Highlights
- Bipartisan legislation aims to modernize tax code by increasing depletion allowance for rare earth elements and scandium from 14% to 22%.
- Bill seeks to reduce U.S. dependence on China’s critical minerals supply and support domestic production for clean energy and defense technologies.
- Proposed tax incentive could attract new investment and lower capital costs for domestic critical minerals mining projects.
According to a July 28 press release (opens in a new tab) from Congressman Adrian Smith’s office, a new bipartisan bill introduced by Representatives Smith (R-NE), Jimmy Panetta (D-CA), and Guy Reschenthaler (R-PA) seeks to modernize the U.S. tax code in a targeted way to encourage the domestic production of rare earth elements and scandium. Titled the Critical Minerals Investment Tax Modernization Act of 2025, the bill would amend section 613 of the Internal Revenue Code of 1986 by elevating the percentage depletion rate for rare earths and scandium from 14% to 22%—the maximum rate allowed for the highest-priority minerals.
Supporters of the legislation, including co-sponsors from both sides of the aisle, argue that the existing tax framework is out of step with current geopolitical and economic realities. “Our tax code doesn’t reflect the growing need for critical minerals that support our national security and clean energy future,” said Rep. Panetta. Echoing that sentiment, Rep. Smith emphasized the need to “embrace our nation’s full capacity to produce critical minerals at home,” citing national security and economic competitiveness as key motivators.
Bill uses few words for a big change
As stated in the bill language (opens in a new tab), the legislative change is concise but consequential. Section 613(b)(1)(B) of the Internal Revenue Code currently outlines which minerals qualify for the highest depletion allowance—a mechanism that lets producers deduct a percentage of their gross income based on resource extraction, rather than actual expenses. This incentive has traditionally been reserved for minerals such as uranium, lead, and zinc.
The proposed amendment would insert the following language into the existing list: “rare earths (in this subparagraph defined as the 15 lanthanide elements), scandium,” placing these materials in the same elite tax category as other top-priority resources. This means that mining companies could deduct 22% of their gross income derived from the production of these critical elements, rather than the current 14%. The effective date clause specifies that this change would apply to taxable years beginning after the date the bill is enacted.
While deceptively brief, the legal impact of this change could be enormous. Increasing the depletion allowance by more than 50% improves cash flow for domestic producers, potentially lowering the cost of capital and drawing new investment into the sector.
In practice, this would serve as a direct economic lever to increase U.S. supply of minerals essential for clean energy technologies, advanced manufacturing, and defense applications.
Industry Reaction: A Welcome Boost for Homegrown Production
In a July 31 press release (opens in a new tab), NioCorp Developments Ltd.—a company working to develop the Elk Creek Critical Minerals Project in southeast Nebraska—praised the bill as a potentially transformative measure. NioCorp CEO Mark A. Smith, who is not related to the Congressman, emphasized the strategic relevance of scandium and rare earth elements to both the Pentagon and private sector industries. “Setting the depletion rate for these elements at the priority depletion rate level is sound public policy,” he said.
The company has a particular stake in the outcome. Its Elk Creek Project is expected to yield niobium, scandium, titanium, and possibly several rare earths, including neodymium, dysprosium, and terbium—critical for manufacturing permanent magnets used in electric vehicles, wind turbines, and defense systems. With the project located in Rep. Smith’s own congressional district, the bill’s potential passage could significantly enhance the project’s financial viability.
Moreover, NioCorp highlighted that Rep. Smith’s position on the influential House Ways and Means Committee—the gatekeeper of tax legislation—improves the bill’s chances of making it into law. Additional bipartisan backing from Rep. Panetta and Republican leadership member Rep. Reschenthaler also increases momentum.
A Strategic Response to Chinese Dominance
Beyond economic incentives, the legislation is clearly crafted with national security in mind. As Rep. Reschenthaler stated in the original press release, “U.S. dependence on China for critical minerals is unsustainable and a threat to our national security.” China currently controls over 80% of the global rare earth supply chain—a fact that has drawn increasing alarm from U.S. defense planners and industry leaders alike.
The bill complements broader efforts by the Trump Administration to bolster domestic critical minerals supply chains, including executive actions and Department of Defense investments aimed at resource independence. NioCorp’s statement specifically ties the initiative to these national-level strategies, framing the bill as part of a comprehensive effort to break free from foreign reliance.
What Comes Next?
The Critical Minerals Investment Tax Modernization Act has been referred to committee, and its fate now rests with Congress. If enacted, the bill would align tax policy with strategic goals of energy independence and national security, offering tangible incentives for companies to mine domestically what they previously sourced from abroad.
Though only a few lines long, the legislative text carries serious weight. By raising the financial return for miners extracting rare earths and scandium within the U.S., it attempts to shift the economic calculus in favor of domestic development—a small change in code, with potentially enormous implications for American industry and sovereignty. A review of the US Congress website suggests that a bill number has yet to be assigned for the Act.
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