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If this super-tax on natural resources is to be resorted to in the case of timber, the undesirable effects which have just been indicated might be avoided by providing that only the product of the first cutting on virgin forest tracts be subjected to this special severance tax. Under these circumstances the timber land owner would immediately consider the possibility of leaving a considerable amount of the smaller timber for the second cutting, thus avoiding the severance tax upon it. It would hardly be possible for him to make such a light cut as to leave any considerable amount of large timber for the second cut. In any operation, to be profitable, it is necessary to take out at least a certain amount of product.
However, if it should be felt that this modification would enable the timber land owner to gain too much of an advantage of exemption, it might be provided in addition that at the time of making the first cut the amount of the then merchantable timber allowed to remain standing be determined and that the natural resource tax be made to apply to that amount of the second cut when harvested. With such modifications the obstacle which the proposed type of tax would interpose to forest conservation would be effectively removed.
It might be well to note that the State of Louisiana already imposes this type of tax upon forests, as well as upon the other natural resources of the state. When the imposition of this tax was originally considered the timber land owners submitted to its enactment without a great deal of opposition, the understanding being, as I recall it, that the funds realized from such a tax would be used by the state to provide forest fire protection and other needed forestry facilities, from which the timber land owners would obviously benefit. This original understanding between the timber land owners of the state, however, has not been lived up to. Only a small portion of the money raised from timber is utilized for the purpose indicated, the remainder being covered into the general funds of the state treasury and utilized for a variety of purposes.
Since the Louisiana law was originally enacted several of the southern states which were without state forestry organizations of any sort have endeavored to utilize the so-called " severance tax” as a means of raising the necessary funds with which to carry on forestry activities, without drawing on the general funds of the state. These different proposals thus far have been consistently and effectively opposed by the lumbermen in the respective states. They have feared that this was merely an entering wedge, as was the case in Louisiana, and that eventually the amount of tax would be increased and utilized for geenral purposes.
Any resort to the use of the severance tax consequently as a general revenue measure should at least aim to safeguard the interests of forest conservation by definitely limiting its application in some such manner as has already been indicated. Such limitation is unquestionably necessary to avoid imposing upon the forests a greater burden than that imposed on other natural resources.
CHAIRMAN McKenzie: The topic is now open for discussion.
T. O. McGrath of Arizona: I made several notes in listening to Mr. Vaughan's talk, of certain points which he did not bring out, and I should like to cover them.
In speaking of the natural resources, I wish to eliminate the forests and all mines except metal mines, because the large deposits of iron in the mines of Minnesota are in a class by themselves, and also the anthracite and bituminous mines are in a class by themselves. So iar as the metal mines are concerned, in increasing the tax-not saying that some mines are now overtaxed-you are liable to develop the same thing as has been mentioned in connection with forests, the tax reaching such proportion that where the profit from the mines is small, the tendency will be to grab what is in sight and deplete the mines in a very short time, and fail to develop further the natural resources of the country. As an illustration, take Arizona; thirty years ago in Arizona, smelting ores averaged ten per cent and over; milling ores averaged six per cent and over. Nothing else was mined; no ores below that, if they were smelting ores. In other words, certain ores could not be milled in those days. Oxide ores could not be milled. If they were lower than ten per cent, they were put in for filling. If the ores were sulphides, they could be mined down to six per cent. Anything below six per cent, if it was sulphide, went in the “garb." That was the condition of the mines for a number of years. It was impracticable under the conditions in Arizona in those days to develop those mines at a profit, even without taxation of any kind, and the mines in that territory were practically untaxed. There were no cities; the county organizations were small; there was no state tax, very little county, and no city tax. Still, everything under ten per cent for carbon or oxide went to “garb”, and everything under six per cent for sulphide went to “garb ”. Ores lower than those grades were not even touched.
However, these higher grade ores were profitable. They made 'large profits, made many men rich. It required the hardest prospecting: the building of roads and railroads; fighting Indians, and other things, to develop those high-grade mines. In developing them, railroads were built; roads were built; villages were built; men were brought in, which made it cheaper to mine and transport, and as the higher grade mines were depleted, the question came up. how to work these lower grade ores. Then men were put to work studying the problem; money was expended in experimentation, which could be done by reason of the large profits. Today, in Arizona, smelting ores as low as three per cent are mined and smelted, and milling ores as low as one per cent are mined and sent to the mill. That was possible because in the early days there was little or no taxation of mines. Prospectors were willing to go out in the hills and prospect all summer and winter, in order to make a piece of money. There were lots of men dumped into the districts; the chances were great, and if discovery was made, the profits were large.
