-18-

producers would have an incentive to incur substantial costs
in the trans-shipment of lead to avoid the premium tax.

The discussion above also argues that if it is possible
for foreign producers to represent primary lead as secondary
lead, there will be little real incentive created
domestically or worldwide to increase recycling efforts. If
the premium tax is less than transportation costs, there
would be some extra incentive to recycle lead domestically.



-12-

pollution of ground water supplies. 1°

In theory, the environmental tax should be imposed on
the pollution itself rather than on the product produced.
The product should only be taxed to the extent that there is
a uniform relationship between the amount of lead produced
and the amount of pollution created. This analysis would
argue that all lead should be taxed, because both the primary
and secondary refining of lead emit lead into the atmosphere.
In theory, however, different rates should be assessed on
primary production and recycled lead if the emissions rates
differ substantially. This analysis would also argue that
certain uses of lead should carry an additional tax because
the use of the product increases the exposure of the general
population to lead (e.g., leaded gasoline and solder).
However, such an additional tax that properly would vary with
the product might prove administratively cumbersome.

Effect of tax on different uses of lead

One of the desired results from the imposition of an
environmental tax is the reduction of pollution from the
targeted source. A substantial increase in the price of lead
might make the purchase of leaded gasoline and leaded solder
uneconomic, thereby curtailing two sources by which the
general population is exposed to lead. However, it is
important to observe that in the case of batteries and
radiation shielding, there are no viable substitutes for
lead. This would imply that the demand for lead would not be
very responsive to changes in price, that is, economists
would classify the demand for lead as inelastic.
Consequently, if a tax increased the price of lead, it would
have little effect on at least three quarters of current U.S.
lead consumption. Thus, a broad-based tax on lead might not
reduce the annual demand for lead substantially.

If airborne lead from the refining process is viewed as
a serious source of exposure for the general population, an
excise tax on all lead would probably be less effective in
controlling lead emissions than an excise tax on, or direct
regulation of, emissions from the smelters. Such an excise
tax on the emissions, however, may be technically infeasible.

Incidence and economic efficiency of a tax on lead

An excise tax on lead would be expected to be borne
largely by consumers. This conclusion is based on the
observation that the demand for lead is reasonably inelastic.

10 Similarly, if in the process of solid waste disposal lead
and products containing lead are incinerated, lead may be
emitted into the atmosphere.



Mining exploration and development expenditures

Under present law, taxpayers may elect to expense
exploration costs associated with hard mineral deposits (sec.
617). Taxpayers also may expense development costs associated
with the preparation of a mine for production (sec. 616).

Mining exploration costs are expenditures for the
purpose of ascertaining the existence, location, extent, or
quality of any deposit of ore or other depletable mineral,
which are paid or incurred by the taxpayer prior to the
development of the mine or deposit. When the mine reaches the
producing stage, adjusted exploration expenditures (but not
development costs) either (1) are included in income (i.e.,
recaptured) and recovered through cost depletion; or (2) at
the election of the taxpayer, reduce depletion deductions
with respect to the property. For this purpose, adjusted
exploration expenditures with respect to a property equal the
amount of expensed exploration costs attributable to the
property, reduced by the excess of percentage depletion which
would have been allowed but for the deduction for those
exploration costs over cost depletion for the corresponding
period. Exploration costs are also subject to recapture
after expensing these amounts (sec. 617(d)).

Development costs include expenditures incurred for the
development of a property after the existence of ores or
other minerals in commercially marketable quantities has been
determined. These costs typically include costs for
construction of shafts and tunnels and, in some cases, costs
for drilling and testing to obtain additional information for
mining operations.

In the case of a corporation, the allowable deduction
with respect to mining exploration and development costs that
the taxpayer would otherwise be entitled to expense is
reduced by 30 percent (sec. 291(b)). The disallowed amount is
required to be amortized over a 60-month period, starting
with the month in which the costs are paid or incurred.

Exploration and development costs paid or incurred with
respect to mines or other natural deposits located outside of
the United States are required to be capitalized and, at the
election of the taxpayer, may be recovered in either of two
manners (secs. 616(d) and 617(h)). A taxpayer can elect to
include such costs in the adjusted basis of the property and
thus recover such costs through depletion or depreciation (as
appropriate). Alternatively, such capitalized costs can be
recovered ratably over the 10-taxable year period beginning
with the taxable year during which the costs are paid or
incurred.

