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Methods

A series of computer spreadsheets was developed to determine the effect of the proposed incentives on Federal tax receipts and cash flow to “typical” NIPF owners. The hypothetical owners were assumed to be a married couple who (1) own 100 acres of forest land, (2) file joint tax returns, (3) have $40,000 of other income and $6,900 in other deductions annually, and (4) have no dependent children. The $40,000 income level closely approximates the median household income for noncorporate private forest owners in the United States (Personal communication. 1997. T.W. Birch, USDA Forest Service, Northeastern Research Station, 11 Campus Blvd., Newtown Square, PA 19073). We assumed no dependent children because over half of private forest owners are at or near retirement age (Haney and Siegel 1993, Sampson and DeCoster 1997).

The spreadsheets were constructed around management plans developed for each of the three major southern timber types: loblolly pine, bottomland hardwood, and upland hardwood. The plans specified practices and rotation lengths representative of those used by nonindustrial forest owners in the region. The plans did not, therefore, optimize financial return or fiber production, but used fundamental practices to maintain a relatively high timber growth rate over a sawtimber rotation.

The personal exemptions and rate schedules used to calculate the Federal income tax were for the 1997 tax year. The $6,900 amount used for other deductions equaled the Federal 1997 standard deduction for a married couple filing jointly. State and local taxes were included in the analysis because they affect both cash flow to the owners and Federal taxable income; the rates used were typical for a Southern State (Greene 1995).

No increases were assumed for costs, returns, or tax rates. Both the owners’ personal discount rate and the interest rate earned by Green Accounts were assumed to be 4 percent after inflation.