VT Green Taxes and 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”
•
•
•

Survey-EU Green taxes

EU Types of Green taxes

NW GREEN TAX SHIFT

Inventory of NE GREEN TAXES

NE GREEN TAXES

NE GREEN TAXES

CURRENT VERMONT GREEN TAXES
Captive Insurance
Insurance
Telephone Company
Bank Franchise
Telephone Property
Telecommunications
Corporate Income
Meals & Rooms
Other fees
TOTAL ENERGY
VT Taxes-2004
Beverage
Cigarette Tobacco Products
Other general taxes
TOTAL WASTE
TOTAL AIR AND WATER
TOTAL CHEMICALS
Speculative Gains Tax current use property land-NICU
Sales & Use
Estate Tax
Personal Income
Property Transfer Tax buildings-NICU

GREEN TAX PRINCIPLES
What is the goal of government?
What is the goal of taxation?
Can they be combined?

Rival}
Excludable
Market Good :
Food, clothes, cars, land, timber, fish once captured, farmed fish, regulated pollution
Non-rival}
Non-rival, congestible
Potential market good
(Tragedy of the “noncommons”) but inefficient : patented information,
Pond, roads (congestible), streetlights
Private beaches, private gardens, toll roads, zoos, movies
Non-Excludable
Open Access Regime:
(misnamed: Tragedy of the commons)
Oceanic fisheries, timber etc. from unprotected forests, air pollution, waste absorption capacity
Pure Public Good: climate stability, ozone layer, clean air/water/land,
Biodiversity, information, habitat, life support functions, etc.
Public beaches, gardens, roads, etc.

Taxation Public Goods
Green Taxes

GREEN TAX PRINCIPLES

EXTERNAL COSTS?
ECONOMY
DEPLETION POLLUTION
LAND USE
(Not to mention social costs)

PRICES LIE

Vermont GPI study
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
1950 1960 1970
Year
1980 1990 2000
Burlington
Chittenden
Vermont
US

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?

P
TAX ON BUILDINGS production cost
S
1 p1
CS
PS
D q1
Q

tax
P
TAX ON BUILDINGS production cost tax
S
2
S
1
CS p2 p1 PS
Deadweight loss
D q2 q1
Q

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

P
Inelastic demand-gasoline
S
2 tax p2 p1
CS
PS tax
D q2 q1
Q

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

P
Elastic demand-movie
S
2 tax p2 p1
CS
PS
D q2 q1
Q

P
TAX ON LAND no production cost
S
“Buy land, they ain’t making any more.”
-Will Rogers
P
1
Q
1
D
Q

P*
P
1
P
TAX ON LAND no production cost
S
“Buy land, they ain’t making any more.”
-Will Rogers tax?
Q
1
D
Q

P*
P
1
Ps
P
TAX ON LAND no production cost
S
“Buy land, they ain’t making any more.”
-Will Rogers tax?
tax
D
Q*
Q
1
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
1. ECONOMIC EFFICIENCY
2. DISTRIBUTIVE EQUITY
3. ENVIRONMENTAL PROTECTION
4. EASE OF ADMINISTRATION