THE FEDERAL ESTATE TAX AND LOUISIANA NONINDUSTRIAL PRIVATE FOREST RESOURCES
A Position of the Louisiana Society of American Foresters
The Louisiana Society of American Foresters (LA SAF) urges the outright repeal of the federal estate tax or at least its reform to take into consideration the unique aspects of nonindustrial private forest ownership.
America’s nonindustrial private forest owners own 59 percent of the nation’s forest land. In Louisiana, there are almost 200,000 such owners who hold approximately 11 million acres. These persons – both nationally and in Louisiana – are bearing more responsibility than ever before for environmental quality and sustainable timber production. However, the federal estate tax is negatively impacting an increasing number of ownerships each year – including many in Louisiana – as timber and land values continue to rise based on non-forestry values. The tax provides a disincentive for heirs to retain their family forest land or to continue to sustainably manage it even if not sold. An estate faced with a substantial tax bill (45 percent of taxable value) -- which must be paid within 9 months of death –- can cause untimely timber harvests, disruption of established forest management programs, and the subdividing and sale of productive timberland for other purposes. This trend is counterproductive to society’s goals of sustainable forestry and environmental quality.
The special use valuation provisions of the federal estate tax law, which provide for valuation based on current use, are of little help to forest landowners. Although technically applicable to forest land and timber, they were written primarily to apply to agricultural production. The eligibility and valuation rules are largely incompatible with the reality of nonindustrial forest management and can only be used by a few timber estates and then only with the greatest of difficulty. For example, specially valued timber cannot be harvested for 10 years after the owner’s death, even if required as part of an ongoing forest management plan or for salvage purposes because of insect, disease or fire damage. Even for those forest holdings that qualify, the limitation on reduction below market value effectively excludes substantial acreages.
The modern-day federal estate tax dates to 1924. Although it currently generates approximately 1.5 percent of annual federal revenues, estates of similar net worth are affected in dramatically different ways. For example, an heir faced with a sizable estate tax bill who inherits fairly liquid assets such as stock and bonds, will find it much easier to pay the tax compared with an heir who inherits relatively illiquid assets such as forest property – the sale of which could eliminate the family forest heritage.
In 2000 at a U.S. Forest Service conference on fragmentation of America’s private forest lands, John Greene discussed data from research that had been done regarding the effects of the estate tax on forest ownership. He said: “It appears that in about two-fifths of the cases where federal estate tax is due, timber or land is sold to pay part or all of the tax. A large fraction of these sales are forced, because other estate assets are not adequate to pay the tax. Ownerships forced to sell timber or land to pay the estate tax range from under 100 acres to several thousand acres of forest land. It appears that two million acres of forest land must be harvested and over one million acres must be sold each year to pay the federal estate tax. Of the acres that are sold, it appears that several hundred thousand each year are converted to other, more developed uses.” There have been many such documented cases in Louisiana in recent years and the number is rapidly rising.
It has been pointed out by numerous experts that the static economic analyses used by the Joint Committee on Taxation of the U.S. Congress in examining the revenue implications of the estate tax have failed to account for the nation’s generally dynamic economy and the positive revenues that can be generated to the Treasury by leaving funds in that economy to multiply through capitalistic enterprise. For example, using a dynamic approach to analyze the elimination of the estate tax, the CONSAD Research Corporation in 2003 calculated that rather than a net loss to the Treasury with the tax gone, there instead would in fact be a net gain to the Treasury of approximately $38 billion over a ten year period.
The Louisiana Society of American Foresters strongly urges the Louisiana congressional delegation to support legislation that would eliminate the federal estate tax in its entirety – or at least to restructure and reform the tax, including its special use provisions, so as to favorably accommodate the unique considerations of the nation’s nonindustrial private forest landowners.