{
  "id": "RL34268",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL34268",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 345892,
      "date": "2008-06-13",
      "retrieved": "2016-04-07T03:22:02.308921",
      "title": "The Federal Royalty and Tax Treatment of the Hardrock Mineral Industry: An Economic Analysis",
      "summary": "Under current law, the hardrock mineral industry pays no royalty to the federal government for the privilege of extracting resources from federal lands. This differs from the federal policy toward the coal and oil/gas industries, the policy of State governments, and the leasing arrangements in the private sector, which often require bonus bids and an ad-valorem royalty on the value of the resulting output. Hardrock mining on acquired federal lands pays a 5% royalty.\nThe current federal policy toward hardrock minerals is inconsistent with the fundamental market principle that a royalty is a factor payment, part of the rent paid, or the return, to land as both a marketable capital asset and input to production. In general, the free development of federal mining land will result in more public land developed and more minerals produced than is economically efficient. Another implication is that any economic rents, i.e., excess profits to a resource owner above the level required to produce or supply the resource in the long run, would accrue to private rather than public beneficiaries. The free development regime for hardrock minerals on federal lands was created to stimulate economic development of the west and has more recently been sustained to protect the viability of the United States hardrock mineral industry and to prevent negative economic impacts on western communities built around that industry. Introducing a royalty payment system might have an adverse economic effect on hardrock mineral producers but it would also tend to increase output in the rest of the economy and promote a more efficient use of national resources. The hardrock mining industry generally has, over the last four years, been booming, and any adverse industry effects would tend to be mitigated.\nThe appropriate royalty system, according to economic principles, is the ad-valorem royalty based on the market value of the mineral upon extraction, adjusted for any externality-related taxes. Using \u201cgross income for depletion purposes\u201d is conceptually the same as market value, although it has practical advantages since that is the basis for a producer\u2019s computation of its percentage depletion allowance for tax purposes. Using net smelter return\u2014the basis for most private royalty contracts\u2014is conceptually the same as gross income, although there may be differences due to deductions for costs, and would require a new administrative apparatus. Using the producer\u2019s net profits as the basis would render the royalty an income tax, which would be inconsistent with mainstream economic principles that a royalty is part of a factor payment, and would likely reduce, and at times totally eliminate, royalty payments. The U.S. hardrock minerals industry pays income taxes, including the alternative minimum tax, and, in addition, is assessed a variety of claims and patent fees. In addition, hardrock mining firms qualify for some special tax benefits or subsidies: expensing (i.e., a current deduction) of exploration and development costs; the percentage depletion allowance, at rates ranging from 14% to 22% of gross income; and a deduction for mine closing and reclamation costs. The special mining tax breaks are sufficient to lower the effective marginal tax rate slightly below that for other industries. These tax rates, however, are currently much higher than the historical rates, which were either close to zero or negative.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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          "url": "http://www.crs.gov/Reports/RL34268",
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy",
    "Energy Policy",
    "Environmental Policy"
  ]
}