Mining Subsidies: $3.5 billion a year

excerpted from the book

Take the Rich Off Welfare

by Mark Zepezauer and Arthur Naiman

Odonian Press, 1996

Mining Subsidies: $3.5 billion a year

Interior Secretary Bruce Babbitt was visibly angry. He was about to sign away federal land containing $68 million in gold for a total price of $540, but he had no choice. The best he could do was hold a news conference that featured a giant gift-wrapped box, and call the deal "a massive rip-off of the taxpayers."

Babbitt's hands were tied by a law that had been passed 123 years earlier, in the ultra-corrupt administration of Ulysses S. Grant. Called the Mining Law of 1872, it was originally designed to encourage settlement of the West.

The Law of '72 allows anyone-including foreign corporations-to search for minerals on public lands and, when they find them, to "patent" the mineral rights at the 1872 price- which is never more than $5 an acre! (Patenting means the company gets to use the land as long as it's mining it.) More than 3.2 million acres-an area almost the size of Connecticut-have been given away at these ridiculous prices.

A Canadian mining company called American Barrick is in the process of extracting more than $10 billion in gold-$83 3/4 billion so far-from land in Nevada it paid $5,190 for. The Chevron and Manville corporations hope to lay their hands on about $4 billion worth of platinum and palladium; to patent the Montana acre where the minerals are found, they'll pay about $10,000.

Royalties? We don't pay no stinkin' royalties, Since 1872, about $245 billion worth of minerals have been mined from public lands. And how much has our government collected in royalties? Absolutely nothing. Royalties aren't mentioned in the Law of '72, nor in any mining law since.

If a conservative 8% royalty rate had been charged on that $245 billion, we'd be almost $20 billion richer. And at that same 8% rate, the $33/4 billion in minerals that are currently being pulled out of public lands each year would earn the Treasury about $300 million a year.

A moratorium on mining claims has been declared while Congress tries to decide what to do about the Law of '72 (it's survived many challenges before, but maybe this time we'll be able to drive a golden stake through its heart). Of the approximately $34 billion in proven mineral reserves still left on public lands, 46% were in the process of being claimed when the moratorium went into effect.

But wait-there's more

The worst thing about the Law of '72 is that it doesn't require companies to clean up after themselves when they're done mining and return the patented land. Right now we're looking at cleanup costs of $32 to $72 billion for abandoned mines on public lands. Let's split the difference and say the cleanup costs $52 billion. If the cleanup takes twenty years, that will amount to $2.6 billion a year.

As if the Law of '72 weren't enough, mining companies enjoy a number of other tax write-offs. The reclamation deduction allows them to begin deducting the eventual closing costs of a mine as soon as it's opened, instead of when those costs actually occur. Needless to say, there's no requirement that the money the reclamation deduction saves the mining companies be set aside in a trust fund for the eventual reclamation of the mine. Eliminating this deduction would earn the Treasury about $40 million a year.

Mining companies can deduct 85% of the projected costs of exploring for certain minerals (finding the site, determining the quantity and quality of the minerals on it, and digging of shafts and tunnels) in the first year of mining, rather than over the life of the mine. And they can treat the sale of coal and iron as capital gains rather than as ordinary income.

These two tax loopholes cost us $135 million a year, but since they're already included in the totals for the accelerated depreciation and capital gains chapters, we won't count them again here.

The percentage depletion allowance

Finally, there's the percentage depletion allowance, another ancient law that's still on the books. It lets mining companies take a set percentage of the gross income they derive from a mine off their taxable incomes, and continue to do that for as long as that mine is producing (Presumably this compensates them for the fact that they're depleting their source of income by mining it. Or did you think that the money they make selling the minerals was supposed to do that?)

The percentage depletion allowance varies depending on what's being mined; it ranges from 10% for clay, sand and gravel to 22% for uranium, sulphur and lead. (Note that some of the most toxic substances have the highest allowances.)

Just as with its twin, the oil depletion allowance, this tax break can end up being worth many times what it cost to dig the mine. When mining companies end up making more money from a tax write-off than they've invested in the mine, that means we've invested more in their mine than they have. Eliminating this allowance would save us $560 million a year.

Let's add things up. Royalty-free mining runs $300 million a year. Not requiring miners to clean up after themselves costs about $2.6 billion a year. The reclamation deduction runs $40 million a year and the percentage depletion allowance $560 million. That comes to a total of $3.5 billion a year.

Take the Rich Off Welfare