CHAPTER 11 IMPACTS OF STATE AND LOCAL TAXES ON THE MINERAL INDUSTRIES

• Jurisdiction: United States

Mineral Taxation
(Mar-Apr 1977)
CHAPTER 11
IMPACTS OF STATE AND LOCAL TAXES ON THE MINERAL INDUSTRIES
DAVID L. SHAPIRO ^*
Federal Energy Administration
Washington, D.C.

It is a commonplace today to hear the statement with regard to energy providing minerals that the age of abundance is over — the age of scarcity has begun. This statement is as nonsensical as the title of a seminar given at the Arizona State University Business School, during my stay there, that was entitled, "Marketing in an Uncertain World". I imagine that many marketers in the Great Depression would be surprised to learn that they were marketing in a certain world. In fact, there has always been a scarcity of mineral as well as all other resources. (People would not be giving up something of value for them if this were not the case.) It follows that there should always have been an urgent national imperative to use mineral resources as well as possible. However, the relative cheapness of some of these minerals served to create an air of unconcern about their current use and future availability of supply. The cheapness of petroleum, for example, was dramatized by the well-known efforts of the Texas Railway Commission to support the price of crude oil. However, the pressure of increased demands caused by our rising affluence and the monopoly powers being exerted by the OPEC nations have caused sharply rising prices of petroleum and its products. In the aftermath of these increases, a cabinet level Department of Energy has been proposed and later this month a proposed national energy plan is scheduled to emanate from the oval office. As a nation we are acting no differently than individuals when faced with significant increases in the prices of goods or services. We attempt to limit uses that are less valuable and to make determined efforts, in general, to use the goods and services in ways that are most valuable to us. With regard to energy minerals, talk is now rife about increased conservation efforts, attempts to discourage "non-essential", i.e., less valued uses and so forth. Whatever the origins of this new awareness, the increased attention to the efficiency of mineral use argues well for the nation.

Although the problems associated with the supply of energy related minerals are not substantially different than those encountered with other minerals, our energy travail at the moment gives energy problems an immediacy and an urgency that is not the case with other minerals. Moreover, the Federal government has intruded itself into the production and consumption of these minerals to a far greater extent than is true with respect to other minerals. All of these considerations make it highly desirable to examine anew the impacts of state and local taxation on the industries that produce and market these minerals. The lessons learned may serve us well if or when supply problems with other mineral resources become as acute as is presently the case with energy resources. (Attempts to cartlize other minerals and

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basic commodities are already being discussed by some of the producing nations.) At any rate, this paper will concentrate its attention on our energy related resources.

In the various discussions of the state and local taxation of mineral resources, attention is not restricted to the effects of these taxes on the supply of mineral resources. Such other matters as the revenue needs of the taxing units and the justice of the taxing system are among other concerns that are explored and discussed. Whatever the importance of these other effects to the taxing units, they would appear to be (or should be) subsidiary to a concern with the impacts of these taxes on the supplies of the mineral particularly as we encounter supply problems of the present magnitude. It is only fair to warn the reader that it is this latter set of concerns that will occupy the discussion here.

Before discussing some of the specifics of my paper, I would like to set certain ground rules for the discussion to follow that will serve to circumscribe the remainder of the discussion. I might note as a preface that I am a citizen without strong regional affiliation. (I have lived or worked in six states during the last decade including six years in this one, Arizona). Moreover, my position as a senior analyst in a federal energy agency charges me to focus on truly national energy concerns rather than promoting the parochial interests of a given state or particular region of the country. There may or may not be conflicts between national and regional concerns but I must warn my audience that it is the national concerns that occupy me. My preoccupation with the national interest is motivated by what is commonly called the energy "crisis". Although this term overstates the problem by a good margin, our problems with petroleum will be matters of great importance for many years and possibly decades to come. The manner in which these problems are resolved will have an enormous impact on the major economic problems of our day such as inflation and our economic growth. The question then arises as to whether it is necessary to trade off some short-term gains for the States of Arizona and New Mexico, say, if these gains are achieved at the expense of compromising a long-range rational energy policy for the nation as a whole.

A rational policy in my terms of reference is one that brings forth a stream of energy or minerals over time that exceeds in value any other stream that could be produced. To implement this objective, we must delay development or extraction of mineral resources to the point (and only to the point), that future use is more valuable than present use. So long as present use is more valuable than future use, the minerals should be developed and extracted.

The identification of such a stream is a manifestly difficult matter but, fortunately, in any enterprise system, profit seekers will make the determination for us. These privately motivated profit seekers assist in making sure that we gain the most valuable stream over time by assuming the risk of seeking new supplies, and in extracting the minerals in a pattern that insures the desired result. At this stage, one commonly encounters "yes-buts" when the foregoing assertions are made. One is the question of monopoly and the artificial restriction of output. Is it not the case that large producers,

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relative to the size of the market can "corner that market", restrict supplies and keep prices artifically high? What about ALCOA in the old days? Such problems can well exist but this leaves open the question of the appropriate remedy. Governmental action of some sort seems appropriate here but it does not follow that taxation is the best remedy for this disease. Such devices as antitrust actions are probably a far better way to attack the problem.

A second "yes-but" concerns the general notion of conservation and the fear that the ideal amount of conservation will not be realized. The conventional wisdom is that greedy individuals or firms will despoil our natural resources and leave inadequate resources for future...