Depleting Allowance

Nothing is more sacred to many Congressmen than the depletion allowance. Attempts by various administrations to change it have been quickly beaten down. Undaunted by this. Treasury Secretary Robert B. Anderson last week took up the attack again. He told Congress that something has to be done to tighten up on the depletion allowance; the loopholes in the law are so many that the Treasury stands to lose hundreds of millions in revenue each year.

The Treasury's argument is that the allowance off taxable income (ranging from 5% for clay to 27 1/2% for oil and gas) was originally conceived as a form of compensation to industries that extract raw materials and thus presumably "deplete" their storehouse of goods. It was meant to apply only to the raw material itself. But recent court decisions have extended the allowance to include a wide range of refined and processed products. Oilmen, for example, are able to compute the allowance on the value of petroleum products made from gas as they come from the cycling plants and not on the lower value of gas at the well. The danger of this precedent, said Treasury, is that the allowances could be carried to ridiculous extremes, with claims being allowed for structural steel, ceramics, pig aluminum, etc. The allowance on two tons of iron ore is $2.40, said Treasury, but would jump to $44.25 if computed on the value of steel bolts made from the ore. The Treasury already stands to lose $297 million in claims for rebates now being asked for in court, could lose as much as $600 million annually if the new interpretation for mining is stretched across the board.

Secretary Anderson wants Congress to rewrite the laws as soon as possible to close the loophole before it gets any bigger. He will probably win his point. Aside from a few coal men and quarry operators, who argue that their crushing and washing operations are so basic that they should be included, most businessmen agree that the allowance could rapidly become too much of a good thing.

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