Revenue for a Sustainable Economy: Green Taxes, Common Assets, and Subsidy Reform
Gary Flomenhoft, MPA Faculty/Department of Community Development and Applied
Economics, and Fellow at Gund Institute, UVM
Revised Recommendations to Tax Commission
Dec. 30, 2009
Carbon tax
In considering the art of the possible I have made a few changes to the recommended Green Tax
plan. The carbon tax was reduced from $100/ton to $20/ton. This is based on the estimated
increase in the price of gasoline of 89c per $100/ton carbon tax (based on molecular weight of
carbon). This would result in an increase in gasoline prices of 18c, which is comparable to the
price of gasoline in neighboring New York State. The 2008 carbon emissions as stated by the
Governors Commission on Climate change were 8.44 million metric tons (excluding power
plants). At a tax of $20/ton this would generate $168,800,000 in revenue. This is not much less
than the previous estimate of $216,200,000 based on a tax of $100/ton since this figure was
calculated in 2000 (See Taxing Pollution, Rebecca Ramos, Fair Tax Coalition). Carbon
containing fuels subject to current or future carbon permits in a regional or national cap/trade
system could receive a tax credit on the permit amount to avoid double taxation. Therefore, I did
not count carbon emissions from power plants currently enrolled in RGGI, although the permit
price was only $3.50 last year. Heating and transportation fuels are not currently part of RGGI.
Due to the regressive effects of energy prices on rural Vermont drivers and other residents, I
propose that 100% of the carbon tax be rebated, as recommended by climate scientist James
Hansen of NASA. If rebated equally to every one of an estimated 623,000 residents, this would
result in a per capita rebate of $271. Due to our nearly complete dependence on petroleum it is
advisable to provide incentives for alternative fuel vehicles and more efficient petroleum fuels
vehicles. A 20c per gallon increase in fuel costs will help that effort.
Bottled Water
The other major change in the recommendations is to charge rent to bottled water companies for
the use of ground water rather than the previous recommendation to charge all water users. The
recent ANR estimate is that 99 million gallons of water were extracted for bottling in 2008. At a
retail price of $6.78 per gallon based on the price of a liter bottle, estimated revenue in 2008 was
$671 million dollars. At a royalty rate of 12% this would result in $80.5 million in revenue.
Total Revenue
The total increase in revenue under this system is $448,756,931 as compared with the previous
estimate of $503,441,940. Deducting the $168,800,000 carbon tax rebate leaves $279,956,931 to
offset other taxes. Based on our analysis of income and payroll taxes we continue to believe that
a rebate of federal FICA payroll taxes would be of greater benefit than reducing income, sales, or
other taxes. The substantial benefits have been demonstrated by the German eco-tax reform of
1999.
Property Taxes
Vermont has unique real estate tax in the land gains tax which taxes short term land speculation.
Currently the minimum size property is 10 acres for residential and 25 for agricultural land.
There are also many exemptions that would be worth reviewing. Considering the role of the land
bubble in the financial crisis of 2008, it might be worth considering changes to the land gains tax
to reduce land inflation and speculation. Many people do not realize the property tax is a tax on
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land and building improvements combined, and that in some locations these items are taxed
separately. Our primary recommendation for property is to consider a revenue neutral shift by
taxing land more and buildings less. It would be advisable to start with enabling legislation that
would allow municipalities to use this option in designated “Growth Centers”, “Downtowns”,
and “Village Centers”. It has similar results as a TIF, but without any loss of revenue.
Capital Gains and Speculation taxes.
Due to the financial crisis, there is considerable discussion of financial speculation taxes both at
the national and international level. Prime Minister Gordon Brown of Great Britain and PM
Nicolas Sarkozy of France have both proposed an international speculation tax of .25% as we
previously recommended. In the US Congress Representative Peter DeFazio and Senator Tom
Harkin have proposed a bill called "Let Wall Street Pay for Wall Street's Bailout Act of 2009”
also based on a rate of .25%. If these measures do not pass, Vermont could consider a state
financial speculation tax. The disadvantage of a federal tax is that Vermont does not receive any
of the revenue.
Capital gains taxes do not differentiate between productive investments in goods and services
and gambling in financial securities or real estate. It would be beneficial to exempt the job
producing investments from capital gains taxes and maintain them fully on speculative
investments. Exemptions could include entrepreneuers, venture capital and angel funds,
investments in IPOs and new stock offerings, small business loans, housing construction, or any
other productive investment and not a paper profit with no equivalent good or service provided.
These productive investments could also be exempted from any speculation tax imposed.
State Bank
One state that has emerged with minimal damage from the financial crisis is the state of North
Dakota. In the early part of the 20th century, North Dakota farmers were squeezed financially by
out-of-state bankers. Determined to avoid this loss of autonomy in the future, the state
legislature created the Bank of North Dakota in 1919. All state funds and funds of state
institutions are deposited with Bank of North Dakota, as required by law. The Bank administers
several lending programs that promote agriculture, commerce and industry in North Dakota.
Vermont would be well advised to follow the example of North Dakota and consider the
formation of a Vermont Sovereign State Bank. In the case of a crisis due to the declining value
of the US dollar, the state bank would be in a position to create bills of credit or state currency to
maintain the operation of the state economy and state government.
Revised summary of Green Tax shift measures:
ITEM
Carbon tax $20/ton
Pay as you Throw Solid Waste $2/bag
Bottlers-groundwater rent
Property shift: 2/3 land, 1/3 buildings
Chemicals
Other new revenue
TOTAL NEW REVENUE
Carbon tax rebate
Payroll tax rebate
New Revenue
$168,800,000
$149,103,672
$80,546,400
0
$2,215.900
$50,304,643.10
$448,756,931
$168,800,000
$279,956,931
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Captive Insurance
1%
Telephone Company
0%
Bank Franchise
0%
Insurance
1%
Beverage
0%
Tobacco Products
0%
2004-2009rev-w/offsets
Other general taxes
0%
Cigarette
2%
Other fees
2%
Telephone Property
0%
Telecommunications
1%
Corporate Income
2%
TOTAL ENERGY
18%
Total water
3%
Meals & Rooms
4%
TOTAL
WASTE
Sales & Use
10%
TOTAL
CHEMICALS
Estate Tax
1%
current use property
0%
Current Use Penalty Tax
0%
Personal Income
17%
Speculative Gains Tax
0%
land-NICU
20%
eee property tax
(PROP68)
0%
Property Transfer Tax
1%
buildingsNICU
2004-2009rebates
$20/ton carbon tax
rebate:
$168,800,000=$27
1 each
Fed Payroll tax rebate
$280,000,000
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