3.13.1-17: Tax Bads, Not Goods! - Integrated Green Tax Shift
Module 3, Section 13.1-17
Tax Bads, Not Goods! – Integrated Green Tax Shift
13.1 Although the Global Land Tool Network’s main focus is on land rent recovery from surface land for public benefit, this next section provides an overview of a broad and holistic “integrated green tax shift” approach to public finance policy which recovers resource rent from other common heritage domains as well.
13.2 The slogan “Tax Bads Not Goods” is a useful way to grasp this newly emerging way of harnessing the incentive power of public finance. If we desire to maximize the human potential for the production of wealth it would seem to make sense to take taxes OFF of:
- Wages and earned income
- Productive and sustainable capital
- Sales, especially for basic necessities
- Homes and other buildings.
13.3 On the other hand, if we want to reduce bad things such as pollution of air, water, and soil, land speculation, land hoarding, or depletion of limited common assets then taxing these activities places a financial burden on them and sends the signal that such activities are harmful. Green tax policy accordingly INCREASES taxes and fees on:
- Emissions into air, water, or soil
- Oil and minerals
- Ocean and fresh water resources
- Land sites according to land value.
13.4 Nearly everyone, except perhaps those who profit from militarization, would agree that wars and destructive conflicts over territorial and natural resources are social “bads.” Charging higher fees and capturing the full rent for the use of common assets, then using these public funds for overall social betterment, is thus a way to share the gifts of nature rather than fighting over them.
13.5 Whenever there is competition for use of common assets there is the potential to capture resource rent for the public good. Capturing rent from the electromagnetic spectrum and satellite orbital zones in addition to the above mentioned natural resource domains is thus a powerful and effective way to ensure peace and resolve territorial conflicts. Funds that currently pour into military industrial activities can instead be directed to the provisioning of public goods and services.
13.6 True Cost Economics via Green Tax Shift policy is a rapidly emerging new perspective on tax reform which emphasizes the incentive capacity inherent in public finance policy.
- Tax waste, not work.
- Tax bads, not goods.
- Pay for what you take, not what you make.
- Polluter pays.
13.7 One practical model of this integrated green tax shift approach to public finance has been developed by researchers with Northwest Environmental Watch. This model was compiled using data from three states in the northwestern United States – Oregon, Washington and Idaho, plus the Canadian province of British Columbia. The researchers presented the results of their analysis of the existing tax structure of the region in this pie diagram:
13.9 As you can see, the great majority of taxes fall on the “goods” of wealth production via taxes on people’s income and the goods and services provided when people work together in business activities. Property taxes, although they do collect some portion of the land rent, mostly fall on homes and other buildings and personal property. At the time of this study the Pacific Northwest collected far more taxes from environmental “green” taxes then most other parts of the world.
13.10 Northwest Environmental Watch (now called Sightline Institute) researchers then compiled a pie diagram demonstrating the components of a strong shift to an integrated green tax system of public finance:
13.11 Note that in this model the “bads” are being more heavily taxed while taxes on the “goods” are greatly reduced. Taxes on income, sales and business have been considerably reduced, replaced by pollution and carbon taxes and the capture of resource rent for the use of common assets such as water, minerals, timber on public lands and wild fish.
13.12 The 27% of property taxes that had in the first diagram fallen mostly on peoples homes and personal property has been in this second diagram converted entirely into a land value only property tax. Hence the property tax falls most heavily on those who have the most land and the most valuable land sites rather than on those who own homes and provide housing.
13.13 In other words, those who have privatized or enclosed the common asset of surface land now pay into the common fund a sum amounting to the resource rental or site value of the land that they claim. An “exclusive” private property rights system, meaning that private property owners are permitted to profit from land speculation and land hoarding, is now converted into a “conditional” private property rights system whereby society will acknowledge and protect private land use rights on condition that those who claim land are paying their fair share of land rent into the common fund, thus compensating society for the benefits they receive from the lands they have enclosed and privatized.
13.14 Under such a system, the incentive is for those who own more land than they really need or can well utilize to release some of their land thus making it available for others to use. With land prices stabilized and working people having greater purchasing capacity due to wage tax elimination, more people can obtain the land they need for housing and to establish farms and businesses and this with much less need to borrow money and take out mortgages.
13.15 Taxes structured along the proposed lines would do much to level the economic playing field worldwide, both within and among nations. A coherent and integrated local-to-global pubic finance system based on capturing land and resource rent for the common good would give each and every person a share in the planet as a birthright.
13.16 Case Study: An example of natural resource value capture is that of Alaska's oil, mentioned in Module 2. Under this state's constitution, natural resources are legally owned by the people as a whole. The Alaska Permanent Fund captures value from oil royalties, then places these moneys in an investment fund, which generates dividends paid annually to all individuals, including children, resident in the state for at least one year. More than $25,000 per person has been distributed in this way during the past 25 years. Alaska is the only state in the United States where the wealth gap has decreased during this period.
13.17 While the Alaska Permanent Fund is in many ways a good example of both resource rent capture and the distribution of citizen dividends, in this time of urgent necessity to develop energy sources other than fossil fuels it would be best to distribute rent for citizen dividends from a portion of surface land values. Rent capture from fossil fuels would best be used to fund the development of renewable energy sources.