For purposes of the alternative minimum tax, the
computation of alternative minimum taxable income requires



-16-

the non-United States supply is less than perfectly elastic,
that is, if foreign suppliers are unwilling to supply ail
existing United States demand at existing world prices,
domestic producers would not bear the full amount of
transportation costs, or something less than $0.05 per pound.

Of course, if the premium tax rate on primary lead is
less than transportation costs, one should expect no
trans-shipment of non-United States lead to the United States
and domestically produced lead abroad. In that case, the tax
would be borne in the domestic market as will be discussed
below.

Clearly, the outcome described above is economically
inefficient. It suggests that a premium rate on primary lead
in excess of transportation costs will cause non-United
States primary lead production to be shipped to the United
States while United States primary lead production is shipped
abroad. Moreover, no revenue would be collected on
production of that primary lead shipped abroad. This
analysis suggests that such a tax may merely exchange sources
of production without having a large effect on total domestic
lead consumption.

If exports of domestically refined primary lead are not
exempt from tax, as is the case in H.R. 2922, then the
possibility of sale abroad is reduced because the tax creates
a price disadvantage for domestic lead on the world market.
In this case, penetration of the domestic market by foreign
lead could lead to mine and refinery closures. However, two
caveats are necessary.

First, the United States is the largest producer and
consumer of lead in the world, with, as reported above,
United States primary production accounting for somewhat more
than ten percent of world primary production. Displacing ten
percent of world production would require a substantial
increase in non-United States production. While it is
unclear what the elasticity (price responsiveness) of world
supply is, a substantial increase in demand for non-United
States production would be expected to raise the world price
of primary lead. This, in turn, would reduce the number of
United States mines that would be displaced by import
competition. Transportation costs are reported to range from
zero to $0.05 per pound. Presumably lead from Canada and
Mexico, major suppliers of imported lead, are near the lower
end of that range of transportation costs. If supply in
those countries is sufficiently elastic, that is, if small
increases in price generate large increases in supply, world
prices would not be expected to rise very much. On the other

14 Biviano and Owens, "The Minerals Related Implications."



-g-

environmental excise tax should be imposed to reflect the
environmental harm from the production and use of lead, in
the absence of good measures of this harm it is difficult to
assess whether any particular rate of tax is too high cr too
low. Second, it may be difficult to set a tax rate that will
yield a specific quantity of pollution reduction, even though
such a specific reduction may be an important objective.

Marketable pollution permits

Another market approach to pollution control is the sale
of marketable pollution permits, such as the allocations in
the Clean Air Act. Taxes can be used in tandem with
marketable permits to recapture some, or all, of the profits
that arise from the sale of permits. This approach can
produce the same emissions level as an environmental tax,
subject to the same qualifications noted there.

Direct regulation

Direct regulation is the predominant approach to
pollution control in the United States. Direct regulation
usually involves specifying maximum permissible quantities of
emissions. Direct regulation of emissions levels has the
advantage of targeting the amount of reduction from current
pollution levels. Emissions limitations also may facilitate
monitoring compliance. However, it is difficult to determine
the appropriate quantity reduction which is consistent both
with reducing environmental harm and with efficient resource
use. Specifying technology standards may achieve short-run
goals rapidly, but is unlikely to be cost effective. The
market-oriented emissions reduction policies allow firms
greater flexibility in choosing low-cost emissions control
technologies, and thus generally are more cost effective than
direct regulation. For example, adoption of a specific
technology standard may slow the development of potentially
cheaper control technologies.

Lead consumption and production

Supply of lead.--The current price of lead is
approximately,30 cents per pound or $600 per ton. In 1991,
United States~ lead production totaled approximately
1,229,000 tons. Of this total, 346,000 merit tons resulted
from primary refinery production of lead (from mines) of
which approximately 22,000 metric tons was from foreign ores.
Secondary lead, that is lead recovered from recycling,
accounted for 884,000 metric tons or 72 percent of total
production. Imports represented an additional 130,000 metric

+ the data in this paragraph are based on preliminary data
provided by the Bureau of Mines.



