June 28, 2006 – As the Republican leadership in the US House of Representatives works to gut the federal tax on dead millionairesâ€™ estates, the hunt for tax breaks has moved from the coffers of the ultra-rich to the nationâ€™s forests. An estate-tax reduction proposal passed by the House last Thursday contains a â€œsweetenerâ€� provision to cut taxes for timber companies, tacked on in hopes of greasing the bill for Senate approval.
But the move to ax taxes for big timber has riled environmental and taxpayer watchdog groups. They say that while lightening taxes for loggers might make estate-tax reform more palatable to industry-funded politicians, it will come at a bitter cost to the public.
The proposed timber-tax reform would benefit lumber and paper companies by exempting 60 percent of the profits generated from growing and logging trees. The legislation would effectively reduce the industryâ€™s capital-gains tax rate from 35 percent to 14 percent. Based on congressional budget projections by the progressive think tank Center on Budget and Policy Priorities, the tax break would sap some $940 million from federal funds over the first two years, before coming up for renewal at the end of 2008.
Critics of the measure view it as doubly craven: it not only lavishes corporate welfare on an already-subsidized industry, they say, but goes further to entice potential estate-tax swing votes by helping senators pander to their timber-industry connections.
Critics say the tax break not only lavishes corporate welfare on an already-subsidized industry, but goes further by helping senators pander to their timber-industry connections.
Although it targets a different tax base than the estate tax, the timber-tax cut dovetails neatly with the parliamentary horse-trade over its parent bill. The measure was introduced separately last year with the co-sponsorship of several Democratic senators from the major timber-producing states, including Maria Cantwell and Patty Murray, both from Washington, Mark Pryor of Arkansas, and Louisianaâ€™s Mary Landrieu.
Those lawmakers helped kill the controversial Senate proposal to repeal the estate tax, which was defeated by three votes earlier this month. But if they switch sides on the pending, modified bill, they could achieve the 60-vote majority needed to move the legislation forward.
â€œItâ€™s all a political ploy to try and garner votes for the package that passed the House,â€� said Joel Friedman, an analyst with the Center on Budget and Policy Priorities.
The forestry and forest-products industries pumped over $3.6 million in political contributions into Congress during the 2004 election cycle, according to the Center for Responsive Politics, a nonpartisan organization that tracks campaign contributions.
Friedman noted that the proposed cutbacks to the estate tax, which is taken out of the assets of extremely wealthy individuals upon death, are projected to cost the public more than $750 billion over the first full decade. â€œOne would hope that the members [of Congress] wouldnâ€™t be swayed by in essence whatâ€™s a narrow special-interest tax break to somehow influence their consideration of a broad and costly tax-policy change,â€� he told The NewStandard.
While the industry cites unfairness in its tax burden, public-interest groups argue there is nothing equitable about government efforts to promote the destruction of trees.
But that prospect would fit well with the agenda of the American Forest and Paper Association, an industry group that has long pushed for curtailing timber-related taxation. In a statement following the House passage of the Permanent Estate Tax Relief Act, approved by a 269â€“156 vote, the Association celebrated a twin windfall: the stripped-down estate tax would free rich businessmen to invest even more in timber, and meanwhile, the timber-tax relief would sweeten the deal by boosting corporate profits.
Urging the Senate to pass the legislation, the Associationâ€™s President W. Henson Moore complained of â€œtax inequityâ€� facing the industry due to higher tax rates than those paid by some overseas competitors. He argued that the discrepancy had become â€œa major barrier to the ability of US companies to compete in domestic and global markets.â€�
But while the industry cites unfairness in its tax burden, public-interest groups argue there is nothing equitable about government efforts to promote the destruction of trees.
Erich Pica, with the environmental organization Friends of the Earth, said that tax breaks for timber would â€œencourage more unsustainable logging in our forests,â€� particularly in lumber-rich habitats in the Northwest and Alaska. By reducing the cost of profiting from natural resources, he said, â€œyouâ€™re creating an incentive for more timber cutting in environmentally sensitive ecosystems.â€�
Pica added that making the mass-harvesting of trees more lucrative might also undermine alternatives like using recycled materials instead of â€œvirginâ€� paper.
Public-interest groups point out that despite treform efforts, the timber industry has remained consistently buoyed by tax discounts and other government-sponsored privileges.
The watchdog group Citizens for Tax Justice (CTJ) calls the timber-tax break a throwback to similar policies of a generation ago, which enabled companies like the Washington-based timber giant Weyerhaeuser to reap tens of millions in federal rebates. Until tax-code reforms were implemented in 1986, CTJ reported in a recent analysis, about 50 percent of the lumber- and wood-industryâ€™s revenues were eligible for capital-gains tax breaks and other special loopholes, similar to the ones now proposed in Congress.
A CTJ report on corporate-tax payouts from 2001 to 2003 found that even recently, Weyerhaeuser has capitalized on various federal benefits to bring its effective tax rate down to about 10 percent â€“ much lower than the effective overall corporate tax rate of 18 percent for all analyzed companies. And the CTJ reported that the latter figure â€“ resulting from deductions and other tax advantages that whittle down corporate liabilities â€“ in turn fell far short of the 35 percent standard rate set in the federal tax code.
According to CTJâ€™s analysis of the proposal before the Senate, some companies that resell their wood on the consumer market as paper or other products could wind up receiving a tax break that actually exceeds their profits, effectively exempting all revenues from corporate taxes.
â€œIn many cases, you could have a very profitable company that still pays no taxes,â€� said Gary Bass, executive director of the public-interest group OMB Watch, referring to the proposed timber-tax reduction. â€œSo thatâ€™s the real issue: is it appropriate for a healthy company to pay no taxes, when you and I as citizens are paying more taxes than big companies like Weyerhaeuser?â€�
Yet timber is hardly unique in its enjoyment of federal tax privilege; about one in six of the 275 companies analyzed in the CTJ study received enough breaks in 2003 to escape all corporate income taxes.
Public-interest groups point out that despite the reforms of the 1980s, the timber industry has remained consistently buoyed by tax discounts and other government-sponsored privileges.
In recent years, giveaways to timber companies have included subsidized clear-cutting and planting projects and below-cost timber sales on public wild lands. Critics have assailed Congress for funding the construction of forest roads for lumber companies, which cost the Forest Service over $110 million from fiscal years 1998 to 2001, according to government records.
To CTJ Executive Director Bob McIntyre, the political calculus currently driving lawmakers toward the timber-tax provision is missing a crucial part of the equation. â€œIf the big companies donâ€™t pay taxes, somebody has to give,â€� he said. â€œEither the rest of us pay higher taxes, or we lose public programsâ€¦ Thatâ€™s the price you pay when these well-lobbied companies manage to get away without paying their fair share.â€