if you look around 
the country, they employ about 2 million workers, with an annual 
payroll of $51 billion. This is not just a local problem in the State 
of Arkansas. Both Senators from Arkansas are here talking about it, but 
it is a problem for the whole country and the Nation's economy.
  I ask my colleagues to support a better timber tax policy. We want a 
tax policy that is fair, that restores competitiveness, that provides 
job security for hundreds of communities and families, that benefits 
the environment, and which is really the best thing for the country as 
well as for the industry.

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