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"Olin Mathieson is already shipping boron-based fuels to the Air Force from a pilot plant at Niagara Falls, N. Y. A second plant is scheduled to go into production for the Navy in February, and a third plant for the Air Force will begin producing in spring 1959, acccording to Olin.
"Callery Chemical Co., jointly owned by Mine Safety Appliances Co. and Gulf Oil Corp., is also developing boron-hydrogen fuels for the Navy. To manufacture its fuel, Olin uses boron tetrachloride from Stauffer Chemical Co. and sodium borohydride from Metal Hydrides, Inc.
"The chief problem in running a boron-fueled engine is considered to be the difficulty with the products resulting from burning boron hydride, prime chemical ingredient in the fuel.
"Combustion of boron produces boric oxide, which at high temperatures behaves like molasses, according to Olin officials. At one time it was feared this would damage considerably the turbine blades of an engine, but reportedly these difficulties have been solved."
On November 13, 1957, the new open-pit mine and refining plants of United States Borax & Chemical Corp. were put into operation after brief ceremonies. The mine and plants are a short distance from the Edwards Air Force Base. The United States Geological Survey and Bureau of Mines of the Department of the Interior have been engaged in borax studies and in exploration for more borax deposits in the California deserts, and they regard borax as a strategic mineral of vital importance to our country.
It was appropriate, therefore, that the Undersecretary of the Interior, Hon. Hatfield Chilson, should be the principal speaker at the dedication and opening ceremonies at the new open-pit mine and that high officers of the Defense Department should also attend and participate in the program.
Secretary Chilson, in the course of his remarks, said:
"Within the Department work dedicated to the accomplishment of these objectives is centered in two great scientific agencies, the Geological Survey and the Bureau of Mines. The research and development programs of these bureaus are uational in scope and they involve activities which precede or supplement private efforts in the mineral resource field. For example, the survey for some time has been engaged in a defense-related project in this immediate vicinity. Known as the Mojave project, the plan of work called for a general geologic investigation and appraisal of borate deposits in this area and the surrounding country. This is a good example of a broad but very necessary evaluation which in no way impinges upon the work normally done by private industry in the actual development of a particular mineral deposit. As another illustration, I am advised that Bureau of Mines engineers have been working cooperatively with company experts at this very mine to develop more effective blasting techniques. Full development of our resources is a big and continuing job. It is one that requires the best efforts of everyone in Government and industry within their related fields of endeavor."
The Secretary then sketched the history of the borax industry and ended this with a summary of its development in terms of output.
"I have taken some time to sketch the history of the borax industry. Let us look back at some of the benchmarks. The first domestic borax production was in 1864. Annual output of 20,000 tons was attained by the turn of the centurya fivefold expansion took place by the end of World War I-one-quarter million tons annual output was reached by the mid-thirties and this was doubled by 1947. Likely 1957 appears to be the first 1-million-ton year.
Next, after reviewing uses of borax and related products, he said :
"These and many other new and expanding uses as well as the exciting prospects for boron polymers and hydrides, appear to hold forth a bright future within our growing economy."
At the ceremonies at the new mine, Capt. W. C. Fortune, General Representative of the Bureau of Aeronautics, Department of the Navy, made a significant statement, as follows:
"The United States Borax Co.'s enterprise in this vast open pit mining and expansion of refining facilities is heartily appreciated by the Armed Forces. As you know, the Navy is now building a $38-million production plant at Muskogee, Okla., for Hical, the high-energy boron fuel pioneered for us by the Callery Chemical Co. under Project Zip.
“The Air Force, who came in with us a bit later in this project, are erecting a somewhat different process plant through the Olin Mathieson Chemical Co. Both are directed at improving high-energy fuel capabilities and reducing costs so that we can bring this coordinated development into service use.
