The broad policy determinations which must necessarily be made from time to time in order to permit the effective application of the bill to changing conditions, would be placed in the hands of a board composed of the agencies best qualified to pass judgment on these matters-the Departments of the Interior, Defense, Commerce, and Treasury. The day-to-day administration of the bill, including the approval or disapproval of applications for financial aid from individual producers, would be placed in the hands of the Secretary of the Interior, subject to the policy determinations of the board, and subject to the right of the producer to appeal from the action of the Secretary to the board. The Secretary would be required to conform his action upon applications to the recommendations of suitable experts, or, if he disagreed with their determinations, to submit the matter to the board for determination.

The perfecting amendments recommended by this Department are as follows: 1. In section 4 (d), page 3, lines 16-18, strike out the proviso which reads: "Provided, That adequate allowance shall be made for depletion and depreciation in computing costs of operation or maintenance."

This proviso appears to be incongruous and unsound in two particulars. First, it singles out for inclusion in the costs of operation or maintenance the items of depletion and depreciation, notwithstanding that these two items normally have a less direct relation to mining costs than do many other items which are not mentioned by the bill, such as, for example, the hiring of labor and the procurement of supplies. In effect, the proviso would compel the Government to make its contributions for the conservation of mineral deposits on a cost basis that included depletion and depreciation, even though the effect of their inclusion would be to inflate the contributions made for particular mines beyond the amount reasonably necessary in order to achieve the conservation objectives of the bill. Second, in the mining industry, depletion and depreciation are ordinarily associated not so much with the actual costs of operation and maintenance as with the determination of profit or loss. Hence, the proviso might raise the inference that the prices to be paid by the Government would necessarily take into consideration questions of ultimate profit and loss to the producer, thereby transforming the bill from a conservation to a subsidy measure. 2. In section 6 (a), page 5, line 16, strike out the words "if the application discloses", and insert in lieu thereof the following words, "if it is determined upon examination".

This clause, as it stands, could possibly be construed as requiring financial aid to be granted in any case where the application contains statements which, if true, would disclose a reasonable promise of developing unknown or undeveloped sources of metals or minerals, without regard to the accuracy of these statements. The suggested amendment would make this clause conform to section 6 (b), which requires an examination of and report on all applications. 3. In section 6 (b), page 6, line 7, change the word "each" to "such". This will correct an obvious typographical error.

4. In section 6 (b), page 6, line 8, change the word "practicable" to "practical". This will correct what appears to be another typographical error.

5. In section 6 (d), page 7, line 23, add a comma after the words "the provisions of this Act". This will clarify the meaning of the sentence in which these words appear.

6. In section 6 (d), page 8, line 7, strike out "(a)" and substitute "(2)”. This will correct an obvious inadvertence.

7. In section 6 (d), page 8, lines 15-17, strike out the words: "at least the price paid by the Government for the metals or minerals, and only in such quantities as will not depress the market", and insert in lieu thereof the words: "at least the approximate average price paid by the Government for the metals or minerals, computed as of the time of each sale by the Administrator of General Services, and only in such quantities as will not materially depress the market". This suggested amendment would resolve two administrative difficulties inherent in the present language of the bill. First, by establishing “approximate average price" as the standard for sales of acquired minerals, it would permit material savings in accounting and handling charges. A wholly unnecessary burden of separate bookkeeping and physical segregation for each lot of acquired minerals would be placed upon the General Services Administration if, as the bill seems now to imply, each such lot, however small, must be sold at a price that will return to the Government at least the price paid for that particular lot. Second, the added prohibition against sales inurious to the minerals market would be defined as a prohibition against sales that "materially depress" the market. This would make clear that the prohibition is intended to be applied on a

practical basis, since in economic theory every offer of sale might be said to have a depressing effect.

8. In section 7 (d), page 10, line 4, after the word "including" insert the word "undeveloped", and place a comma after the word "deposits".

The clause here in question is evidently designed to make the exploration provisions of the bill applicable to the search for extensions of known mineral deposits. In order to clarify this intent the word "undeveloped", which appears in the opening language of this subsection, should be specifically tied in with such extensions. Otherwise, the clause might be strained into an authorization for extending financial aid, under the guise of exploration, to the development of extensions already known to exist.

9. In section 7 (e), page 10, line 17, strike out the word "promptly".

This suggested amendment is a highly important one in clarifying the meaning of the bill. It could be contended with respect to almost any mine that production could not be resumed "promptly" if the mine should be shut down for any length of time. Hence, in order to preclude unreasonable demands for financial aid, the word "promptly" should be deleted from the bill.

