No need to rewrite 1872 Mining Act
A new federally collected royalty (read tax) on hard rock mining has recently been proposed as a part of Congress’ solution to fix the national debt and manage the mining industry. A bill co-sponsored by Congressman Raul Grijalva, D-Ariz., would set a 12.5 percent royalty rate on the value of certain hard rock minerals on public lands. This proposal would rewrite the original 1872 mining law in the U.S.
The proposed royalties in the U.S. would be among the highest of any country in the world. Mining is today one of the most regulated and government-supervised business sectors in the economy. Some in Congress see this proposed mining royalty or tax as a new source of “revenue strip mining.” One congressman stated, “We’ve been leaving a huge pot of money on the table.” In a recent Washington Posteditorial about possible new legislation on hard rock mining, the paper stated, “Even if the increased revenue is only an extra billion or two, a stretched federal budget could certainly use it now.”
What is missed is the fact that taxes and other fees presently are collected. Mining states, including South Dakota, have long-standing mineral severance taxes which are enforced on federal and private lands. Adding to the existing framework of taxes, fees and required environmental compliance, as well as regulatory and reclamation laws imposed on the mining industry, the proposed law would create a new revenue collection protocol on top of six existing categories of costs, fees and taxes now assessed against the mining industry. Consider that the government’s most “uniform” way of collecting revenues from the mining industry is already in place — income taxes.
The new revenue enhancement proposal is the same as proposing a new tax on ranchers’ pre-tax profits from the sale of livestock when the cattle are finished and taken to market. The federal government already charges ranchers a rental fee on leased federal lands. It is called a grazing fee. The federal grazing fee, which applies to federal lands in 16 western states on public lands managed by the BLM and the U.S. Forest Service, is adjusted annually and is calculated by using a formula originally set by Congress. A grazing fee is really the cost to ranchers for renting federal land.
Would it be reasonable for the federal government to collect a rental for use of federal lands and also tax the rancher a percentage of the sale proceeds from the rancher’s profits when the finished cattle go to market? After some consideration, this new “cattle tax” does not appear logical or reasonable. Such a cattle tax, however, would have the same effect as the new proposed mining tax. Charge the rancher for use of the lands and also charge the rancher the pre-tax profit the rancher receives from his cattle sales. After that, assess the rancher for income taxes. This is a nonsensical but revenue-positive way of governing.
Mining rules constitute a full pallet of regulations and are administered at a cost to the industry by both federal and state agencies with broad and encompassing authority. Compliance with these mining rules is expensive, in and of itself, and results in many “soft costs” in the form of monies given to the government. The mining industry pays for and complies with six different categories of fees and taxes, including those from the state of South Dakota, which collects mineral severance taxes at the rate of $4 per ounce of gross production (plus an additional surtax based upon mineral value), as well as 10 percent of net income and 8 percent of royalty value. These mineral severance taxes long have been developed by western states for the benefit of the local economy. Adding a new federal royalty (read tax) would undermine economic development in states such as South Dakota.
In urgent economic times, a hurried act creating new revenue sources does not necessarily result in a long-term cure. Congressmen, through their suggested mining royalty legislation, would create a taxlike device on top of the described costs, fees and tax categories now assessed. It might be expedient for Congress to become a “tax machine” and establish a new mandatory royalty payment requirement. But there always are economic and social consequences when new revenue sources are adopted. The mining industry is handsomely assessed with taxes and administrative costs.
Why now should the bedrock 1872 Mining Act be so radically rewritten? To paraphrase John Milton: For what can a new tax but endless new taxes still breed?