“My wife and I were avid listeners to the Old Ranger and his 20-Mule Team Borax tales over the radio years ago. Little did we realize that the green flame then mentioned in determining a precious borax in mine samplings would mark later ventures into higher energy rocket and jet fuels.
"I do not know if the launching stations of Sputnik II or Muttnik, if you prefer, burned with a greenish exhaust; however, the boron hydrides offer us gains of 50 percent or more in performance of airplanes and missiles which we cannot afford to neglect.
“The greater energies will extend their ranges, reduce airframe weights, increase payload or improve performance in speed and climb.
"In addition, these compounds can be used efficiently at altitudes where ordinary air mixing fuels will not burn."
Brig. Gen. Marcus F. Cooper of the United States Air Force also spoke at the mine opening ceremonies and in the course of his remarks said:
“The development of jet aviation has thrust upon us the necessity for finding. for developing, fuels that can operate with greater effectiveness than those we have used in the past.
"To produce higher speeds and longer ranges, we need new fuels, and one of these now receiving consideration is a high-energy fuel in which boron is an important ingredient. Because of the high heating value of boron fuels, the Air Force is considering their use in both missiles and aircraft, in both liquid and solid propellent applications."
Aside from high-energy fuels, further uses for boron are consistently being found. Three oil companies are currently marketing a gasoline which includes a boron additive to provide more efficient engine performance. Boron compounds are being used as atomic reactor shields in which a 14-inch-thick layer of plastic and boron can absorb neutrons as effectively as many feet of concrete.
It seems certain that the future needs for boron will be very large and that to supply them in our country and to friendly nations abroad will mean deple tion of known deposits at a rapid rate, extensive and expensive exploration for new ore bodies, and large expenditures for plants for manufacture of boron chemicals.
Boron should be placed in the 23-percent category of minerals subject to de pletion allowance because it is rare, is of worldwide significance and importance, is a strategical and critical element from the standpoint of defense of our country and the known reserves are potentially subject to exceedingly rapid depletion, thus justifying higher capital recovery than can be accomplished at the 15-percent rate.
DRAFT OF PROPOSED AMENDMENT
(a) Section 613 (b) (6) of the Internal Revenue Code of 1954 is hereby amended by striking out "borax," and section 613 (b) (2) (A) of such code is hereby amended by inserting a comma and the word “borax" after the word "sulfur."
(b) The amendments made by this section shall be applicable only to taxable years ending after June 30, 1958.
The CHAIRMAN. Are there any questions?
Mr. REED. I just wanted to say, Mr. Albright, that we are delighted to see you here. I have known a good deal of your history over many years, and you have made a great contribution to the welfare of this country. You have worked with the parks of the United States.
I wanted to ask you one question with regard to this borax. It comes, you say, from the desert area. Is that land owned by the Government!
Mr. ALBRIGHT. No, sir. The land from which we are mining borax is owned by the company. Part of it was taken up years ago under mining claims, and part of it was an old Southern Pacific land grant, where our mines are now.
Of course, for many years borax was mined in Death Valley, but that was a different kind of borax material. That was taken out by
the old 20-mule teams, which became the trademark of the industry. But all the borax that is mined in this country is mined on the deserts of California.
Mr. REED. Thank you very much.
Mr. ALBRIGHT. Thank you for your statement, Mr. Reed. I appreciate it very much.
Mr. FORAND. Mr. Curtis will inquire.
You mentioned the fact that the 23-percent depletion rate applies to other strategic and critical materials. Do we have that so worded in our tax laws that we classify certain things on the basis of their being strategic and critical, or is that simply one of the criteria that you suggest we use in putting them in the 23-percent rate?
Mr. ALBRIGHT. That is the word that has been used in all the testimony. The law itself does not call these minerals critical and strategic, Section 613 (b) has several subdivisions: No. 1 is for oil, 2712 percent for oil and gas wells; the second contains the 23 percent list, and it is divided in turn into 2 parts: One (a) which includes only sulfur and uranium, and (b) which has some 30 minerals, all of which are rare, and all of which have critical and strategic significance.
