Maintain Capital Gains At Its Current or Lower Rate

Maintain, or lower, the current long-term capital gains tax rate as enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001, Jobs and Growth Tax Relief Reconciliation Act of 2003 and the Jumpstart Our Business Strength (JOBS) Act of 2004.

Background: Popularly referred to as the “Bush-Era Tax Cuts” the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the long-term capital gains tax rate to 15 percent and retained the basic one-year holding period. But, after periods of extension, taxes on capital gains are scheduled to increase in 2013 whether the Bush tax cuts are extended or not. This is in part due to passage of the new health reform law which contains a little noticed tax hike on the investment income for some Americans that will take effect on January 1, adding 3.8 percent to the capital gains tax rate. Then, if the Bush tax cuts aren’t extended, the regular capital gains rate will rise to 20 percent, and another obscure provision will reduce the value of itemized deductions, adding 1.2 percent. The total effective rate on capital gains would then be 25 percent.

The Forest Landowners Tax Council was the lead organization on the reform of Internal Revenue Code Section 631(b) as an amendment to the Jumpstart Our Business Strength (JOBS) Act of 2004. The fix required a dedicated focus that took years to accomplish. The reform allowed non-industrial private forest landowners capital gains treatment on income from lump-sum stumpage sales. FLTC was pleased to have recruited the interest of Senator Jeff Sessions, of Alabama, and Congressman Mac Collins, of Georgia, early on as the sponsors of 631(b)-correcting language, to have worked with the Joint Committee on Taxation to correctly calculate the measure’s cost to the U.S. Treasury as “negligible,” to have successfully promoted the language added to the JCT’s Tax Simplification List (the only timber/forestry item listed), to have successfully encouraged the Land Trust Alliance — a high-profile environmental group — to write the Senate Finance Committee and the House Ways & Means Committee to request passage, to have successfully worked to have the House of Representatives pass the modification in the 103rd, 104th and 105th Congresses, and to have enlisted the support of numerous allied organizations in the effort.

The Forest Landowners Tax Council supports the maintenance of the capital gains tax rate at the current 15 percent, in order to inspire landowners to continue to hold their land as forestland without conversion to other uses and to incentivize the highest dedication to forest management by family forest owners nationwide.

Rationale: Despite the recent reductions, higher long-term capital gains tax rates continue to discourage new investment and reinvestment in timber production. Timber farming is a cost intensive operation, and there are many years in which it produces no income at all. Long-term investment in forestland requires substantial return on investment because it takes so very long before timber is finally harvested and sold. Then, often after decades, harvests revenues cause landowner tax returns to aggregated with those of wealthier taxpayers.