The Effects of State Taxation on United States Copper Supply

Abstract

The last half of the 1970s was a period of extreme financial difficulty for United States copper producers. Generally low copper prices and escalating production costs resulted in financial losses for many producers during much of this period. In addition, shifts in the ownership patterns of natural resources,' changes in financing methods for mineral projects, and perceptions that projected future returns are inadequate to warrant new investment in mineral development have led to much concern about the competitive position of the United States copper industry. Government actions, in both developed and developing countries, have been cited as contributing to this adverse competitive environment. Just as frequently, however, government actions are called for as necessary to improve the health of the domestic industry. Taxation is one area in which the government both assists and hinders mineral production. The primary purpose of any tax is to raise revenues; however, taxes are also used to achieve policy goals. For example, some national tax systems include provisions devised to foster mineral development. Such provisions as the U.S. depletion allowance, which permits a rapid recovery of amounts sometimes exceeding actual capital costs, and tax holidays in other countries, which allow tax payments on mining projects to be foregone or postponed, encourage capital investment in mineral development. National tax systems are also used to transfer monies from the developers of mineral projects or the consumers of these minerals to the residents of the c untry in which the resource is located. This works to ensure that the mineralrich countries are compensated for the exploitation of their natural heritage. In addition to national or federal taxes, many mining projects are also subject to provincial, state, and local taxes. Often these taxes are a substantial portion of the total taxes paid by a mine. A recent study by the U. S. General Accounting Office (U.S. G.A.O. 1981) found that in the United States, on the average, 46% of