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Public Statements

The Timber Tax

Location: Washington, DC

THE TIMBER TAX -- (Senate - December 08, 2006)

Mr. PRYOR. Mr. President, if I may, let me talk about this timber tax issue. Clearly, forests provide a lot of jobs for many people all over this country. For Arkansas, those jobs are very important to our State's economy. But also one thing that we often forget is these forests are extremely good for our environment. They absorb carbon dioxide, they clean waterways, they provide natural habitat for all kinds of species out there, and they help keep an ecological balance in our country.

One of the great developments that has occurred in the last generation is that this country and the people in the timber industry have become much better, much more adept at managing the forests in a very good, long-term business way but also in a great way for the Nation's environment. In fact, when you look at Arkansas, the timber industry has done such a good job there that it is now the No. 2 manufacturing industry in the State.

I know that is the same in other States. There are many States that have very large timber industries, but we oftentimes take it for granted. I am looking around this room and seeing all the wood products. I am reading on one now and using one as a file folder and speaking behind one and standing on one. Often we take that for granted, but the wood products industry is very important for this country. In fact, you could say it helped build this country.

Unfortunately, now the forestry industry, the wood products industry's health is in jeopardy. They have two major problems. No. 1, with globalization, they have a lot of foreign competition. The folks I talk to in the industry, they will understand that. They are ready to meet that challenge. They understand it is a new day and it is very competitive. They are getting a lot of pressure from places such as Canada and rain forest timber and materials that are coming out of Asia and Russia, and they understand that. They are willing to fight that fight if the playing field is leveled.

But the other problem is internal. It is not from foreign competitors, it is, frankly, from the Government and it is the Tax Code and how the Tax Code works within the industry. If I can give one example, last week there was an announcement in Mountain Pine, AR. Now Mountain Pine only has about 772 people who live in the community, but there is a mill there that makes plywood. That mill just announced it is closing.

Senator Lincoln mentioned this a few moments ago. That mill has 340 jobs. That one employer in that town of 772 hires 340 people and employs them. It is closed. It is gone. Certainly, I hope at some point in the future the community can rally and find another use for that facility. Maybe they can get someone else in the wood products industry in. Who knows. But that is a symptom of what is going on because the owner of that facility is on the wrong side of the Tax Code.

We talked about the timber tax. We have a fix that we proposed. Senator Lincoln and many others worked very hard to try to get this done. But because they are on the wrong side of the Tax Code, they are having to close plants. Frankly, it is causing a huge strain on their bottom line.

One of the things I need to do when I am on that subject is to thank Senators Dole, Hutchison, and Cornyn, who have been very helpful in cosponsoring a bill that we think will help solve this problem.

Price Waterhouse Coopers & Lybrand, in April of 2005, wrote a report, and they found that the U.S. corporate forestry tax burden is the second highest compared to seven major competitor nations. Analysis showed that the tax burden of the U.S. forestry industry is a full 16 percentage points higher than the median of their competitor nations. We understand that in this country we have more responsible foresting, we understand we have stricter environmental regulations, and we also understand that our tax burden may be a little bit higher here and there. But the unfortunate thing going on here is it is disproportional within the industry depending on how the company is organized.

Here is what I mean. If a company is a C corporation, it is taxed one way. If it is a REIT, it is taxed another way. That means the folks that are REITs have a big tax advantage over the traditional companies. This has a disproportionately difficult effect on small companies, the family-owned businesses in places such as Arkansas and Louisiana and the State of Washington and in other places where you have a lot of family-owned timber businesses, because they don't have the resources to recalibrate themselves in the form of REITs. It doesn't make sense for their business.

What has happened, given our Tax Code, is basically the Federal Government says: Look, if you want to stay in the business, you have to organize yourself in a certain way. That is not fair.

What is happening all around this country is that these timber companies are making business decisions based on the Tax Code. We have seen this happen. We know businesses are going to adapt to the conditions they have, and one of those conditions is the Tax Code. They are always going to adjust and adapt according to that. But when they start to make decisions such as this which are so dramatic and alter their business models so much, bad things are going to happen eventually.

If you look at the real estate bubble which burst back in the 1980s, a lot of those deals in the early 1980s which were done in the real estate market were done for tax reasons. They did not make any sense in the business world, but they made a heck of a lot of sense under the Tax Code. Finally, when the Congress got around to closing some of those loopholes and simplifying the Tax Code, the bubble burst.

My concern with the forestry industry is that someday when we reconcile these problems, it is going to be too late for a lot of these companies, especially the small family-owned businesses.

This is not strictly an Arkansas problem. The latest employment figures I have from my State are that the industry employs about 43,000 people, with an annual payroll of $1.3 billion. That is a lot of money. That is a big part of our State's economy. However, if you look around the country, they employ about 2 million workers, with an annual payroll of $51 billion. This is not just a local problem in the State of Arkansas. Both Senators from Arkansas are here talking about it, but it is a problem for the whole country and the Nation's economy.

I ask my colleagues to support a better timber tax policy. We want a tax policy that is fair, that restores competitiveness, that provides job security for hundreds of communities and families, that benefits the environment, and which is really the best thing for the country as well as for the industry.

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