-5-

II. DESCRIPTION OF THE BILL

Explanation of Provisions”

Imposition of tax

An excise tax would be impoged on lead produced in or
imported into the United States. The tax rates would be 75
cents per pound on primary lead and 37 cents per pound on
secondary lead.

The bill defines primary lead as lead that has not been
used previously in any finished or unfinished product.
Secondary lead would include all previously used lead (i.e.,
recycled lead).

Establishment of trust fund

A new Lead Abatement Trust Fund ("Trust Fund") would be
established as part of the Internal Revenue Code. The bill
would appropriate to this new Trust Fund revenues equivalent
to the tax imposed on lead. Expenditures from the Trust Fund
would be authorized for spending purposes authorized under
amendments to the Public Health Service Act that would be
made in a separate title of the bill.

These spending purposes, in general, would provide for
grants to eligible States and local governments that provide
matching funds and agree to use the monies for--

(1) inspecting low-income housing and day-care
facilities for the presence of lead-based paint or lead in
surface dust on building interiors;

(2) encapsulating or removing the lead-based paint or
dust, or removing affected structural components of the
building where necessary to abate the lead hazard;

(3) providing temporary housing for occupants of
structures during the lead abatement process; and

(4) training individuals in lead removal processes and
providing counseling on lead poisoning associated with

2 This section describes Title II of H.R. 2922. Title I
generally establishes a program of grants for abatement of
lead-based paint hazards.

3 The bill would not impose tax on the lead content of
imported products (i.e., the bill does not include a
so-called "derivatives tax").



-4-

mining exploration and development expenditures to be
capitalized and amortized ratably over a 10-taxable year
period beginning with the taxable year in which the
expenditures are incurred (sec. 56(a)(2)).



-17-

hand, if these nearby countries cannot expand production |
much, then the world price of lead should rise to reflect a
larger portion of the excise tax.

Second, 90 percent of primary lead was mined from
deposits for which a significant share of mine revenues were
obtained from the production of zinc, copper, silver, or
gold. Mine profitability depends upon revenues from all
metals recovered. The closure of lead mines will cause
by-product production to fall. If the lost by-product
production increases the price of by-products, then the
effects of the tax on mine closures are reduced

Effect of a two-part tax on the manufacture of derivative
products

A tax on lead should increase the cost of manufacturing
products that contain lead. Regardless of whether the tax is
a two-part tax or a tax levied at a single rate, if
manufacturers of competing imported products purchase their
lead untaxed abroad, they will gain a potential cost
advantage over domestic manufacturers of those products. The
extent to which such a potential cost disadvantage harms
domestic manufacturers depends upon how important the cost of
lead is to the final cost of the product and on whether the
domestic manufacturer may already hold cost advantage over
foreign manufacturers.

Incidence and efficiency of a two-part tax on lead

The analysis above discussed the likely incidence that
would result from the premium part of the tax. If exports of
lead are exempt from tax, the premium tax imposed on primary
lead production (in H.R. 2922, the difference between $0.75
per pound on primary lead and $0.37 per pound on secondary
lead) would largely collect little revenue and impose a
burden equivalent to the level of transportation costs on
both foreign and domestic producers. In the case where the
premium tax on primary lead is at a rate less than the
transportation costs of shipping the lead abroad, one would
expect the premium tax to be borne in part by consumers in
higher prices and to be borne by producers of primary lead to
the extent that domestic secondary lead supplies increase to
take advantage of the price advantage afforded them by the
premium tax. If exports are not exempt from the tax, then
the premium tax on primary lead would be borne by domestic
producers as well as consumers. Similarly, if imported
derivative products are not taxed on their lead context, some
of the tax would be borne by domestic producers of such
products as well as consumers.

If the premium rate of tax on primary lead is greater
than the transportation costs, significant economic
inefficiency could be created as both domestic and foreign


-7-
III. ANALYSIS
A. General Issues

Theory of environmental taxes, marketable 2 Pollution permits,
and environmental regulation

Medical evidence indicates that the dissemination of
lead into the environment may have adverse effects on the
health of the population at large (especially children). The
true cost to society of using lead includes both the lead
producer’s internal costs for labor, fuel, etc., and the
environmental cost. Since the direct users of lead may not
generally be required to compensate those who suffer these
adverse health effects, this total cost may exceed the value
society places on the product. Economists term the
environmental cost element a "negative externality," that is,
a cost to society at large that is not borne by the
particular individuals or firms who are the direct users of
the product.

