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

“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

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, timber etc. 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 TaxationPublic 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

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 S1S1 D P Q p1 q1 CS PS

S1S1 D P Q p1 q1 CS PS tax S2S2 p2 q2 tax Deadweight loss TAX ON BUILDINGS - production cost

Inelastic demand-gasoline (few subs.) S1S1 D P Q p1 q1 CS PS

Inelastic demand-gasoline S1S1 D P Q p1 q1 CS PS S1S1 tax S2S2 q2 p2

Elastic demand-movie (many subs.) S1S1 D P Q p1 q1 CS PS S1S1

Elastic demand-movie S1S1 D P Q p1 q1 CS PS S1S1 tax S2S2 p2 q2

TAX ON LAND - no production cost D P Q S P1P1 Q1Q1 “Buy land, they ain’t making any more.” -Will Rogers

TAX ON LAND - no production cost D P Q S P1P1 tax? Q1Q1 “Buy land, they ain’t making any more.” -Will Rogers P*

TAX ON LAND - no production cost D P Q S P1P1 tax? Q1Q1 “Buy land, they ain’t making any more.” -Will Rogers P* Q* tax Ps

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