EXHIBIT "C" DEPARTMENT OF AGRICULTURE, OFFICE OF THE SECRETARY, Washington, DC, March 7, 1984. Hon. ROSCOE L. EGGER, Jr., DEAR Commissioner Egger: On November 10, 1983 the Department of Agriculture wrote a letter requesting an opportunity to review the comment upon a proposed regulation, LR 144-76 (Farm Syndication Regulation) prior to action by your agency. We have not requested to appear before a public hearing on the proposed rule. Instead we are providing comments on the IRS proposed regulation and request this be entered into the record as the Department's position concerning the issue. The Department of Agriculture, at this time, is opposed to the proposed tax classification action of jojoba, an arid land plant that is grown in the Southwest. The Department takes the position that the IRS proposal would impede the development and potential commercialization of a number of crops that have strategic and industrial application. In the case of jojoba, the application is an additive to highly specialized lubricants, a replacer for sperm whale oil. Sperm whales are an engangered species and the United States no longer imports nor includes this oil in the strategic stockpile. Jojoba appears to be the most viable alternative for replacing a commodity for which there are strategic and industrial implications. A Critical Materials Task Force has recently been appointed in USDA to determine the economic feasibility of producing a number of crops that are capable of providing botanochemicals to replace imported petroleum used for feedstock in the chemicals industry. The United States finds itself dependent on foreign sources for nearly half of its petroleum supply, of which about 400,000 barrels per day are utilized as feed stock in the chemicals industry. We would further point out that the Department has in effect a Master Memorandum of Understanding with the Department of Defense. Under this agreement, research of mutual concern will be conducted and the work carried out under the terms of this agreement will be significant benefit to the United States. One of the specific areas of work will be concerned with strategic and critical materials. We feel that research on strategic materials under this agreement could be significantly impeded if the IRS proposed regulation is implemented. It is realized that the Internal Revenue Service has a concern to fairly and appropriately collect taxes on commercial agricultural operations. It is also realized that jojoba is being commercially produced for the cosmetics industry. If this were the only application for jojoba oil the Department's view would, in all probability, be different. The implications for strategic and industrial application and the potential that jojoba, along with a number of other crops, has as a new agricultural commodity justifies the Department's reluctance to favor a change in the tax status of jojoba at this time. We would favor a delay in this decision pending the outcome of not only the Department's Critical Materials Task Force but a thorough study by the Federal Emergency Management Agency (FEMA). FEMA has the responsibility for assuring materials in the strategic stockpile for national emergency and is concerned that presently it does not have a stockpile replacement for sperm whale oil. FEMA also has a concern for other materials which are petroleum based as well as natural rubber. In many cases the U.S. is highly dependent on foreign sources and is totally import dependent for natural rubber. The issue, at this point, is not one of classifying jojoba as a commercial agricultural commodity, but an issue of determining its application as a p、tential strategic and essential industrial material. This, of course, will require a coordinated study by a number of Federal agencies. We propose that a study be undertaken and that the Department of Agriculture work with FEMA and other key agencies to determine the applicability of jojoba as a strategic material. This coordinated study would be conducted after results of the Department's Critical Materials Task Force has provided its results and recommendations to the Secretary. It would also provide time to assess the industrial potential of certain agricultural crops and their applicability to non-traditional agricultural usages. As was mentioned in our previoius letter, the Department has operated under the provisions of the 1981 Farm Bill and of PL 95-592, the Native Latex Commercializa tion and Economic Development Act. PL 95-592 has been rewritten and now is in the Senate under H.R. 2733, the Critical Agricultural Materials Act. With the passage of this Act we would be in an entirely different position of conducting research and developing a number of critical hydrocarbon-containing plants including jojoba for oil, guayule for natural rubber, and other plants that produce materials essential to the Nation's industries. We are reluctant to see action taken to impede the research and development of potential agricultural commodities that could aid the farming sector and contribute, as well, to the industrial economic capacity of the United States. Sincerely, Chairman STARK. Thank you very much. ORVILLE G. BENTLEY, I gather that there is some semantic discussion going on between the botanical definition of jojoba, that is the seed of a fruit, and the horticultural definition evidently being somewhat different. That is a matter of indifference to me. It also is a matter of indifference, and I certainly would be the last to suggest that the oil of the jojoba bean, fruit, nut, whatever it