Environmental taxes

The theory of an environmental excise tax is that a
polluter should pay for the environmental costs of its
pollution. Such a tax "internalizes" the externality as a
cost to firms or individuals. This is a market approach to
pollution control which provides a financial incentive for
polluters to reduce pollution.

Under this approach, firms determine the least costly
method of production of their products taking account of the
tax on pollution. They may choose to invest in any existing
technology that saves more in pollution taxes than the
technology costs. A pollution tax also creates incentives
for technological innovation. For example, new technologies
that reduce the cost of controlling pollution can increase
firm profits by reducing pollution tax liability. In
addition, to the extent that the price of the firm’s products
reflects the pollution tax, some consumers will reduce their
demand for the firm’s products, which also will reduce
pollution.

If the rate of the pollution tax equals the value of the
environmental damage caused by the extra pollution, then
consumers will purchase the firm’s product only if the value
of the product exceeds all costs (including the environmental
costs created by the pollution). This maximizes social
welfare because whatever pollution remains is created only in
the process of serving the most highly valued needs of
society.

There are, however, two potential disadvantages to this
approach. First, while economic theory argues that an


DESCRIPTION OF H.R. 2922

({"LEAD-BASED PAINT HAZARD ABATEMENT ACT")

Scheduled for a Hearing
Before the
SUBCOMMITTEE ON SELECT REVENUE MEASURES
of the
HOUSE COMMITTEE ON WAYS AND MEANS

on July 1, 1992

Prepared by the Staff
of the

JOINT COMMITTEE ON TAXATION

June 30, 1992

JCX-26-92


-10-

zinc, silver, bismuth, cadmium, germanium, and indium. ©

Demand for lead

Table 2 below provides information on the uses of lead by
domestic industry. By far the major use of lead is in the
manufacture of lead-acid storage batteries. Lead-acid batteries
are used in the electrical systems of automobiles, trucks, ships
and aircraft. They also are used as the standby, uninterrupted
power supply systems for hospitals, large computer systems, and
telecommunications systems, as well as for emergency lighting.

Table 2.--United States Consumption of Lead
by Product, 1991

Percentage of

Product Metric tons total consumption
Ammunition 58,210 4.6
Bearing metals 5,212 0.4
Brass and bronze 9,943 0.8
Cable coverings 18,253 1.4
Caulking, building
construction 1,688 O.1

Casting metals
(includes nuclear

radiation shielding) 14,843 1.2
Pipes, traps, extruded

products 9,281 0.7
Sheet lead

Medical radiation

shielding 3,479 0.3
Building construction

and other 17,534 1.4
Solder 16,490 1.3
Storage batteries 1,019,637 80.1
Other metal products 3,812 0.3

Other oxides (paint,
pigments, glass,

ceramics) 56,484 4.4

Miscellaneous (in-
cluding gasoline) 40,361 3.2
Total 1,273,226 100.0

Source: Data provided by Bureau of Mines

Marilyn Biviano and Judith Owens, "The Minerals Related
Implications of a Direct Tax on U.S. Primary Lead Production and
Primary Lead Imports," photocopy, Office of Special Projects,
Bureau of Mines, April 1992. Other by-products include copper,
gold, antimony, cobalt, nickel, and tellurium.



MRR ESTE LS Ballin

-9-

tons while approximately 200,000 metric tons were exported
(excluding scrap). Table 1 identifies the sources of
recycled lead processed in the United States. The table
distinguishes "new scrap" from "old scrap." New scrap
generally consists of process scrap from the production of
products containing lead or from the refining of lead and
lead by-products. Old scrap represents post-consumer
recycling.

Table 1.--Lead Recovered from Scrap Processed
in the United States by Type of Scrap, 1991

Type of scrap Metric tons
New Scrap

Lead-base 42,629

Copper-base 5,471

Tin-base 4
Total 48,104
Old Scrap

Battery lead plates 785,664

All other lead-base 77,704

Copper-base 10,725

Tin-base -- -

Total 874,093

Grand Total 922,197

Source: Data provided by the Bureau of Mines.