At the present time in Arizona we have one of the highest tax systems in any metal mining state probably, with the possible exception of Minnesota. The profits from the mines are small. There are no great mines left in Arizona; that is, if there are you cannot see them. If there are any great mines there, they will have to be developed by deep shafts, with large expenditures and expert talent, which requires large salaries. Of low-grade mines, none are left in Arizona. The last low-grade mine was developed in the last few years, and this deposit of low grade carbon ore had been known from the earliest history of Arizona, as one of the first mines opened in Arizona. Numerous men tried to work it. Some of the mining companies in the United States spent hundreds of thousands of dollars to develop a process whereby this ore could be treated. It was given up and about 1910 another concern tackled it. It was a metallurgical proposition. It could not be smelted, or milled, and the only thing to do was to leach it, but how to leach it and how to turn it out as metal-copper--considering the amount of money required, was a very great problem. It required millions of dollars, even if they succeeded. The amount of energy and money necessary to develop that was so large that very few tackled it; but one concern did tackle it, and today that property is producing at the rate of fifty millions a year, and will add at least probably one-half billion in wealth to this country, due to the fact that it was able to lay by a surplus to carry on that operation.
I think there is a gentleman here representing the Utah Copper Company, and I think he can explain to you that the Utah Copper Company's great wealth did not come by any grafting of resources. It would probably be interesting, if the gentlemen care to hear him.
CHAIRMAN MCKENZIE: Is there any further discussion ?
A. G. MACKENZIE of Utah: I am not the gentleman Mr. McGrath referred to. The Utah Copper has a direct representative here, but he has asked me to speak for his company as well as the others on this proposition. George Vaughan's paper may have given you a misconception about the situation of the Utah Copper in that the Utah Copper and its associate companies are the development of a resource rather than the exhaustion of one. In bringing that mine to its present eminence, they developed a new metallurgy. I know something of it. I was over there when it was a cow pasture; I was in it when it was an underground mine; I know something about the proposition. They take ore which is only running one and one-half per cent copper, and reclaim enough of it to make the mine commercially profitable, through handling an enormous tonnage. But for the perseverance, the imagination and the courage of those men, risking not only their money and their friends' money, but their own professional reputations, that mine would still be a cow pasture; so I think it should be acknowledged as an achievement rather than the exhaustion of any wealth of the state.
In connection with that same property, Mr. Vaughan mentioned a fluctuation in its valuation for taxation. The tax is a composite of a tax on actual valuation-true value of ground and machineryand a tax on net proceeds of the property. Any company's business-a merchandise business, a farm business or any other business — would show a like fluctuation under any system of fair taxation known, had such business been in the condition that the business of the Utah Copper was in at the periods indicated. He took the year 1916, the peak of prosperity for the copper company, and compared it with the last year or two, for one year of which the mine was shut down completely, and for a year prior to which it was in only partial operation. If any other business, as I say, was in that condition, it would have shown a like fluctuation.
Another thing that came to my mind: Judge Vaughan alluded to Mr. Finlay, whose name of course we all know in the mining business, and whom some of us know personally. I think it should be observed at this time that Mr. Finlay has been known in recent years chiefly as a representative of tax collectors rather than of mining people, and I think perhaps his appraisals should be regarded not so much as judicial but as made for the purpose which they accomplish, of increasing the assessed valuation of mining properties, and in that his surveys were very successful. I could amplify some of the things Mr. McGrath said, but they are well known to you. I am not sure that some of you men in other states understand the process of making a Western mine. I can give you some personal history, because I know the facts. I paid fourteen separate assessments on one property out there before we got to shipping ore, and last October we started to ship.
I am interested in another property which we call our new bonanza property there. I am not a heavy stockholder. It is now one of the principal silver-producing mines in the United States. We were twelve years getting the ground together and working that property before we shipped a ton of ore. That represented twelve years of waiting; twelve years of more or less sacrifice of investment, and I think you will concede that in the making of a mine there are some substantial differences from building up other businesses, and that any system of taxation, to be fair, must recognize that condition as applied to mining. I thank you.