is, may have both curative, restorative and lubricating products far exceeding anything we know. That, again, is not of concern to me or a concern of the committee. What I would like any of you to explain is, as briefly as you can, is why we should treat the jojoba bush-bean-tree-whatever it isany differently than we treat walnuts, pistachios, grapes, or any other agricultural product that takes a while to grow? Why should we give a special break to jojoba farmers? MS. WHITTAKER. Because Mr. KNOWLES. I was just going to say I tried to answer that in my presentation. I think the major difference is that each one of these other crops you mentioned had been grown commercially, if not in this country, in another country, and they are much more predictable. Chairman STARK. I will give you examples where that is not at all the case in a moment. But go ahead. MS. WHITTAKER. The point is that in the case of jojoba, we are not taking a crop which we understand well, and where we have a rulebook. We are Chairman STARK. Good, this is a new crop. MS. WHITTAKER. Absolutely new. Everything you do is—— Chairman STARK. Let me take such a conservative free enterprise as Mr. Knott, of Knotts Berry Farm, who without a nickel of Government subsidy developed boysenberries which were not a crop; or after avacadoes in the State of California were practically nonexistent in the 1930's and now are desired and valuable throughout as a vegetable, whatever they are. Victor Borge, an immigrant, came to this country and in the grandest tradition of agriculture developed the cornish game hen in the State of Connecticut without any Government subsidies. Grapes are now being grown once again-although, admittedly, 200 years ago they were grown in Virginia-but they have had to redevelop a whole new root stock and grafting and a type of grape that would grow in States where they have not grown before. We give them not the treatment. That is the question I have. I don't intend to give them the treatment, by the way. I would state for the record that I have devel oped vineyards and still have some, and I don't get this. I think this is an extra tax subsidy. I don't think it is needed. I would admit you can make money, and it is a wonderful crop, but I don't see that we have never given it to any other agricultural product. Why should we start now? If somebody can answer that MS. WHITTAKER. I would say none of the crops you mentioned are necessary. No one needs boysenberries or grapes. We can live without them. The question here is, Is jojoba oil something which is of intrinsic value for the well-being of this Nation? Is it a product Chairman STARK. If it is in the best order of free enterprise, that is what we let the marketplace determine. Mr. KNOWLES. Mr. Chairman, I think maybe the answer to that question is that the Congress many times in the past has offered tax incentives where they felt it was necessary to develop that particular crop or industry, and I think the fact that Congress didn't eliminate the tax for all agricultural crops in the 1976 act is an indication they still want to provide some tax incentives for these agricultural crops. Chairman STARK. I don't know that there is any test, and the Chair would welcome it later, that showed that any of our tax laws were ever designed to assist the jojoba industry, sperm whale oil was knocked out as an import in 1971, long before the 1976 act, and there was nothing in the 1976 act to my recollection that dealt with helping sperm whale being imported. So I don't think that that is an-that is a convenient history, but we have never in the history of this country, since we gave free water to all the farmers in California, really tried to generate a subsidy to help somebody develop. There are universities, in addition to Davis at California, developing new agricultural plants and products and animals all the time. We just passed a law, we had a great argument last year about patenting new agricultural seeds and products. There has never been a suggestion that we should give that a tax credit to help it out. So that is my issue. What I am concerned about is that this is-there is absolutely no way you can deny this credit to other agricultural interests in the sense of fairness, and I don't think really that you have made a case-not that jojoba isn't a useful, wonderful product-but there is no-we have not heard from the Defense Department that they are screaming for it. The astronauts don't want to take your hairgrowing oil up into space with them to do something there with it. There is some contest on the cookies. Dr. Braunder's magic soap probably sells very well, but I don't know that we ought to subsidize this kind of stuff any more than Knotts Berry Farms' boysenberries or California or Florida avocados and/or, I might add because I can't let the record go without saying, there is a very large element, thank God, in this country who thinks that grapes are very essential to their life and whether they are in the form of table grapes or in the glass, the elixir of the Gods, which we produce in California. They love it, believe me, this would be a boon to the grape industry if we could have this kind of deduction, but we don't. I think that is the-I apologize for anything that might suggest the least bit of even-I won't use the word "ridicule"-but we are just strictly concerned with where we spend the taxpayers' money and whether or not the tax shelters should be or shouldn't be there. I agree, they are proliferating in your industry, and one only has to look at the advertisements