The lead mining and primary refining industry is
geographically concentrated. Lead is mined in 11 States, but 89
percent of 1989 production was from nine mines in Missouri.
Secondary refiners, that is, those refiners who refined recycled
scrap lead, are more geographically dispersed.

Lead and zinc often occur together geologically. Almost ail
United States mines that produce lead also produce zinc, and
almost all United States mines that produce zinc also produce
lead. In addition, lead mines are the source of a number of other
important by-products. Current United States lead production is
estimated to meet ten percent or more of the domestic demand for

5 Other producing States are Alaska, Arizona, Colorado, Idaho,
Illinois, Montana, Nevada, New Mexico, New York, South Dakota,
Tennessee.



lead-based paint.
Effective Date

The excise tax and Lead Abatement Trust Fund would be
effective on the date of the bill’s enactment.



-2-

I. PRESENT LAW

Environment-related excise taxes

Present law imposes excise taxes on various products to
finance Federal environmental cleanup programs. Examples of
these taxes and the programs they fund are crude oil and
refined petroleum products the proceeds of which are used to
fund the Oil Spill Liability Trust Fund and the Hazardous
Substance Superfund and the tax on certain listed chemicals
(e.g., benzene and lead oxide) the proceeds of which are used
to fund the Hazardous Substance Superfund. Additionally, an
excise tax is imposed on certain ozone-depleting chemicals
the proceeds of which are deposited in the General Fund.

No tax is imposed under present law on lead and no Code
trust fund exists to fund Federal programs associated with
the cleanup of lead hazards.

Percentage depletion

Taxpayers who own economic interests in certain mines,
wells, and natural deposits are permitted to claim percentage
depletion deductions with respect to the production from such
interests. A percentage depletion deduction for a taxable
year is claimed with respect to an interest in such a
property in lieu of a deduction based on cost depletion if
the percentage depletion deduction exceeds the taxpayer's
allowable cost depletion deduction for that property.
Percentage depletion is computed by multiplying the =ross
income from the property from mining for a taxable year by a
specified percentage. In the case of lead, the specified rate
of percentage depletion is 22 percent (sec. 613(b)).

The allowance for percentage depletion with respect to
the extraction of lead is limited (on a property-by-property
basis) to an amount not in excess of 50 percent of the
taxpayer’s net taxable income from the property, computed
prior to the deduction for depletion.

Unlike the deduction for cost depletion, which is
computed with respect to, and limited to, the taxpayer’s
adjusted basis in the depletable property, the deduction for
percentage depletion is based solely on gross income from the
property and is not dependent on, or limited to, the
property’s adjusted basis. Thus, the deduction for percentage
depletion often allows an aggregate amount of deductions in
excess of the total amount of depletable costs that the
taxpayer incurred with respect to a particular property. A
deduction in excess of basis constitutes an item of tax
preference for purposes of computing the alternative minimum
tax.



-13-

That is, as the price rises, consumers are unlikely to reduce
their consumption very much. This is because lead’s primary
use is in automobile batteries and, as yet, there is not a
cost-effective adequate substitute for lead-acid batteries

The generally inelastic demand for lead implies that an
excise tax imposed equally on all lead, such as the base tax
amount, would cause little economic distortion. That is,
consumer behavior would be little changed by such a tax.
Economists call taxes that do not distort consumer behavior
efficient revenue sources and hence a tax on lead counjd be
considered an economically efficient revenue source.

Exports and imports

To provide a level playing field for domestic (as
compared to foreign) producers of lead and derivative
products, it would be necessary to impose the proposed excise
tax on imports of lead and imports of products produced
abroad that contain lead. If such a tax on imports were not
imposed, domestic manufacturers would be placed at a
competitive disadvantage, and domestic exposure to lead would
not necessarily decline.

If lead or derivative products were not exempt from the
tax upon export, domestic manufacturers would be placed at a
competitive disadvantage in world markets. However, if the
refining of lead and production of derivative products are
the source of significant amounts of emissions of lead,
exempting exports could undermine the goal of reducing
emissions in the United States.

