Investing in Timber

[fawtsc]

I will gladly go over with your all the information I posted where it comes from and how net numbers came to life.

Let’s start with the tough one.
Taxes.
You asked about the capital gain taxes why I used such high number, when present taxation is 15% for long term investment.
In two years that will change as the Tax Reconciliation Act is expiring.
http://www.cunninghamfinancial.com/taxes/capital_gains.html
Most experts expect to come back at least to its old form of 20% and 28%. It was 2001 when Bruce Barlett, President Reagan economic advisor and President Bush Treasury advisor wrote:
http://www.ncpa.org/edo/bb/2001/bb121201.html
My assumptions are base in a long term investment and the realities of taxation.
If trees take 25 years to grow and an extra year to market, it will be fair to consider trends that affect taxation for the past 50 years and create a model based on The Inspector General for the IRS information and other research: http://www.treas.gov/tigta/index.shtml.
As near as when the first tree was planted at TATF the long term capital gains where above 33% and up to 48%.
If you consider the past 50 years and project that into the next 26 years with its ups and downs in rates, the realities that affect taxes are dismal. Consider the present debt situation of the US, that is a bet on higher taxes going forward.
You will be prudent to assume two things might happen one is that present US taxes cannot be reduced by much, unless you cut or eliminate the MIC that is 72% of all government expenditures by at least 50%.
The IRS revenues are UP – net percentage of economic activity- and not down for the past 90 years.
The present US debt service now is eating a staggering 18.2% of all taxes collected, there is not country that has sustained such debt service without raising taxes, or going into default.
Do not forget you need to consider that by adding long term capital gains to your taxes, you might trigger ATM income levels.
See the last paragrph of the first article above.
I am going to enter into a tax debate, nor give you tax advice, that is not important.
What I know is forecasting, and when you forecast long term, you need to be prudent and assume at least your curve will be parabolic at the extremes and the median of your wave trend will be an indicator for the averages over forward time periods.

I could answer, if people will be getting pay every seven years from TAFT, anyone who got paid until 2001 tax filling paid at least 28% if not the top rate like in my case of 36.5% for long term capital gains.
The experts are divided 50-50 over the TRA will to pass next time around and my 28% sounds very cautious.
My 28% is a prudent and fair assumption and I am sticking to it. BEtter safe than sorry, as we are learning.
In case the TRA gets renew for another five years, those whom collect in those years, cheer up, but the difference in the ROI for that period will be a meager 2.7 percentage points.

We might disagree in the philosophy but the facts are what they are, people die believing in ferry tales.
Next post will be about Yields and Pricing......
Happy Easter from the the beautiful Caribe.