STATEMENT OF
WILLIAM WOODROW BARTON
TREE FARMER

OWEN COUNTY, INDIANA

BEFORE THE SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY

FEBRUARY 26,1997

My name is William Woodrow Barton, and I am the current President of the Indiana Forestry and Woodland Owners Association. I've always had the nickname "Woody" which seems somewhat prophetic with my becoming a woodland owner. I'm proud to be invited here today to testify on behalf of the American Tree Farm System, the American Forest & Paper Association, and the Forest Industries Council on Taxation.

My wife and I live on a 336 acre farm with about 300 acres of forest in Owen County, Indiana. Some of this land first came into our family when Abraham Lincoln was in the White House. That was in 1863. Today we live in a house built by my great-grandfather in 1885.

As you can see, our family has strong ties to the land we live on. That make us very much like other non-industrial private forest owners, particularly those who are Certified Tree Farmers like me and Senator Lugar. We are very much committed to excellent, sustainable forestry, and to making certain that future generations can enjoy all values of the forest, both economic and non-economic.

The issues I want to talk about mean a lot to all 9.9 million forest land owners in the U.S. I think they mean just as much to anyone who cares about forests, the environment or the economy.

I'm a retired engineer, not an economist. But I am deeply concerned that capital gains taxes, estate taxes and poor economic returns will cause my forest and others to be fragmented, sold for development and lost to future generations. I know a lot of people think all this talk about estate taxes and capital gains taxes doesn't affect them, that it's just something for rich people. That's just not the case.

Like most forest land owners, we're not rich.

My wife and I purchased 58 wooded acres in 1953 from my grandmother. This was land settled by her grandfather in 1863, given to her by her father and has remained in the family ever since. This was part of the "home place". She would never sell the property but when widowed in 1935 she had to sell all the timber to help pay her debts.

One hundred years after the land first came into our family, in 1963, we put a formal management plan in place. The land is in the Indiana Classified Forest program which was started in 1921 and is a model law for forest protection. We are Tree Farmers #831 and have been in that program about 30 years.

We believe we have been good stewards of our property. We have forests growing in the small fields that were first laid out for horse-era agriculture. We have planted trees; we have stopped erosion; we maintain good habitat for wildlife; and we keep good records to show others about our management efforts.

My wife and I have 3 sons and a daughter (in that order). We have always tried to plan for the future and as children of the depression have saved for the "rainy day". Our retirement plans were based on five items: insurance/annuities, savings, company pension, Social Security, and investments. A current look at these convince me that I cannot tell the future.

The annuities cost me almost 6 weeks of my 1952 salary in annual premium and promised to pay me about 50% of my salary at age 65. With inflation, it paid about 2% of the salary I was making when I retired!

The company pension and medical insurance is a significant benefit but it is not reassuring to see this company being sued by retirees for not giving promised retirement benefits. I was required to sign a retirement document stating that the company could change the retirement benefits as they saw fit. That's not very comforting either.

So we are not just attached emotionally to our land because it is the "home place." The timber land is our most important investment.

We have it divided into six areas for management because of the different topography and different past usage. Our plan was to rotate harvests every 3 to 5 years, taking out the poorer trees and leaving the best to grow. This system would make it possible for us to harvest in each area only every I8 years or so. We had our first harvest in 1985, earning our first return on the Tree Farm 31 years after we took ownership. A lower capital gains tax rate for this income made sense for an investment held so many years.

Then the 1986 change to capital gains taxes was made. Since then we have only made harvests when we feared we might suffer imminent loss: when some red oak became over mature, for example, or when we had some windstorm damage, or when we sold a few tulip poplar trees when prices were unusually high. The tulip poplar harvest was influenced by our observation that the tallest tulip poplar trees suffer an unusually high mortality due to lightning damage.

While these decisions might have been provided some income in the short-term, I'm terribly uncertain that they were the best in terms of ecosystem management or even our long-term economics.

Most landowners I know have these same uncertainties. Many are older. Most studies show that more than half are over 60. Like us, they want to leave the "home place" legacy to their children. But we all have two major concerns.

The first is that the property will have to be stripped and sold to pay capital gains and/or estate taxes, or the timber will have to be severely cut to the point that it would require another 40 years to produce income. This would be bad for our family, bad for the environment, and bad for anyone who just enjoys being out in the woods.

The second concern, and one that we live with everyday, is that the long-term nature of timber management is not adequately recognized in federal taxes and particularly the capital gains tax. This reduces the income potential to the point that, if you just looked at the economics, it might seem foolish to invest in and hold timber land. I don't know any other business where you make an investment, and then wait 15 to 50 years or more before you get any return -- if it isn't taken away in the meantime by insects, fire, disease, or some new law that hadn't even been thought of when you first planted the trees.

This is a powerful temptation to remove the property from good ecosystem management, strip the timber and sell the land in small plots for country homes. No more forests. No more timber. Just in my lifetime, four properties adjacent to ours have been divided. Returns on timber land are so low that an acquaintance in one Indiana timber company is continually questioned by his financial department to justify why they should continue to hold timber lands.

Many of us on the wrong side of 65 years have an appreciation for the needs for government revenue to meet the costs of national security and to provide services. We have had to meet budgets, design for cost and meet customer needs.

I was an engineer for 40 years with a major automotive manufacturer. I also learned very early that you must always examine the potential for adverse consequences for any proposed action. We all have observed that a French tax was instrumental in houses being designed with mansard roofs. I have seen English road laws which resulted in some trucks being designed with two steering axles. And back in Indiana we seldom see hardwood floors in homes as that increases the house tax.

But it's not good for anyone to have tax policy that discourages good forestry, forces families to give up their heritage of good stewardship, puts house lots where forests used to thrive, or strips away the trees that help protect our wildlife and watersheds. That just doesn't make sense.

We need to cut the capital gains tax and the death tax to encourage people to invest in long term holdings like trees. I would like to express my appreciation to you, Senator Lugar, for introducing your three estate tax bills -- S. 29, S. 30 and S. 31 -- to provide estate tax relief. I would also like to express my appreciation to Senators Hatch and Lieberman for introducing S. 66, a bipartisan bill that would reduce the capital gains tax. And finally, I commend Majority Leader Lott and Senate Finance Chairman Roth for signaling that capital gains and estate tax relief are priorities for them in this Congress by including both in their bill, S. 2.

The fact is, what happens here in Washington is as important to the future of my Tree Farm in Indiana as anything my wife or I might try to do. My eight grandchildren are the seventh generation to be connected to our family's Tree Farm, and I don't want them to be the last. But I need your help to make it happen.

Thank you very much.