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VT Green Tax Shift & Common Asset Fund Dec. 7, 2004 UVM Green Tax course Public Administration 395: Melissa Bailey Thomas A. Benoit Sr. Amanda Dow Davis John Demeter Cheryl L. Diersch Gary Flomenhoft, Instructor Peter M. Freeman Andrew Jope John Mejia Rachel Marie Weston.
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VT Green Tax Shift & Common Asset Fund Dec. 7, 2004 UVM Green Tax course Public Administration 395: Melissa Bailey Thomas A. Benoit Sr. Amanda Dow Davis John Demeter Cheryl L. Diersch Gary Flomenhoft, Instructor Peter M. Freeman Andrew Jope John Mejia Rachel 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
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
GREEN TAX PRINCIPLES What is the goal of government? What is the goal of taxation? Can they be combined?
Non-Excludable Excludable Open Access Regime: (misnamed: Tragedy of the commons) Oceanic fisheries, timberetc. from unprotected forests, air pollution, waste absorption capacity Market Good: Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution Rival} 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. Non-rival} Private beaches, private gardens, toll roads, zoos, movies Non-rival, congestible Public beaches, gardens, roads, etc.
Taxation + Provision of Public Goods Taxation Public Goods Green Taxes
GREEN TAX PRINCIPLES Internalize external costs Behavioral Approach Revenue Generating
EXTERNAL COSTS? ECONOMY POLLUTION DEPLETION LAND USE (Not to mention social costs)
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 P S1 CS p1 PS D q1 Q
TAX ON BUILDINGS - production cost S2 P tax S1 CS p2 Deadweight loss p1 PS tax D q2 q1 Q
Inelastic demand-gasoline (few subs.) P S1 CS p1 PS D q1 Q
Inelastic demand-gasoline S2 P S1 S1 CS p2 PS p1 tax tax D q2 q1 Q
Elastic demand-movie (many subs.) P S1 S1 CS p1 PS D q1 Q
Elastic demand-movie S2 P S1 S1 CS p2 p1 PS D tax q2 q1 Q
TAX ON LAND - no production cost S “Buy land, they ain’t making any more.” -Will Rogers P P1 D Q1 Q
TAX ON LAND - no production cost S “Buy land, they ain’t making any more.” -Will Rogers P P* tax? P1 D Q1 Q
TAX ON LAND - no production cost S “Buy land, they ain’t making any more.” -Will Rogers P P* tax? P1 tax Ps D Q* Q1 Q
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
3. Revenue Generating Green tax increase How to spend the money? Deficit reduction: none in VT Dedicated revenues: ~$5 Million Other tax relief: ~$500 Million
GREEN TAX CRITERIA ECONOMIC EFFICIENCY DISTRIBUTIVE EQUITY ENVIRONMENTAL PROTECTION EASE OF ADMINISTRATION