Mr. CURTIS. Essentially, though, as I understand it, our tax code is not set up on the basis of giving a subsidy in these areas. As I have always viewed it, it is on the basis of what is the geological situation in regard to the depletion and the rates and the cost of finding new bodies.
Mr. ALBRIGHT. Yes, sir.
Mr. CURTIS. Of course, I think your arguments are all right, as far as the boron is concerned. If you are having an increased usage as you suggest, that is certainly going to affect the cost of finding new ore bodies in order to stay in business. But I had not thought that we had actually said that these were based upon the fact that they might be critical or strategic.
Mr. ALBRIGHT. No, sir. You are right, Mr. Curtis. You never have, at least in the law. In the testimony at many places those words were used. I have gone back over the testimony of previous years, and those words were used, but not in the legislation.
Mr. CURTIS. Yes; I know. People used that in arguments, and I can easily see where we might do that. But if we do, frankly I would much prefer to put the subsidy out in the open rather than work with these laws that, in my judgment, should be dealing solely with the best measuring stick that we can use to figure what are the costs of replacing the capital investment from depleted ore bodies.
Your statement at the end there, if I may emphasize it, I think is basically all right.
Boron should be placed in the 23-percent category of minerals subject to depletion allowance, because it is rare which is a fair testand is of worldwide significance and importance Then you say it, is a strategical and critical element from the standpoint of defense of our country and the known reserves are potentially subject to exceedingly rapid depletion, thus justifying higher capital recovery than can be accomplished at the 15-percent
That is the area I would be interested in, and I appreciate your statement.
Mr. ALBRIGHT. As far as borax is concerned, we are in that position, Mr. Curtis.
Mr. CURTIS. In other words, you think you can justify your claim, washing out the significance of a strategic and critical material, but just on the basis of the costs involved in getting new ore bodies to replace the rapidly depleted bodies.
Mr. ALBRIGHT. Exactly. You have stated the criterion the way we understand it.
The CHAIRMAN. Mr. Reed will inquire.
Mr. REED. I just wanted to ask you, is boron found in other parts of the world very much?
Mr. ALBRIGHT. There is some boron found in Turkey and a little in South America, Mr. Reed, and we understand that there is still some found in Tibet. We are of the opinion that what Russia is getting from is coming from Tibet, or in that direction, although there are rumors that there have been discoveries in Russia itself.
But it generally must be regarded as a rare material.
If not, we thank you for your appearance and the information you have given the committee.
Mr. ALBRIGHT. Let me thank you gentlemen for the time and attention you have given me.
Mr. FORAND. The committee will stand adjourned until 2 o'clock, when we go into executive session. The public hearings will be resumed at 10 o'clock tomorrow morning.
(The following statements were received by the committee :) SUGGESTED REVISION OF INTERNAL REVENUE CODE, SECTION 691, BY L. C. Weiss,
RESIDENT PARTNER OF ERNST & ERNST At present, section 691 taxes the successor-in-interest upon the income of a decedent collected subsequent to his death. This is undoubtedly a reasonable provision but it should be freed of inequity and double taxation in its relation to Federal estate taxes.
Under the estate tax provisions of the Internal Revenue Code, it appears necessary to include in a decedent's taxable estate the value of accrued income, or rights to income, even though collectible subsequent to death and notwithstanding the requirement to include such income in the tax return of the successor-ininterest.
Without more, this is an obvious duplication in tax-estate tax and income tax-on the same income, the effect of which could involve capture of the entire income by the Government.
Congress recognized this inequity and sought, in section 691 (c), to relieve the situation by allowing an income tax deduction for a portion of the estate tas assessed with respect to the same item of income. However, this relief falls short of fairness. It is inadequate and leaves a substantial inequity.
