vt green tax shift & common asset fund dec. 7, 2004 uvm green tax course

VT Green Tax Shift & Common Asset Fund

Dec. 7, 2004

UVM Green Tax coursePublic Administration 395:

Melissa BaileyThomas A. Benoit Sr.Amanda Dow DavisJohn DemeterCheryl L. DierschGary Flomenhoft, InstructorPeter M. Freeman Andrew JopeJohn MejiaRachel Marie Weston http://www.uvm.edu/~gflomenh/GRN-TAX-VT-PA395/

“There is nothing more difficult to carry out, more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For those who would institute change have enemies in all those who profit by the old order, and they have only lukewarm defenders in all those who would profit by the new order.”

---Nicolo Machiavelli, 1490

WHAT ARE GREEN TAXES?

"PAY FOR WHAT YOU TAKE, NOT FOR WHAT YOU MAKE"

"TAX WASTE, NOT WORK”

Tax Nature, NOT Labor or Capital

•Environmental protection•Economic Efficiency•Using market incentives

Survey-EU Green taxes

EU Types of Green taxes

NW GREEN TAX SHIFT

Inventory of NE GREEN TAXES

Source:Janet Milne,

Env. Tax Policy Inst., Vt. Law School

NE GREEN TAXES

Source:Janet Milne,

Env. Tax Policy Inst., Vt. Law School

NE GREEN TAXES

VT Taxes-2004

buildings-NICU

Other fees

Tobacco ProductsOther general taxes

TOTAL AIR AND WATER

TOTAL WASTE

TOTAL CHEMICALSSpeculative Gains Tax

current use property

land-NICU

CigaretteBeverageCaptive Insurance

Sales & Use

Telecommunications

Telephone Company

Bank Franchise

Insurance

TOTAL ENERGY

Estate Tax

Personal Income

Property Transfer Tax

Meals & Rooms

Corporate Income

Telephone Property

CURRENT VERMONT GREEN TAXES

GREEN TAX PRINCIPLES

What is the goal of government?

What is the goal of taxation?

Can they be combined?

Rival}

Non-rival}

Excludable Non-Excludable

Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution

Potential market good(Tragedy of the “non-commons”)but inefficient: patented information,Pond, roads (congestible),streetlights

Pure Public Good:climate stability, ozone layer, clean air/water/land, Biodiversity, information, habitat, life support functions, etc.

Open Access Regime: (misnamed: Tragedy of the commons)Oceanic fisheries, timberetc. from unprotected forests, air pollution, waste absorption capacity

Non-rival,congestible

Private beaches, private gardens, toll roads, zoos, movies

Public beaches, gardens, roads, etc.

Taxation + Provision of Public Goods

Taxation Public Goods

Green Taxes

GREEN TAX PRINCIPLES

1.Internalize external costs

2.Behavioral Approach

3.Revenue Generating

EXTERNAL COSTS?

ECONOMY

LAND USE

DEPLETION POLLUTION

(Not to mention social costs)

PRICES LIE

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1950 1960 1970 1980 1990 2000

Year

$/capita

Burlington

Chittenden

Vermont

US

Vermont GPI study

GDP AND HAPPINESS

1. Cost Internalization

•Pigouvian theory (AC Pigou)

•external costs

•Polluter pays principle

•restoration costs

•Least cost abatement-

•cost required to abate pollution

2. Behavioral Approach

WHATEVER YOU TAX YOU GET LESS OF

(WITH ONE EXCEPTION)

WHAT DO WE WANT LESS OF?

WHAT DO WE WANT MORE OF?

TAX ON BUILDINGS - production cost

S1

D

P

Q

p1

q1

CS

PS

S1

D

P

Q

p1

q1

CS

PS

tax

S2

p2

q2

tax

Deadweightloss

TAX ON BUILDINGS - production cost

Inelastic demand-gasoline (few subs.)

S1

D

P

Q

p1

q1

CS

PS

Inelastic demand-gasoline

S1

D

P

Q

p1

q1

CS

PS

S1

tax

S2

tax

q2

p2

Elastic demand-movie (many subs.)

S1

D

P

Q

p1

q1

CS

PS

S1

Elastic demand-movie

S1

D

P

Q

p1

q1

CS

PS

S1

tax

S2

p2

q2

TAX ON LAND - no production cost

D

P

Q

S

P1

Q1

“Buy land, they ain’t making any more.”

-Will Rogers

TAX ON LAND - no production cost

D

P

Q

S

P1

tax?

Q1

“Buy land, they ain’t making any more.”

-Will Rogers

P*

TAX ON LAND - no production cost

D

P

Q

S

P1

tax?

Q1

“Buy land, they ain’t making any more.”

-Will Rogers

P*

Q*

taxPs

Modern Economists

Right: “Land tax is the least bad tax” ---Milton Friedman

Green: “Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue.” ---Herman Daly

Left: “Usurious rent is the cause of worldwide poverty” ---Joseph Stiglitz

Green tax increase How to spend the money?

Dedicated revenues: ~$5 Million

Deficit reduction: none in VT

Other tax relief: ~$500 Million

3. Revenue Generating

GREEN TAX CRITERIA

1. ECONOMIC EFFICIENCY

2. DISTRIBUTIVE EQUITY

3. ENVIRONMENTAL PROTECTION

4. EASE OF ADMINISTRATION