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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 manu-
facturing 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 dis-
tribution 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

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

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 service. 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 potential for reconditioning, is very much a function of the design of the particular item. Durables may be designed to most efficiently permit the separation and retrieval of ferrous components, non-ferrous metal components, etc. They may be designed to facilitate ordinary repair and periodic reconditioning or rebuilding. Indeed, this appears to be the practice in heavier capital equipment (e.g., airplanes of most categories, specialized motor vehicles such as fire engines, and certain categories of heavy construction equipment).

There is some evidence of a significant level of resource recovery in some of the steel oriented product categories. 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 significantly 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 salvage value will be a function of a number of parameters:

. the design, reliability and relative cost of spare

sparts

⭑ Robinson reference on page 60.

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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
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 repairing 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: