Inaction on Mining Reform Comes at a Steep Price

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Washington's nearly $1 trillion financial bailout and a ballooning federal deficit are sending members of Congress on a scavenger hunt for new funds. If lawmakers look closely enough, they will find an untapped source: the congressional giveaway to the mining industry of billions of dollars in gold, silver, uranium and other hardrock minerals taken from our public lands, all without taxpayers or the federal treasury collecting a cent.The law that leads to this sweet deal made sense when President Ulysses S. Grant signed it in 1872 to encourage prospectors with pack mules to head west and settle the frontier. But today, with a handful of huge multinational firms dominating U.S. mining, it's both archaic and illogical. Yet the law prevails because Congress has failed to update it.

During this past Congress, the U.S. House of Representatives passed bipartisan legislation that would have required mining companies to reimburse the public treasury a fair share. However, the industry and its Senate allies succeeded in stalling reform and a golden opportunity was lost.

As a result, huge multinational corporations continue to pay virtually nothing to the federal government for the $1 billion in gold and other valuable metals that the Congressional Budget Office estimates are taken annually from western public lands. In contrast, oil, gas and coal companies have paid federal royalties for decades. Hardrock mining is also held to few environmental and clean-up requirements, although according to the Environmental Protection Agency, it releases more toxic chemicals than any other industry.

Delaying much-needed legislative reform is expensive. In fact, according to a new report released by the Pew Campaign for Responsible Mining, failure by Congress to reform the nation's 19th century mining law, coupled with industry subsidies and tax breaks, could cost U.S. taxpayers $1.6 billion over the next decade from lost royalties, reclamation costs and tax subsidies.

Had the mining reform measure passed in late 2007 by the House of Representatives been adopted by the Senate and signed into law, approximately $40 million annually in royalties, or $400 million over the next 10 years would be added to the federal treasury.

Millions of dollars in potential revenue are also lost because hardrock mining companies, unlike coal companies, pay no fees to fund reclamation of abandoned mines. According to recent mine production statistics maintained by the U.S. Geological Survey, a conservative $29 million each year could have been recouped by the U.S. Treasury if the measure to correct the problem, introduced in the Senate last year, had been signed into law.

And finally, federal tax policy offers yet another significant and costly subsidy to the mining industry -- the percentage depletion allowance. All businesses can depreciate assets by slowly deducting their cost over time, until it reaches zero, at which point the money originally spent has been recovered. But companies that obtain mineral rights on public lands for next to nothing, and which extract billions of dollars worth of gold, silver or uranium royalty-free, are allowed to deduct a fixed percentage of their income -- not cost -- when paying taxes, even long after their actual costs have been recovered.

Fiscal conservatives have tried to eliminate this subsidy for years, continuing with a bill introduced in the Senate in 2007. Based on data from the Congressional Joint Committee on Taxation, passage of the measure would have saved taxpayers $100 million annually.

Rep. Nick Rahall (D-W. Va.) has introduced a mining reform bill identical to the one passed by the House in 2007 and Sen. Jeff Bingaman (D-N.M.) has signaled his interest in addressing the issue early this year. The new effort comes none too soon.

For a new administration and Congress struggling to balance the federal budget and fund critical public programs, reform of the 1872 Mining Law should be a top priority. The price tag for doing nothing is too high.