PrepTest 48, Section 3, Question 14
A new tax law aimed at encouraging the reforestation of cleared land in order to increase the amount of forested land in a particular region offers lumber companies tax incentives for each unit of cleared land they reforest. One lumber company has accordingly reduced its tax liability by purchasing a large tract of cleared land in the region and reforesting it. The company paid for the purchase by clearing a larger tract of land in the region, a tract that it had planned to hold in long-term reserve.
A new tax law aimed at encouraging the reforestation of cleared land in order to increase the amount of forested land in a particular region offers lumber companies tax incentives for each unit of cleared land they reforest. One lumber company has accordingly reduced its tax liability by purchasing a large tract of cleared land in the region and reforesting it. The company paid for the purchase by clearing a larger tract of land in the region, a tract that it had planned to hold in long-term reserve.
A new tax law aimed at encouraging the reforestation of cleared land in order to increase the amount of forested land in a particular region offers lumber companies tax incentives for each unit of cleared land they reforest. One lumber company has accordingly reduced its tax liability by purchasing a large tract of cleared land in the region and reforesting it. The company paid for the purchase by clearing a larger tract of land in the region, a tract that it had planned to hold in long-term reserve.
A new tax law aimed at encouraging the reforestation of cleared land in order to increase the amount of forested land in a particular region offers lumber companies tax incentives for each unit of cleared land they reforest. One lumber company has accordingly reduced its tax liability by purchasing a large tract of cleared land in the region and reforesting it. The company paid for the purchase by clearing a larger tract of land in the region, a tract that it had planned to hold in long-term reserve.
If the statements above are true, which one of the following must be true about the new tax law?
It is a failure in encouraging the reforestation of cleared land in the region.
It will have no immediate effect on the amount of forested land in the region.
It will ultimately cause lumber companies to plant trees on approximately as much land as they harvest in the region.
It can provide a motivation for companies to act in a manner contrary to the purpose of the law while taking advantage of the tax incentives.
It will provide lumber companies with a tax incentive that will ultimately be responsible for a massive decrease in the number of mature forests in the region.
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