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Minerals Mined on Federal Land Spared Taxes, Aided by Senator Reid

May 17: Senate Majority Leader Harry Reid, D-Nev., speaks to reporters as the Senate votes to continue tax breaks for oil companies, at the Capitol in Washington.AP

While Democrats rip into oil and gas companies for failing to pay their "fair share" because of tax breaks Congress gave them, another special interest break they're not talking about is the billions of dollars worth of gold, silver, uranium and other minerals that mining companies take off federal lands for which they pay nothing.

"They don't pay a dime, not a penny for the gold and uranium they remove from public lands," says Steve Ellis of Taxpayers for Common Sense. "Virtually every other country in world charges a royalty on hard rock minerals. It is absurd that we don't do this."

Both mining and oil companies pay corporate taxes, and both get generous write-offs in the tax code.

But mining companies get two huge subsidies oil companies do not: leases and royalties.

Mining entities pay no more than $5 an acre for land from which they extract billions of dollars worth of minerals. By contrast, multinational oil and gas firms are required to competitively bid against one another just for the right to drill on specific leases. Those bids typically pay taxpayers from tens to hundreds of millions of dollars, depending on how much oil a company believes is in the field.

A royalty or fee represents an annual percentage the federal government charges based on the value of the resource extracted from public lands. For oil and other fuel sources, the numbers are in the double-digits. 

The government receives 12.5 percent in royalties for onshore oil and gas while the royalties for offshore drilling amount to18.75 percent. For coal, that number is 8 percent for underground mining and 12.5 percent for surface mining. 

For gold, silver, uranium and copper mining: 0 percent

Reformers in Congress tried to raise the last figure but failed.

In 1993, the House passed a bill imposing an 8 percent royalty, but Sen. Harry Reid, D-Nev., helped kill an agreement in the Senate. In 2007, West Virginia Rep. Nick Rahall helped pass a bill in the House that imposed a 4 percent royalty on gross revenue on existing operations and 8 percent on new operations. Again Reid stepped in, saying the House bill "won't stand over here."

"When you talk about collecting a royalty off the top, irrespective of production costs, that is an unsustainable situation," said Carol Raulston of the National Mining Association.

In 2008, according to the National Mining Association, about $20 billion worth of metals were sold in the U.S. from mines here covered by existing law. With a 4 percent royalty, that translates into at least a $4 billion in payments for minerals owned by U.S. taxpayers.

"This is a pirate story with the public lands profiteers robbing the American people blind," Rahall said in November 2007. "The robbery of American gold and silver must stop."

But it hasn't.

Since taking office, Reid has received $750,000 in campaign contributions from the mining industry, according to the Center for Responsive Politics. That number includes $127,000 from Nevada's two largest gold producers in the 2010 election. Together, those two companies had profits of $5 billion last year yet they paid taxpayers nothing for minerals taken off public lands.

"Senator Reid through the years has aligned himself with those interests to thwart mining law reforms time and time again," Ellis said.

While Ellis and others blame Reid, the mining association is happy to have him in their corner.

"Senator Reid is one among many who don't want to see domestic mining killed off in this country," Raulston said.

According to Yahoo Finance, three of the 10 most profitable industries in the U.S. right now are in mining, including copper, gold and silver, which enjoy a 47 percent net-profit margin. Oil and gas exploration, by contrast, ranks 50th with a net margin of 11 percent.

Yet oil and gas are singled out, particularly by Reid.

"We should all agree, in the interest of fairness, common sense and saving taxpayer money that we can cut out corporate welfare to those big oil firms who need it the least," Reid said last week.

"Senator Reid has always been open to reasonable hardrock mining reform that protects jobs while ensuring the industry pays its fair share," a Reid spokesman said. "However, I’d want to change the subject too if I had to defend billions in government giveaways to big oil corporations with gas prices so high in Nevada and across the country.”

President Obama weighed in on Saturday, noting that the "American people shouldn't be subsidizing oil companies at a time when they're making near-record profits."

Gold and silver both closed last week near record highs.

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