in the Wall Street Journal or elsewhere to see that people are peddling tax shelters. That is really what brought it to the attention of this committee, and I would hope that we would have you wait to take your depreciation investment tax credit when the orchards start to produce the income. As to Mr. Shooter's comment, we will deal next year with ways to close the deficit so that by 1999, or whenever you show we lose money here, we will probably find a way to get that. I would like to welcome the ranking minority member of our subcommittee, Mr. Duncan, and ask if any other members, too, have questions? Mr. DUNCAN. I have no questions, Mr. Chairman. Chairman STARK. Thank you. I want to call our next witness, Senator John Melcher from the great State of Montana, who would like to testify ahead of his panel. He has pressing business. I hope his business will be so pressing so he can get us out of here, so we can get home this weekend. With an eye toward seeing the Senate finish their business this week, John, welcome to the committee. Welcome back to the House Office Buildings, and we have your prepared testimony. It will appear in the record in its entirety, and you may proceed as you wish. STATEMENT OF HON. JOHN MELCHER, A U.S. SENATOR FROM THE STATE OF MONTANA Senator MELCHER. Thank you, Mr. Chairman, and I appreciate this opportunity to testify before you and my former colleagues. I often miss the House action and procedures of the House and the more definite time for adjournment that the House seems to be able to set than we are able to set in the Senate. I will be very brief this morning because I am not coming here on an issue that is new to the American people, those in the construction business, to the chairman, or to the House. It is an old subject. It is an old subject and old inequity in our tax structure. We have had the very glaring examples of court cases that reach fruition where construction workers win their day in court after long trials and tribulations to get there, a rather costly procedure I might add, too, to prove that their expenses to get to a job a long ways from their home is indeed a legitimate expense and deductible under the law, and IRS will have to allow it. Since 1981, we have been tussling with this in the Senate, hoping to clarify the law so that construction workers will be treated like ordinary taxpayers and will be able to list their expenses away from home and treat them as a deduction. In 1982, we were successful in passing a sense of the Senate resolution as part of the highway tax bill directing the IRS to study the question of deducting construction workers travel expenses and to come up with a series of recommendations. It was only the sense of the Senate resolution, and I guess it is all right for the Treasury to ignore it, but as far as I have been able to determine, there never was a study conducted. We are still in the gray area here now of what is available and when it is available as a deduction for construction workers. I don't think this is fair. I don't know why we should treat construction workers and their families as if they are somehow a family of gypsies that continue to want to move from home to home, and that is the way they want to design their life; so, therefore, they are not entitled to the ordinary business deduction. I don't know any reason why we should treat construction workers as less than first-class citizens, less than first-class taxpayers. You and I have some restraints on us because we are Members of Congress, and we have set in the statutes some limitations on what we can deduct for our use of a home here. But that is a very, very narrow statutory prohibition. In our own private lives, in business, we are accustomed to deduct as business expenses those expenses that are incurred away from home overnight. We don't have to argue about it. We know how to keep the records, and our accountants know how to put it on our tax forms. That isn't true with the construction workers. This is a long-time grievance, Mr. Chairman, an injustice for those workers. Their families are entitled to not have to be placed in the position of moving every year or else the breadwinner-he or she or bothwill not be able to have legitimate deductions for business expenses under IRS regulations. Well, the IRS regulations are the responsibility of the Department of Treasury based on the laws that we pass here in Congress. We have a House bill over here, H.R. 700, and we have a Senate bill that I introduced with several cosponsors that is S. 1219. I think your bill is probably more meritorious than mine, because it says 30 miles away from home is away from home. We say 40 miles, but we establish the guidelines very easily and simply for both the construction workers to understand, IRS to understand, and the courts to be able to interpret. I certainly urge as prompt action as possible in the next Congress on this. I hope that both the House and the Senate can correct this longstanding injustice for construction workers. Thank you. Chairman STARK. Mr. Duncan. Mr. DUNCAN. Thank you, Mr. Chairman. Senator Melcher, are you familiar with the Frederick case? Mr. DUNCAN. In that case the court ruled that workers were entitled to away-from-home expenses. However, the IRS has not followed it in any other jurisdiction. Doesn't the bill reach the same result as the Frederick case? Senator MELCHER. Yes, it does. That is right. Currently, the IRS refuses to acknowledge the Frederick decision. Mr. DUNCAN. Thank you very much, sir. Chairman STARK. Any other questions? |