O Timber The basic environmental impact is that more land is devoted to timber harvesting, on both National Forest and private lands. Importantly, there is no firm evidence to support generally claimed values for conservation and reforestation. O Minerals The specific impact involves the capital gains treatment of royalty income from properties used in mining iron ore and coal. This is a minor contributor (in comparison to percentage depletion and expensing) to the two major tax generated environmental impacts on minerals: (1) extraction proceeding at a relatively faster rate and (2) development of primary materials industries being encouraged at the expense of secondary materials industries. Tax Reform Proposals President would reduce the exclusion rate on net capital gains of individuals and noncorporate taxpayers from 60 percent to 50 percent. Beginning in 1991, individuals could elect to index the basis of their capital assets for inflation occurring after January 1, 1991. Treasury would repeal the capital gains exemption. o Bradley-Gephardt would repeal the capital gains exemption. Kemp-Kasten would adjust capital gains for inflation and real gains would be taxed as ordinary income for non-corporate tax payers. CURRENT EXPENSING Current Provisions For oil and gas producers, intangible drilling costs and injectant expenses for enhanced oil recovery can be expensed immediately for tax purposes instead of being capitalized. For minerals, industries can treat mine exploration and development costs as current expenses rather than including them in the cost basis of the mine. Utilities can take current deductions for interest expenses incurred while an asset, such as a power plant, is under construction. particular problem is excess drilling in off-shore and roadless areas. O Minerals Expensing is a major contributor to increased extraction rates and to a bias toward development of our primary materials industries. o Electric Utilities - This $4 billion subsidy skews energy investment decisions toward traditional centralized facilities, primarily nuclear and coal plants. Tax Reform Proposals O President would retain option to expense IDCs, but eight percent of the IDCs paid or incurred on sucessful wells in a taxable year would constitute a tax preference. Treasury would repeal all the current expensing provisions. Bradley-Gephardt would repeal all the current expensing provisions and place intangible drilling costs and mine exploration and development expenses into a 10 year class. O Kemp-Kasten would retain the current expensing provisions for intangible drilling costs. Mine exploration and development costs as well as utilities' interest expenses would be amortized over 10 years. PERCENTAGE DEPLETION Current Provision Percentage depletion is a deduction in lieu of cost depletion which is based on a percentage of gross income from the property. The deduction ranges from 5 percent for sand and gravel up to 22 percent for lead, zinc, sulfur and certain other non-fuel minerals. Environmental Impacts o Minerals Percentage depletion is a major contributor to increased extraction rates and to a bias toward development of our primary materials industries. O Oil and Gas Percentage depletion provides a substantial incentive for overproduction of oil and gas. Tax Reform Proposals President would repeal percentage depletion for all minerals, phasing it out over a five year period beginning on January 1, 1986 by reducing the rates by 20 percent each year. For oil and gas stripper wells, it would continue to be available for independent producers. O Treasury would repeal percentage depletion for all O Kemp-Kasten would retain percentage depletion for all minerals. POLLUTION CONTROL BONDS Current Provision Tax exempt pollution control bonds have been available to private businesses since 1968 to finance investments in air and water pollution control facilities. A recent IRS ruling has significantly broadened the definition of pollution control to include radiation control. Environmental Impacts O Pollution Control These tax benefits are often ineffective and even counterproductive: (1) The rules, designed to give transitional relief to operators of old plants, now principally benefit new plants and (2) the most hazardous and polluting technologies are subsidized (as a result of the IRS ruling, up to one-fourth of the cost of building a nuclear plant can now be financed with these bonds). Tax Reform Proposals O President would make new pollution control bonds taxable. Treasury would make new pollution control bonds taxable. o Bradley-Gephardt would make new pollution control bonds taxable. taxable. Kemp-Kasten would make new pollution control bonds FIVE YEAR AMORTIZATION OF POLLUTION CONTROL FACILITIES Current Provision Current laws contain a number of special amortization and expensing rules that allow taxpayers to elect premature deductions for capital expenditures. One such rule permits taxpayers to amortize the cost of a certified pollution control facility over a 60 month period. Environmental Impact o Pollution Control This rule benefits capital-intensive investments in pollution control and provides no incentive for numerous other ways of reducing pollution from existing plants, such as using cleaner but more expensive grades of fuel and other raw material inputs. Tax Reform Proposals O President would repeal the five year amortization rule for expenditures paid or incurred after 1985. O Treasury would repeal the five year amortization rule for expenditures paid or incurred after 1985. O Bradley-Gephardt would repeal the five year amortization rule for expenditures paid or incurred after 1985. O Kemp-Kasten would retain the five year amortization rule. |