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greater actual usage, the pounds of lead for which payment is to be made is limited under paragraph 2 to 1,000,000 pounds during the year ended July 31, 1971, and is decreased 200,000 pounds per year thereafter during the five year transitional period. No payments are to be made for usage after the twelve month period ended July 31, 1975.

(c) Section 6429 (c) provides that the limitations contained in section 6429 (b) (2), relating to the specific quantities eligible for payment during the transitional period, shall be applied to a controlled group of corporations as though such group were a single corporation. Only one member of a controlled group will be permitted to claim the payments under section 6429 (a). This provision would accord multiple-corporate groups the same treatment given a single corporate entity operating several refineries. For purposes of this subsection, the term "controlled group" has the same meaning as in section 1563 (a) except that 50% control is substituted for any 80% control test contained in section 1563 (a) Parent-subsidiary, brother-sister, or combined controlled groups would therefore be within the ambit of the poundage limitation of section 6429 (b) (2) as a single entity. By reference contained in section 1563 (a) to section 1563 (d), the constructive ownership rules of section 1563 (e) would be applicable.

(d) Section 6429 (d) provides that only one claim may be submitted with respect to lead additives used during any twelve month period. The second sentence imposes a period of limitations for filing claims which ends on October 31 of the year during which a twelve month period ends. Gasoline producers, who did not use all of their eligible poundage until the month of July during a particular twelve month period, would generally have a three month period in which to file claims. Quarterly refund claims also would be permitted when the claim for a quarter exceeded $1,000. No claim shall be allowed for amounts allowed as a credit against gasoline excise taxes as permitted under section 6429 (e).

(e) Section 6429(e) provides that the payment authorized by section 6429(a) to gasoline producers in respect of lead additives used by such producers may be claimed as a credit against payments due by the producer for the manufacturer's excise tax on gasoline imposed by section 4081. Credit for the lead additive payments under this provision would be taken during the reporting period for gasoline excise taxes as the lead additives are used and to the extent of the periodic liability for gasoline excise taxes. In the event the amount of authorized lead additive payments exceed periodic liabilities for gasoline excise tax, claim may be made under the terms of section 6429(d).

(f) Section 6429(f)(1) adopts the definition of gasoline contained in section 4082(b). Section 4082(b) defines "gasoline" as "all products commonly or commercially known or sold as gasoline which are suitable for use as a motor fuel”.

(g) Section 6429 (1) (2) defines the term “production of gasoline” as including the refining, compounding and blending of gasoline. The definition borrows some of the language used in defining "producer" in section 4082 (a) for purposes of the manufacturer's

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excise tax on gasoline. The definition is intended to encompass all operations during which a gasoline manufacturer or processor may add a lead additive.

(h) Section 6429 (f) (3) adopts the definition of "lead additive" contained in section 4891 (g) (2) (section 2 (a) of the bill).

(i) Section 6429 (g) (1) provides that all provisions of law, including penalties, applicable to section 4891, which imposes the tax on lead additives, shall also be applicable to payments under section 6429 insofar as those provisions are not inconsistent.

() Section 6429(g)(2) provides that the Secretary or his delegate shall have the authority granted under section 7602 to examine books and witnesses to ascertain the correctness of any claim made for payment on the use of lead additives under section 6429.

(k) Section 6429(h) provides cross references to the civil penalty under section 6675 and to criminal penalties under chapter 75.

(1) Section 3(b) of the bill provides the following conforming, clerical, and technical amendments:

(1) A technical amendment is made to the cross references to manufacturers excise taxes contained in section 4227 to provide a reference to credits available against gasoline excise taxes for the payment under section 6429 for the use of lead additives.

(2) A clerical amendment is made to the table of sections for subchapter B of chapter 65 to include section 6429.

(3) A conforming amendment is made to section 6206 to provide that excessive payments made under section 6429 may be assessed in the same manner as the tax on lead additives under section 4891.

(4) A technical amendment to section 6504 (relating to cross references to limitations on assessment and collection) is made to provide a cross reference to the assessment provisions under section 6206 which particularly relate to assessments to recover excessive payments under section 6429 and civil penalties under section 6675 for such excessive claims.

(5) A technical amendment is made to section 6511 (g) (relating to limitations on credit or refund) to provide a cross reference to the special limitation upon the period for filing claims for payment under section 6429 (d).

(6) A conforming amendment is made to section 6675 (relating to assessable penalties for excessive claims under various special payment provisions) to provide that the penalties contained in such section shall apply to excessive claims for the payment for the use of lead additives in the production of gasoline.

(7) Conforming amendments are made to section 7210 (relating to criminal penalties for failure to obey summons), section 7603 (relating to service of summons), section 7604 (relating to enforcement of summons), and section 7605 (relating to time and place of examination) to provide that these sections shall be applicable to section 6429.

(8) A clerical amendment is made to the table of sections for subchapter A of chapter 63 to reflect the change in the 31

heading of section 6206 (relating to special rules for assessment of excessive claims under sections 6420, 6421, 6424, 6427 and, under this bill, 6429).

(9) A clerical amendment is made to the table of sections for subchapter B of chapter 68 to reflect the change in the heading of section 6675 (relating to assessable penalties for excessive claims with respect to the use of fuels or lubricating oil and, under this bill, lead additives.)

SECTION 4. HIGHWAY TRUST FUND AMENDMENTS

Section 4 of the bill amends subsection (c) of section 209 of the Highway Revenue Act of 1956 to make it clear that the highway trust fund receipts consist of all of the manufacturer's gasoline excise tax without regard to credit taken against gasoline excise taxes for the credit for payment for lead additives used in the production of gasoline.