10. In section 7 (f), page 10, line 21, after the word "project" insert the word "primarily".

The purpose here is the same as that indicated in item 10 above. The foregoing amendments would, for the most part, make the provisions of H. R. 6110 conform with those of S. 2105, its companion bill, in the form in which that bill was reported by the Senate Committee on Interior and Insular Affairs on August 25, including the additional committee amendments reported by Senator O'Mahoney on September 19. The only substantive variations are with respect to the amendments recommended above in items 1 and 9, both of which are considered by this Department to be needed for protection of the public interest. In addition, minor variations of language appear in section 6 (a), page 5, line 14, of H. R. 6110, and in suggested amendments 5 and 7.

It is obviously impossible to make any exact determination in advance with respect to what producers may be eligible for financial aid for exploration or conservation; therefore, no estimate is attempted of the probable costs of carrying out the provisions of H. R. 6110.

The Bureau of the Budget has advised that "H. R. 6110 in its present form would not be in accord with the program of the President, but there would be no objection to favorable consideration of that bill if it were amended as suggested in your report, particularly with respect to points 1, 2, 7, 8, and 9."

Sincerely yours,

OSCAR L. CHAPMAN, Under Secretary of the Interior.

We also have a letter from the Munitions Board, Mr. Chairman. (The letter is as follows:)

Hon. J. HARDIN PETERSON,

MUNITIONS BOARD, Washington 25, D. C., October 7, 1949.

Chairman, Committee on Public Lands,

House of Representatives.

DEAR MR. PETERSON: The Office of the Secretary of Defense has designated the Munitions Board to reply to your request for a report by the Department of Defense on H. R. 6110, a bill "to stimulate exploration for and conservation of strategic and critical ores, metals, and minerals, and for other purposes."

The principal purpose of the bill is to strengthen the domestic mining industry. It is the position of the Department of Defense that any reasonable measure designed to support a strong, productive, and efficient mining industry is in the interest of national security. The Department of Defense has, however, consistently stated that any program designed to provide such support should remain entirely distinct from the program of stock piling for national security purposes. Under no circumstances should the separate objectives of the two programs become confused in the process of developing legislation supporting the mining industry.

It is noted that the provisions of H. R. 6110 which provide aids to the industry are entirely disassociated from the Government's stock-piling program. The only relationship between the two programs is that materials acquired by the Government pursuant to the terms of the bill are to be made available to the stock pile, if suitable for its purposes, on exactly the same conditions as are any materials privately produced for sale on the open market.

In view of the foregoing, the Department of Defense offers no objection to the enactment of H. R. 6110.

This report has been coordinated among the departments and boards in the Department of Defense in accordance with procedures prescribed by the Secretary of Defense.

The Bureau of the Budget has advised that there is no objection to the submission of this report.

Sincerely yours,

PATRICK W. TIMBERLAKE,

Major General, USAF, Deputy Director of the Staff.

Mr. ENGLE. Dr. Boyd, I notice that you are present.

From the reading of this report I take it that S. 2105 as reported by the Senate Committee, including additional amendments subsequently, reported by that committee, is not satisfactory to the Department of the Interior, because the report on H. R. 6110 says that the amendments here suggested will make it conform to the Senate bill with the exception of the amendments proposed in items 1 and 9 of the report, both of which are considered substantive and necessary by the Department.

The Senate amended S. 2105 on the floor. There is one amendment which has already been referred to, and that is the one offered by Senator Cordon, of Oregon.

What comment, if any, do you have on the bill as it finally passed the Senate?

STATEMENT OF JAMES BOYD, DIRECTOR, BUREAU OF MINES, DEPARTMENT OF THE INTERIOR

Mr. BOYD. Mr. Chairman, so far as the bill which passed the Senate is concerned, S. 2105, we know of no particular objection in principle to it from the executive agencies.2

There are two minor suggestions in the letter which was just presented to you which did not appear in S. 2105. They are matters of administration and clarification of the bill. I believe those have been identified in the letter. I think the corrections made here for your bill have not been made in S. 2105, but are mentioned at the bottom of that letter and referred to specifically.

Mr. WHITE. A parliamentary inquiry, Mr. Chairman.

Mr. ENGLE. Yes.

Mr. WHITE. Is the Senate bill as amended properly available with the Cordon amendment?

Mr. RAGAN (the clerk). The Cordon amendment is on page 11.

Mr. WHITE. That is all I want.

Mr. ENGLE. In short, to summarize, Dr. Boyd, S. 2105 fails to carry two of the administrative amendments referred to in Under Secretary Chapman's letter of October 10, 1949, is that correct?

Mr. BOYD. That is correct.

Mr. ENGLE. What comment, if any, do you have to make with reference to the amendment inserted by Senator Cordon, which has been referred to?

2 COMMITTEE NOTE. There was considerable objection by the executive agencies to certain provisions of S. 2105 as passed by the Senate. This was evidenced by subsequent testimony and statements by the chairman of the Rules Committee, during the hearing for a rule on the bill that the agencies had informed him they objected to the measure unless further amended to delete certain provisions.

