Leaders at Congressional Hearings Offer Strong Testimony Against Timber Tax Revisions

Banker Speaks

A Northwest banker told the House Ways and Means Committee on March 2l that he seriously questions o'the judgment and depth of knowledge of the individual who prepared the Treasury Department's case for eliminating capital gains treatment of income from the sale of timber."

Goodwin Chase, president of the National Bank of Washington, Tacoma, Wash., said the Treasury's document Pro' posing to overturn timber tax practices ex' isting since L944'oreveals total unfamiliar' ity with the Pacific Northwest."

'oThe author of this document has ascribed to farmers and other small wood' lot owners capacities and tendencies which they do not have," he said. Chase then challenged the author to o'join me in Washington State to walk among the woodlots and pastures," where, he said, o'I'm confident he would have difficulty finding a single farmer or other small woodlot owner who practices the reforestation attributed to him."

Chase said his bank deals with hundreds of logging and sawmill operators throughout central and western Washington and that he himself has been a oocountry banker" for years. He indicated that his bank would be compelled to turn down requests for loans by loggers, sawmill operators and tree farmers if the tax laws are changed, because "timber growing would be such a poor investment" without capital gains provisions.

Chase also warned that the proposed changes would seriously impede conservation. "Stockholders will exert great pressures on . companies to accelerate timber cutting in order to offset income loss. In responding to these pressures, companies owning timber will return to the liquidation practices so common prior to l9zX4, when conservation left much to be desired," he explained.

o'It should also be borne in mind," he said, 'othat the accelerated cutting will tend to reduce prices and thus reduce profits. This, in turn, will further reduce tax revenues.tt

The witness pointed out that his bank manages many trust funds and that, if Con' gress votes to do away with timber gains, "our bank will have to be particularly forceful in recommending to the manage' ment of forest companies that they accel' erate their timber severances in order to realize the maximum return on standing timber."

Chase added that "the very existence of this threat to change the tax treatment of timber has deeply shaken our confidence as an investor in the future of this indus try, which needs long-term incentives."

CATIFORNIA TUMBERMAN STATES 1944 CAP'TAL GAINS TAX TREATMENT SAVED HIS BUSINESS

A California lumberman told the House Ways and l\{eans Committee in March that capital gains tax treatment on timber sales voted by Congress in 1944 saved his busi' ness {rom complete collapse and provided an incentive for long'term timber growth.

R. G. Watt of Redding. an officer and director of the Ochoco Lumber Company of Princeville, Ore., in a statement filed with the committee, opposed the Admin' istration's proposals to change provisions of Section 631 (a) and (b) of the Inter' nal Revenue Code. His statement was one of many offered in defense of present capi' tal gains tax treatment on timber.

"The Ochoco Lumber Company, from 19.38 to 1943, had engaged in the wholesale cutting of its timberlands and was in a liquidation proces.s," said Watt. "If our operations had gone on at that pace, we would have closed our doors within a few years. In I9,K, when the tax law on timber was changed, the management decided to change its methods of operation and to hold its timber for future long-term growth."

Watt also said that he and a group of associates purchased a timber tract in northern California 18 years ago, or soon after Congress had passed the capital gains tax provision.

ool would like to tell the committee that this purchase would have been unattractive to us, and it would not have been made without the capital gain provisior4" he declared, adding:

"If timber owners believed that, in the long run, Congress would not be persuaded to retain gain treatmont of timber small to medium-sized timber owners would either (l) sell out to large corporations, or (2) they would have to cut their timber as rapidly as possible and shut down their operations,"

Watt was optimistic, however, about how Congress ultimately will handle the capital gains issue stating:

" . , in my own view, timber owners who are generally dealing with assets that have a life of 60, 80, or 100 years would recognize that eventually the Congress would have to return some sort of capital gain treatment to timber.

"With this in mind, I would recommend to our companies that they drastically cur' tail the cutting of their own timber, await' ing this change in capital gain law. This would bring about a wild scramble for l'orest Service timber, would force the small operators out of business, and greatly increase the number of unemployed in the lumber industry."

Other forest industry objections to the Administration's proposals have been voiced in resolutions of the American Forestry Association, Society of American Foresters. Association of State Foresters, and by the Legislatures of several states, in' cluding Arkansas, Georgia, South Carolina, Maine and ldaho.

Forest Management On Sustained Basis Made Possible By Capitat Gains Tax Treatment

Passage in 1944 of capital gains tax treatment on timber sales saved the Boise Cascade Corporation, of Boise, Idaho, from forced liquidation of its timberlands and made possible a program of forest management on a sustained yield basis, the House Ways and Means Committee was told on March 21.

R. V. Hansberger, Boise Cascade president, cited the history of his company as an example of what Section 63I (a) and (b)of the Internal Revenue Code has meant to forest management in the l2-state Western Pine Region, largest lumber producing area of the United States.

In testimony bearing on an Administration proposal to eliminate capital gains treatment on timber sold by corporations, Hansberger said the 1944 enactment enabled his company to accomplish a complete about-face of policy and o'work out a plan looking toward the continued cooperation of its manufacturing plants and the management and operation of the for-

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