Issues in the administration of a tax on lead

An important consideration in the design of any tax is
its administrability. An excise tax on lead assessed at the
smelter-refinery :ffers the administrative ease of relatively
few collection points. For example, in 1983 there were 50
secondary refineries in the United States. However,
complexity may arise if exemption is provided for exported
products. The owner of the smelter-refiner may not know if
the refined lead is to be exported if the sale is to a broker
or wholesaler who subsequently exports the lead. It would be
even more difficult to provide exemption from tax for lead

11 this is not to say that a tax which changes consumer
behavior is necessarily inefficient. As discussed above, the
theory of a pollution tax is to make the market price reflect
the social costs imposed by pollution and for consumers to
adjust their behavior accordingly.

12 Biviano and Owens, "The Minerals Related Implications."


-15-

secondary ($0.37 per pound in H.R. 2922), and an additional
premium on primary lead production ($0.38 per pound, the
difference between $0.75 and $0.37, in H.R. 2922).

Effect of a two-part tax on production of primary lead

Lead is a homogeneous commodity which is traded in a
world market. The United States, in fact, ,has been a modest
net importer of lead throughout the 1980s. It generally
is not physically possible to distinguish primary lead from
secondary lead. As a consequence, a tax that applies solely
to primary lead (or a tax that applies a higher rate on
primary lead than that imposed on secondary lead) will
increase the demand for secondary lead relative to primary
lead. In addition, it will create an incentive for producers
to represent primary lead as secondary lead in order to pay a
lower rate of tax and offer a lower price to customers.

While such opportunities may be limited in the United States,
they more readily might exist for foreign producers who
generally would not be subject to site inspection by United
States revenue agents.

It would be expected that the production of domestically
refined secondary lead and foreign secondary lead would
expand, displacing domestic primary lead production. To the
extent that foreign producers successfully misrepresent
primary lead as secondary lead, domestic primary production
would be further reduced.

A tax levied in the United States on primary lead that
exempted exports would be expected to encourage the retention
of lead scrap and the export of primary lead. The United
States currently is a net exporter of lead scrap. Lead scrap
exports averaged approximately ten percent of domestic
primary lead production from 1985 to 1989. Thus, it would
appear that there already exists a market abroad for ten
percent of domestic primary lead production. Furthermore,
the same reasoning would suggest that at the cost of
transportation expense, all United States domestic production
could be offered on the world market. If non-United States
production is diverted to the United States, United States
production could be diverted abroad. To be competitive
abroad, domestic producers would have to bear transportation
costs, but this is $0.05 per pound or less as compared to
the $0.75 per pound tax proposed in H.R. 2922. Moreover, if

13 The United States imported between zero and twelve
percent of its industrial demand for lead between 1980 and
1990, with the vast majority of the imports coming from
Canada or Mexico. Over the same period, the United States
has been a net exporter of lead scrap. See, Biviano and
Owens, "The Minerals Related Implications."



INTRODUCTION

The Subcommittee on Select Revenue Measures of the House
Committee on Ways and Means has scheduled a public hearing on
H.R. 2922 ("Lead-Based Paint Hazard Abatement Act") on July
1, 1992. H.R. 2922 (introduced by Messrs. Cardin and Waxman
and Ms. Schroeder on July 17, 1991, and cosponsored by
Messrs. Stark, Rangel, McDermott, Moody, Donnelly, Ford of
Tennessee, Matsui, Guarini, et al.) would establish a new
Lead Abatement Trust Fund, financed by an excise tax on lead
produced in or imported into the United States. Expenditures
from the Trust Fund would be authorized for grants to State
and local governments for the abatement of hazards associated
with lead-based paint in low-income housing and day care
centers. H.R. 2922 was referred jointly to the Committee on
Energy and Commerce and the Committee on Ways and Means.

This document, 7 prepared by the staff of the Joint
Committee on Taxation, provides a description of present law
(Part I) and H.R. 2922 (Part II), and an analysis of related
issues (Part III).

1 this document may be cited as follows: Joint Committee on
Taxation, Description of H.R. 2922 ("Lead-Based Paint Hazard
Abatement Act") (JCX-26-92), June 30, 1992.