SECTION 5. EFFECTIVE DATES

Section 5 provides effective dates as follows:

(a) Tax on sale of lead additives. Sales of lead additives after July 31, 1970, are subject to the tax on lead additives.

(b) Tax on importation of gasoline containing lead additives. The lead content of gasoline imported after July 31, 1970, is subject to the tax on lead additives.

(c) Lead additives floor stocks tax. Lead additives held on August 1, 1970, by a person other than a manufacturer, producer, or the importer of lead additives are subject to the lead additives floor stocks tax.

(d) Payments with respect to the use of lead additives in the production of gasoline. Section 6429 applies with respect to the pounds of lead used after July 31, 1970, in the production of gasoline.

The Chairman. We welcome our first witnesses, representing the administration, who will appear today and tomorrow. The public witnesses will be heard beginning on Monday, September 14.

Secretary Kennedy, Chairman Train, Under Secretary Veneman, and Dr. Heffner, we welcome you to the committee and you may proceed with your statements. The Chair recommends that the panel be permitted to present their entire statements first, to be followed then by questions from the members.

Secretary Kennedy, you are recognized to open the program this morning

STATEMENT OF HON. DAVID M. KENNEDY, SECRETARY OF THE TREASURY; ACCOMPANIED BY JOHN S. NOLAN,

NOLAN, ACTING ASSISTANT SECRETARY, TAX POLICY DIVISION

Secretary KENNEDY. Mr. Chairman, members of the committee, the President has recommended three tax measures which deserve your immediate consideration

A tax on lead additives used in the refining of gasoline;

An acceleration of the required time of payment of gift and estate taxes; and

A 1 year postponement of scheduled reductions in the automobile and communications services excise taxes. This tax on lead additives in gasoline is an essential step at this time to deal with our increasing problem of pollution. The other measures are principally short-term revenue-raising measures, although the acceleration in payment of estate and gift taxes also permanently improves the operation of the estate and gift tax laws, by giving the Government, subject to reasonable limitations, more current use of its tax revenues.

I will describe each of these measures separately.

TAX ON LEAD ADDITIVES

One of our greatest national concerns at the present time is the preservation and improvement of our environment. We must stop further deterioration in environmental conditions, particularly in the most vital element of all-the air we breathe. We must insure that our air remains clean and fit then for human use. This is an obligation we have to future generations as well as to ourselves.

One of the largest contributors to air pollution at the present time is the internal combustion engine in our automobiles. The administration has established a priority program to reduce this air pollution. Our recommendation of a tax on lead used in gasoline additives is a vital element of that program.

The need for this tax is immediate. Gasoline refiners use lead additives to obtain higher octane ratings at the lowest cost. Because of these additives, lead compounds are discharged into the air in the exhaust fumes. The presence of these compounds in the environment is dangerous, both for the present as well as for the future. This tax will impose an economic penalty on the use of such additives which will permit unleaded gasoline to be produced and marketed at a price competitive with leaded gasoline of similar octane rating. This, in conjunction with other steps being taken, will reduce the use of these additives.

At the present time, lead components account for a major portion of the solids contained in exhaust fumes. Public health scientists are becoming increasingly concerned that the presence of these compounds in the air we breathe is damaging to human health. Furthermore, research is developing convincing evidence that the small particles serve as nuclei or surface catalysts for the formation of the smog which is choking so many of our major cities and which itself is a major health hazard. Furthermore, lead is not the only major pollutant in automobile exhaust. Auto exhaust also contains afterproducts of the internal combustion itself-hydrocarbons, carbonmonoxide, and oxides of nitrogen. These along with lead, are the source of smog.

The Federal Government has been working closely with the automobile industry to develop major solutions to the problem of air pollution. One element of the program is to adopt engine designs in new automobiles which will operate on lower octane gasoline. Since lead is added to increase octane, abatement of the octane race makes it feasible to begin now to reduce and eventually eliminate the lead in gasoline.

An equally important element in the program is a requirement that automobile manufacturers build into their new automobiles, beginning with 1975 models, devices to eliminate the noxious elements in the exhaust-the hydrocarbons, carbon monoxide, and oxides of nitrogen. Thus, stringent standards for automotive emissions will go into effect at that time, and these can be satisfied only with emission control devices presently under development.

At the present time, there are no production-proven emission control devices, that will meet these standards. An important device currently being developed by private industry to meet the standards, the catalytic reactor, could be destroyed by a single tankful of highly leaded fuel.

Accordingly, impending future needs require that at this time we create an effective incentive to industry to convert to the production of gasoline with little lead and in time no lead. Unleaded gasoline must be generally available in large quantity by midsummer of 1974, if the emission control standards program is to succeed.

Imposition of the tax will provide necessary assurance to the automobile industry that the fuels their products will require will be available. Decisions are currently being made concerning the design of the 1975 model year automobiles. Confidence that unleaded fuel will be available will permit firm conclusions to be made as to incorporation of catalytic reactors or other such devices. In addition, during the intervening years, limited user testing of various engine and emission control designs will be a vital element in the eventual development of the best overall system. This entire program of development to reduce air pollution from the internal combustion engine will be greatly facilitated if the auto industry knows with certainty that unleaded fuel will be generally available by the time their 1975 model automobiles are in production.

The gasoline refining industry requires at least 2 years' leadtime before decisions to make significant alterations or expansion of refining facilities can be put into effect. This expansion and alteration will be necessary to insure the availability of sufficient quantities of leadfree fuel.

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