Probably the fair and proper method of dealing with this situation is to recognize the estate tax value of such income uncollected at the date of death as a "cost" or "basis" to be recovered by the successor-in-interest as property or a valuable right received from the decedent, permitting such successor to exclude from gross income, when subsequently collected, the basis established for estate tax purposes-not merely to allow him partial relief in the nature of an income deduction for the estate tax paid on such income but full exclusion of the previously taxed amount against the subsequent income realization,
An alternative to the remedy suggested might be to allow a "tax credit" against the subsequent assessment of income tax, that is, to permit the income tax on
such income when collected to be reduced by a direct credit for estate tax paid on the same item.
Consider United States E savings bonds owned by a decedent: For estate tax purposes, the redemption value at date of death must be included as a part of the taxable estate for estate tax computation. This value includes interest accrued to the date of valuation. Nevertheless, when the interest is collected by the successor-in-interest, the full amount of such bond interest must be included as gross income for income tax purposes. Section 691 (c) allows as an income deduction (for income tax purposes) the estate tax paid on such interest included in the estate tax computation but this represents only partial relief from double taxation.
The use of the estate tax as an income deduction is not equivalent to the allowance of the estate tax as a full credit against the income tax on the same item. Section 691 (c) allows only partial relief-it allows only the income tax rate applied to the estate tax payment. Ordinary justice and equity demand full allowance either of
(1) An exclusion from gross income of the successor-in-interest of the basis, that is, the value at which such income was included for estate tax purposes, or
(2) A direct offset of estate tax liability against the income tax liability of the successor-in-interest.
The inequity which we are bringing to your attention relates not only to Ebonds but to all items of income embraced by section 691 of the code. It is manifestly unfair to single out items of income of this character and subject them, in part at least, to double taxation as does the present code, particularly when the injustice can be avoided in the manner we are suggesting.
It is therefore recommended that either
(1) Subsection (c) of section 691 should be amended in such a fashion so as to provide that the deduction now permitted by said subsection against gross income be made a credit against tax. In this connection appropriate changes would also have to be made in section 421 (d) (6) (B) and perhaps other subsections of section 691 and other provisions of the Internal Revenue Code of 1954; or
(2) Sections 1014 (c) and 691 (c) be eliminated from the code; that appropriate amendments be made to other subsections of section 691 and to other related sections, the effect of which amendments would be that amounts received in respect of a decedent under section 691 would be included in gross income only to the extent that they exceed the value as finally determined for Federal estate tax purposes of the right to receive such amounts.
Your thoughtful consideration of the situation will be much appreciated.
WRITTEN STATEMENT BY RICHARD H. STEWART IN SUPPORT OF AMENDMENT OF
SECTION 691 (C) AND RELATED SECTIONS TO PROVIDE FOR A CREDIT FOR FEDERAL INCOME TAX PURPOSES FOR ESTATE TAXES ATTRIBUTABLE TO THE ITEMS OF INCOME IN RESPECT OF A DECEDENT
The purpose of this statement is to respectfully suggest a change in the provisions of section 691 dealing with income in respect of a decedent. Section 691 (a) of the Internal Revenue Code of 1954 provides in general that the amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period shall be included in the gross income for the taxable year when received of:
(A) the estate of the decedent, if the right to receive the amount is acquired by the decedent's estate from the decedent;
(B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent's estate from the decedent; or
(C) the person who acquires from the decedent the right to receive the amount by request, devise or inheritance, if the amount is received after
a distribution by the decedent's estate of such right. Under section 691 (a) (3) the right described in section 691 (a) (1) is treated in the hands of a successor in interest of the decedent as if it had been acquired by such successor in interest in the same transaction in which the right was originally derived by the decedent. Under this same provision, the amount includible in gross income of such successor in interest is treated as having the same character as it would have had in the hands of the decedent if the decedent had lived and received such amount. Under section 691 (b) a credit and certain deductions in respect of a decedent are allowable to certain suc