NCPA - National Center for Policy Analysis

Taxing Forests to Death

October 23, 2003

Proponents of the estate tax claim it affects only the very rich. However, forest owners, many of whom are cash-poor, are more likely to incur the estate tax than the general population. They create a perverse incentive for owners to log their forests or sell them to developers before they die. This devastates small, family-owned businesses and wildlife habitats alike.

Southern states are especially affected by the estate tax since the vast majority of southern forests are privately owned. Florida's forests are 90 percent privately owned, while 70 percent and 84 percent of forests in Mississippi and Arkansas, respectively, are privately owned.

According to a study by the Southern Forest Resource Assessment:

  • The estate tax forces landowners nationwide to sell 1.4 million acres per year and to harvest more than 2.6 million acres of timber.
  • One-quarter of the acreage sold to pay the estate tax is developed for commercial or residential uses.

Lawmakers have made some progress in alleviating the burden of the estate tax on forest owners. Over time, the Economic Growth and Tax Relief Reconciliation Act of 2001 will raise the exemption of assets from $675,000 to $1,000,000 and reduce the top federal estate tax rate to 44 percent. However, increasing exemptions does little for those whose forest land is increasing rapidly in value.

Additionally, the long term effectiveness of these reforms is questionable. The estate tax will be eliminated entirely by 2010, but the Act "sunsets" in 2011, which means that the original tax will come back into full force unless lawmakers act to make the changes permanent.

Source: Pam Villarreal, "Taxing Forests to Death," Brief Analysis No. 462, October 23, 2003, National Center for Policy Analysis.

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