A federal tax system that recognizes the importance of the U.S. mining industry to the Nation's security and economic well-being is essential to the industry's survival. Not only, however, does the existing tax system fail the Nation by not encouraging the investment necessary for a strong domestic mining industry, but even more importantly, the major tax revision proposals of the President being considered by this Committee would magnify that failure and in so doing would severely damage the industry. Oppenheimer & Co., Inc. in a July 10, 1985 report on the Metals Industry titled "Tax Changes Damage New Investments and Mining Sector" points out the damage that will result from the President's tax proposals: The repeal of the investment tax credit, 20% The phased substitution of cost depletion, The American Mining Congress strongly believes that certain elements of a tax system are of critical importance in encouraging the needed investment of capital in the high-risk mining industry. They include the percentage depletion allowance, the deduction for mine exploration and mine development costs, a stimulative capital cost recovery system, such as is provided by the combination of the investment tax credit and ACRS depreciation, and capital gains treatment for coal and iron ore royalties. These elements provide the requisite incentive for the industry to survive and grow and must be preserved and strengthened, not eliminated or curtailed. Overview Historically, our federal income tax system has recognized the fundamental and essential role of this country's mining industry. Mining's importance to our economic and national security has long been acknowledged through provisions such as the percentage depletion allowance and the deduction for mineral exploration and development expenditures. These and other critical provisions involving capital cost recovery have helped to foster an assured availability of raw materials for manufacturing while generating needed cash flow for the mining industry. The roots of our tax system reflect the fact that exhausted mines must be replaced with deposits which are often more difficult and expensive to discover and to process into an acceptable standard of product quality. Moreover, without meaningful tax incentives that reflect the unique nature of mining, there is little likelihood that private investors would be willing to undertake the inordinate risk that is an inherent aspect of the business. During the past decade and a half, however, we have witnessed a gradual, though indirect, erosion of the U.S. tax structure affecting the mining industry. This erosion has been reflected primarily in the form of an add-on corporate minimum tax which penalizes mining enterprise in its sweep to stifle tax shelter activities. If not corrected, the present system could soon strip away completely this country's ability to sustain and support a vigorous, dependable, and competitive mining industry of any significant size. We believe that this erosion reflects misdirection of tax policy in recent times, and we are even more alarmed by the President's proposals to further reduce or eliminate mining industry tax incentives. Over recent years as the tax burden on U.S. mining companies has been increasing, the size of the industry has decreased precipitously. The economic recovery being experi enced throughout the country has not found its way to the mining industry. The U.S. metals mining segment, for instance, is presently only two-thirds its 1980 size, and employment has been cut in half. Factors contributing to this trend and the fragile condition of our mining industry include U.S.-supported loans to foreign mining projects and an overvalued currency. change in our tax system at this precarious time which would cause private investment in natural resources to become less attractive would certainly have a disastrous and abrupt impact on the severely weakened U.S. industry. Thus, any The recent testiomny before this Committee of Mr. Edward Jefferson, Chairman and Chief Executive Officer of the DuPont Company, clearly set forth the goals that should be pursued: In changing the tax code we must take It is now more than ever before imperative for our remaining mining industry to survive and prosper as we face an ever-expanding global economy and severe pressure on prices. Mineral deposits are located throughout the world without regard for national boundaries or forms of government. The only natural differentiation is that, generally, the higher grade and more-easily mineable reserves are now located outside the United States. To enable our own domestic mining industry to compete against producers that are wholly or partially owned, operated, or subsidized by foreign governments, therefore, it is clear that unique and substantial tax system incentives are essential. What is now in place must be retained and, in fact, improved. Without this recognition, we believe it is certain that the U.S. mining industry will dwindle to a position of insignificance in comparison to its fast-developing foreign counterparts. Natural resource and agricultural endeavors provide the feedstock for all food, fuel, fibers, materials and manufactured products which are needed for human existence. It is not a question of whether to extract or farm. will extract, who will farm, and where. It is, instead, who America was originally blessed with bountiful natural resources, and our private enterprise system with encouragement from an enlightened tax policy provided the means to bring about development of those resources at affordable cost. An efficient and dependable minerals and agricultural production capability had much to do with the prime position of strength and leadership that the 55-123 0-86-28 United States has occupied for more than two centuries. with the world and its economy changing so rapidly - Now to a great extent because third world nations are hastening to develop their own natural resources our established position is being severely threatened. Under these circumstances, there is valid reason to be alarmed about the direction our standard of living could take in the near future without a viable mining industry of our own. The mining industry plays a backstage role in society because it is at the foundation of productive activity. It is located in relatively remote areas using only three-tenths of one percent of our land surface, and the general public has little name-brand awareness of mining. These factors may account for the lack of appreciation in this country for mining's contribution to our everyday needs. We are living in a push-button, self-serve era in which it is all too easy to overlook the basic industries that make our daily lives mobile, comfortable, and entertaining. In fact, our fast-track society has developed a very low threshold of tolerance for any disruption of our individual ability to control our own lives, perhaps with too little understanding of or appreciation for the basic industries that make it all possible. Mining is enormously capital intensive, and most projects take years before production is commenced. In addition to the unique considerations involving each deposit and plant flowscheme design, mining projects also have unusual challenges |