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is a special tax provision permitting capital gain

treatment, rather than ordinary income treatment,

to the sale of domestic iron ore. As indicated, the

net result of these favorable provisions is to place

an effective tax rate of 24 percent of net income on

mining industries as opposed to 43,3 percent on manufacturing Industries, including processors of reclaimed

raw materials.

3.2.2 Transportation Inefficiencies

The existing structure of rail and ocean freight rates

for the transport of virgin and reclaimed raw materials

appears to contribute to substantial inefficiencies

in the use of the nation's rail and ocean transport capacity, and to hinder the orderly and efficient distribution of reclaimed raw materials throughout the

economy. The effects are a function both of differential

rates on particular commodities (virgin and reclaimed)

and of the periodic compounding of this differential

by routine Interstate Commerce Commission approval of

across the board increases in rates.

Freight rates for the rail transport of reclaimed
non-ferrous metals range from between 50 percent to
100 percent higher than such rates for competing virgin

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This surcharge imposed on the transport of reclaimed raw materials is also found in ocean transportation rates as approved by the Federal Maritime Commission.

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This pattern is all the more striking if one considers

that both the virgin material and the reclaimed material

are transported in 40 foot containers of 40,000 pound

capacity each, and that both receive the identical ser

vice. Yet reclaimed raw materials pay a 14 percent

surcharge in their freight rate.

* National Association of Secondary Material Industries (NASMI), Impact of

Transportation Costs on Recycling.

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3.3 Salvage Value and Product Design and Durability

The salvage value of a consumer durable, whether it is

derived from potential use as a raw material or from po-
tential for reconditioning, is very much a function of
the design of the particular item. Durables may be de-
signed to most efficiently permit the separation and re-
trieval of ferrous components, non-ferrous metal compon-
ents, etc. They may be designed to facilitate ordinary
repair and periodic reconditioning or rebuilding. Indeed,
this appears to be the practice in heavier capital equip-
ment (e.g., airplanes of most categories, specialized

motor vehicles such as fire engines, and certain cate-
gories of heavy construction equipment).

There is some evidence of a significant level of re

source recovery in some of the steel oriented product cate

gories. It has been estimated that approximately 90 percent of automobiles disposed of in urban areas are retrieved as

reclaimed ferrous scrap.*

Home appliances are estimated to

be retrieved in urban areas for use as ferrous scrap at a

rate of 75% of those disposed. The rate does drop signifi

cantly in non-urban areas, although no quantitative measure

Private communication with NASMI.

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is available. The rate is assumed to be high for con

struction equipment. The recovery rate of tires is in

sharp contrast, as it is estimated that 72.3 percent of

all passenger tires and 68.2 percent of all truck/bus
tires will be disposed of as solid waste in 1974* and

that a small percentage (1.2 percent and 2.0 percent

respectively) of those tires reclaimed will be as raw
material (rubber). The differential will be reclaimed

as retreads.

3.3.1 Product Reconditioning: Design and Labor

To the extent that highest economical value of an

item at the time of its disposal is determined by

its potential for reconditioning, the item's sal

vage value will be a function of a number of para

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.

the availability of spare parts and the efficiency of the system for their distribution throughout

the economy

the availability, level of competence, and cost of

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labor skilled in reconditioning items

the availability of proper tools and facilities
for reconditioning, and the efficiency of the system
to collect, recondition and redistribute the item

the quality of its components; its capital value.

In general, the higher the product durability, the

higher the incentive to recondition, and the greater

the salvage value.

One of the most important factors influencing salvage

value is that of the availability, level of competence

and cost of labor skilled in reconditioning and repair

ing items. In general, craftsmen presumed capable of

repairing and/or reconditioning consumer durables are

in short supply.

3.4 Legislative Alternatives

with the above considerations in mind, the following alternative legislative means which can be utilized to increase product salvage value are presented:

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