Mr. BENNETT. Mr. Chairman, would not that $20,000 which you talk about be considered either in the nature of a gift or a loan, and not income under any circumstances? If he has to pay it back it would be in the nature of a loan. If he does not have to pay it back it would be in the nature of a grant or a gift.

I do not think that under the present Revenue Code, though I am not an expert on it, that a grant of this kind would come within the definition of income as presently written in the Internal Revenue Act. Of course, I am not an expert on the Internal Revenue Act.

Mr. ENGLE. Incidentally, for the purpose of the record, let the record show that Congressman Bennett of Michigan, the author of H. R. 6110, is here.

I intended to announce it before, Mr. Bennett, and I hope you will forgive me for not doing so. We are very happy to have you participate in this discussion.

Mr. BENNETT. Thank you.

Mr. CRAWFORD. Mr. Chairman, may I make a comment?

Mr. ENGLE. Yes.

Mr. CRAWFORD. If I were one of the recipients of some of these funds under this bill I would enter on my own books the cash received, and I would treat it as income the same as if I had sold goods and created gross income.

I would then take those funds and use them for exploration purposes, and if no profits came out of that exploration operation I would certainly show expenditures, and those expenditures would be in excess of the income. Otherwise there would be a profit.

I would not lead myself into the belief that I was not liable for income tax under that operation.

Suppose that through the kindness of your action I am given $10,000 to do with as I please. That is income to me. I think if the Government caught me not returning that as income that some day I would be assessed a substantial penalty. I might be sent to Leavenworth for not reporting all my income.

This is a pretty difficult question to deal with, and the Bureau of Internal Revenue cannot state very emphatically and very clearly, based on the present law and the rules and regulations, as to under what conditions these grants would constitute income.

For instance, suppose that I receive a grant and that I use part of that grant for buying some machinery to put out here on a certain location. Later on I desert that location, but I move my machinery about 100 miles away. When it is replaced it has a value, we will say, of 30 percent of what its value was originally, and let us assume that operation proves to be profitable. I should not think that the Department of the Interior or any other department of Government would come to me and ask me to return the machinery, but somewhere down the line I may pick up a substantial revenue as a result of the advance made to me under this program.

Therefore, I think very definitely there is an income-tax liability there.

Suppose we attempt to write the law and attempt to evade or avoid the liability from the standpoint of income. On what grounds can you say to a citizen engaged in mining that he has no liability on income and to some other citizen that he does have a liability on income?

Mr. ENGLE. Will the gentleman yield?

Mr. CRAWFORD. Yes.

Mr. ENGLE. It is not my purpose to suggest that the miner be excused from liability on income tax, except to the extent that he is granted these amounts of money by the Federal Government.

Mr. CRAWFORD. That is what I am talking about.

Mr. ENGLE. If the Federal Government is going to turn around and tax a man on that $20,000, as income to him, which was given to him for the purpose of exploration, then the Government might just as well reduce the amount by the amount of the income tax, and give him the net amount, holding out the balance.

What we should know at the beginning is the tax liability of the mine operator with respect to Government aid or grants for exploration as provided by the bill. For instance, if I am going to get soaked 25 percent, or 20 percent, or 12 percent, or whatever it is, on the $20,000 which is given to me by the Federal Government, in order to participate in an exploration project, I want to know it so that I can pull it from the $20,000 and set it aside; it is a direct reduction of the amount of money given by the Federal Government for exploration.

If mine operators are to be taxed on the amount of Government participation, they should play safe and deduct the tax to begin with. It is just pulling the money out of one pocket and putting it in another. We ought to know where we are.

Mr. CRAWFORD. I think I would have to disagree with the chairman on that question as to what happens with the $20,000 after it is advanced to the recipient by the Federal Government.

What happens to it depends on what follows, and the recipient must keep his accounting records to show what follows. If there is nothing to be taxed, that would be one thing. The application of tax will depend on what his record shows subsequent to receipt by the recipient.

Mr. ENGLE. You mean whether or not in the over-all he has a net loss or net gain?

Mr. CRAWFORD. Yes, sir; because here is the other side of the argument.

You propose to tax citizens of the United States certain moneys to hand to other citizens to help them go along and to promote the production of basic materials. The citizen who is being taxed to put up this money from the Treasury, which is dispersed, has something to say about this, also. We have to be in a position to go on the floor and defend the actions we recommend.

We do not want to get too much involved in this idea that the recipient shall not be taxed, if there is anything to tax.

Mr. MILLER. Will the gentleman yield?

Mr. CRAWFORD. I am not arguing that there will be something to tax, but I say the actual records will show that.

That is where the Bureau of Internal Revenue will go to see what shall be taxed. They will go to the records.

Mr. MILLER. Will the gentleman yield?

Mr. CRAWFORD. Yes.

Mr. MILLER. Is it not supposed under the bill, however, that the moneys advanced to the individual, if he is successful, will be paid back?

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