CONTENTS

Page

INTRODUCTION.......- ste eene see eee ewes Pe arr rans 1
I. PRESENT LAW......... Beem eww ee ennes Seen ecw eeee see 2
II. DESCRIPTION OF THE BILL.......... deme wee weeesnces 5
III. ANALYSIS............ rs sete eee eee e nee 7
A. General ISSUGS....... cee eee eee ee cece eee wee 7



-11-

Some of the production of these final products is
exported, so this table does not represent final consumption
of lead by domestic consumers. For example, approximately
half of the leaded gas produced is exported. On the other
hand, domestic consumers import products which contain lead.
The Bureau of Mines estimates that the United States annually
imports 120,000 metric tons of lead contained in manufactured
products. This represents approximately ten percent of
domestic manufacturers’ use of lead. The lead used in
television and video display terminals constitutes the
largest component of lead imported in manufactured products.

Taxing lead production or use as a proxy for taxing
lead pollution ~ ~

Both the primary refining of lead and the secondary
refining of recycled lead products create emissions of lead
into the atmosphere. Additionally, mining, refining, and
working with lead exposes the employees to lead, and may be
further sources of introduction of lead into the environment
other than as an airborne pollutant. The production of
products that contain lead also emit lead into the
environment and expose employees to lead.

The use of products that contain lead may or may not
introduce lead into the environment. The burning of leaded
gasoline emits lead into the atmosphere. Similarly, the use
of leaded solder on pipes and cans introduces lead into water
supplies and food consumption. However, the lead contained
in batteries generally is not identified as exposing the
population to potential harmful effects of lead. In
addition, the EPA currently estimages that approximately 80
percent of batteries are recycled. Similarly, the use of
lead in underground cable and ammunition generally is not
cited as crgating problems of exposure for the general
population. The disposal of lead and products containing
lead (including batteries) may create the potential for

Biviano and Owens, "The Minerals Related Implications."

As reported in Table 1, batteries are the primary source
of recycled lead. The Bureau of Mines estimates a higher
recycling rate for lead-acid batteries, estimating that 95
percent of the lead in spent batteries was recovered in 1989.
See, Biviano and Owens, "The Minerals Related Implications."

9 Lead in shot was cited as a source of declining
populations of waterfowl and potential contamination of some
water supplies. Subsequently, leaded shot has been banned by
regulatory action in certain areas (e.g., inland waterways) .



-14-

contained in manufactured or derivative products that are
subsequently exported, such as a video display terminal.

This would require determining the lead content of the
product and creating a rebate system. If most output of
products containing lead is consumed in the domestic market,
such a system of export credits for manufactured products may
not be necessary.

Similarly, a tax on imports would increase the
administrative burden of the Internal Revenue Service and
importers of such products. As noted above, it is estimated
that imported products may contain as much lead as ten
percent of the total lead used by domestic manufacturers.
However, the major sources of lead imported in such
derivative, manufactured products is thought to be
televisions, video display terminals, and automobile
batteries. To the extent that relatively few imported
products contain lead in more than de minimis amounts, the
aggregate additional administrative burden from taxing
imports would be expected to be small.

Environmental benefits from taxing lead

If the demand for lead is reasonably inelastic, neither
substantial reduction in lead consumption nor a substantial
increase in lead recycling is likely to result from taxing
lead. As noted above, the United States already has a high
rate of recycling for car batteries, so the potential for
additionai gain is probably small.

Summary of tax design issues

An excise tax on lead of 30 cents per pound or greater
would raise revenue in an economically efficient manner.
Such a rate of tax is high when compared to the current price
of lead that is approximately 30 cents per pound. Such a tax
would be expected to be borne largely by the consumers of
products that contain lead. In addition, such a tax might
not be particularly effective at reducing total. consumption
of lead. It may eliminate certain select uses, but might be
perceived as imposing a high burden on other uses that
generally do not appear to pose concerns of exposure to the
general population.

B. Issues Specific to H.R. 2922

H.R. 2922 would impose a tax of $0.75 per pound on
primary lead and a tax of $0.37 per pound on secondary lead.
Imported lead would be subject to the same rates of tax and
exported lead would not be exempt from tax. In addition, the
bill would not impose tax on the lead content of imported
products, so-called derivative products. A tax such as that
proposed in H.R. 2922 can be thought of as a two-part tax
which assesses a base tax on all lead, both primary and