The impact of tax and reforestation incentives on net returns from pocosin development for sil viculture

Federal and state reforestation cost-share and income tax programs increase the economic incentives to grow timber, including production on pocosin wetlands that must be cleared and drained before planting. Elimination of the capital gains exclusion by the 1986 Tax Reform Act is estimated to reduce by 26 percent the rate of return to clearing and draining pocosin wetlands for timber production. The simulated loss of reforestation cost-share would reduce the rate of return by about 16 percent, while loss of investment tax credit and cost amortization tax incentives would reduce the rate of return by 20 percent. Removing all three programs simultaneously is estimated to reduce the rate of return by 48 percent. Several other factors influence the rate of return, including the amount of marketable timber on the tract at the time of clearing, the cost of ditching and draining, the productivity of the land, timber prices, and the marginal tax rate of the producer.