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In many cases there may be a sound policy reason for considering the limitation of salvage value in favor of some other parameter or complex of parameters. Thus the goal should be an optimal and not a necessarily maximal salvage value. Increasing salvage value thus only makes good sense if the present salvage value is below the optimal value.

3.2 Salvage Value and Virgin Raw Materials

The salvage value of an item whose highest economic value lies in the use of its component materials as raw materials in another industrial process is a function of

a variety of factors such as:

the level of demand for the raw material in question. As expected, salvage value and percent recycled of the available amount of precious metals (75%) is

greater than the percent recycled of steel (26%).

Interestingly, it is less than the percent recycled

of stainless steel (88%).

the technological limitations of using reclaimed

materials in the manufacturing process. This will

vary according to the type of raw material, its

relative purity and reliability, and the demands of the existing production technology.

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the nature and structure of the demand market

for raw materials. If the demand industry is
oligopolistic, as in the case of the tire in-

dustry where six companies produce 83% of the

tires*, the actual level of demand for reclaimed

or secondary materials may be a function of other

than free market forces, that is, of a programmed

decision to avoid the use of reclaimed materials.

the differential in transportation costs between

reclaimed materials and virgin raw materials. As

discussed below, there is a substantial differential

in rail freight and ocean freight rates which does

not appear justified by cost considerations. **

the indirect subsidy afforded the extractive in

dustries as opposed to the manufacturing industries

* Robinson, Lowell. "Rubber Reclamation from Municipal Waste", Markets

for Solid Waste, New York Council on the Environment. ** Interstate Commerce Commission, Ex Parte 281: Increased Freight Rates

and Charges, Petition to vacate Commissions Order dated October 31, 1972. (Filed by National Association of Secondary Material Industries, Inc.)

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by the Internal Revenue Code (principally Sections
613 and 631). The 1969 tax reform studies of the

Treasury Department showed that extractive industries,

exclusive of petroleum, have an effective tax rate of only 24.3 percent of net income as opposed to 43.3 percent for other manufacturing companies. (Industries processing reclaimed materials for further use as raw materials are classified as manufacturing industries.) the perceived convenience and reliability of the secondary materials market as a raw materials mar

ket. Purchasers may tend to view the secondary

materials market as requiring a large labor invest-
ment on their part to compensate for frregularities
in shipments, etc.
the available short-run and long-run supply of virgin

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raw materials. In some cases the total known resources

are limited (e.g., aluminum); in others (sand) they are relatively large, and may be treated for economic

purposes as limitless.

The relatively low levels of percentage recycling among

ferrous and non-ferrous metals tends to suggest that there is at least one major factor in those listed above which probably

distorts the operation of free-market forces by not permitting

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the free flow and operation of recycled ferrous and nonferrous reclaimed metals, and of recycled rubber from tires.

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Source: 'Battelle Memorial Institute, A Study to Identify

Opportunities For Increased Solid Waste Utilization, 1972.

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The resource recovery rate for passenger tires is

projected to decline from 30.9% in 1968 to 27.7% in

1974,*

3.2.1 Inequitable Tax Treatment

There appears to be a subsidy of a substantial nature

granted by the operation of the Federal tax laws to

industries engaged in extraction or mining of ferrous

and non-ferrous metals. This subsidy tends to operate

as a major hinderance to the efficient and orderly cir

culation and use of reclaimed raw materials in the

economy.

The percentage depletion allowances, as stipulated in

Section 613(b) of the Internal Revenue Code, place virgin raw materials at a substantial competitive advantage with respect to reclaimed raw materials. In effect, the mining industry pays a Federal tax rate

of little more than half of that paid by the processor

of reclaimed raw materials.**

The depletion allowance for iron ore and copper ore is

15 percent of gross income; the depletion allowance for other industrial metals is 22 percent. Section 631(c)

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** U.S. Department of Treasury, Tax Reform Studies and Proposal, 1969

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