A Plan for Green Taxes

A Plan for Green Taxes and Common Assets in the State of Vermont

(The PDF version contains over 60 images and tables that are not included in this html version)

Gary Flomenhoft, Gund Institute
University of Vermont
[email protected] June 13, 2006

Introduction to Green Taxes

The concept of using taxation as an incentive tool to encourage or discourage various economic activities is nothing new. Tax credits and subsidies are a favorite tool of fiscal policy. Using taxation as a tool of environmental policy is rapidly gaining ground. Environmental taxation is a huge movement worldwide encompassing taxation of energy, pollution, resource use, land and other aspects of nature. Environmental taxes as a share of public revenue increased 25% in Europe from 1980-2000 (Figure 1). A comprehensive list of green taxes in effect in Europe and New England are included in Appendix One and Two.

Many different environmental “bads” are already being taxed such as water and air pollution, solid waste, hazardous waste, chemicals, etc. Prior to the ban on ozone depleting compounds, a tax on cfcs was successfully used to discourage production. One of the environmental taxes used in Europe which has not been implemented in the US, is the carbon tax. Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, and UK have all implemented a carbon tax as part of their strategy to reduce greenhouse gases and reduce fossil fuel dependence. A carbon tax has not been implemented anywhere in the US, although the CA Air Resources Board (CARB) has recently categorized CO2 as a pollutant for the first time. Increasing environmental taxes while decreasing taxes on labor is a common strategy followed, harking back to the “single tax” of 19th century economist Henry George, who advocated taxing land, not improvements or production. International conferences take place every year on environmental taxation with participation by prominent academics and policy makers: (http://www.environmental-taxconference.uottawa.ca/index.htm) The Environmental Law Program at Vermont Law School is one of the primary sponsors.

Figure 1

Introduction to Common Assets

“Friends of the Commons” have defined parts of the commons that have financial value in the market as “common assets” (State of the Commons 03/04, 2004). Radio airwaves are a common asset, as are timber, minerals, fossil fuels, natural medicines and herbs, etc. So, increasingly, are air and water. Since no one created these items with their own efforts, property rights are inherently public to these items. However, that doesn’t mean that these items aren’t privatized, in fact they usually are. Private interests, with the complicity of government, usually gain property rights to common assets, to the detriment of people worldwide. Oil companies are granted mineral rights, pharmaceutical companies are granted patents on DNA of living organisms, and broadcast spectrum is sold or given away permanently to media companies. No one is protecting the rights of “we the people” to our natural inheritance. Some of the most egregious examples are the petrotyrannies such as Nigeria, which have vast oil wealth, but destitute people (Bacher 2000)

The “State of the Commons” report issued by the Tides Foundation is a call to reclaim the commons for the people (http://friendsofthecommons.org/state/index.html). Most prominent among the common assets discussed is the $700 Billion electromagnetic spectrum value mostly given away to media corporations, although according to the Federal Communications Act of 1934 the airwaves belong to the public. The New America Foundation and others focus on this issue, and identify 2% of the airwaves as leased, and 98% given away (Citizen’s Guide to the Airwaves, 2003). The same is true for medical research, or even the internet, created with public funds. The value of common assets has been estimated at over 40 trillion dollars, exceeding all private and government assets. (State of the Commons, 2004) Social and natural assets are being explored as assets that should belong to the public and pay dividends.

An existing example is the Alaska Permanent Fund (APF) which gives partial ownership of Alaska oil revenue to residents of Alaska, and pays residents annual dividends averaging $1000-$2000 per person (http://www.apfc.org). Up until his recent death, Jay Hammond, former republican governor and founder of the APF, was campaigning to increase the percentage of oil revenue paid to the public. In the 2000 census the US Census Bureau identified that Alaska, with its permanent fund, state government funded by oil, and no income or sales tax, has the lowest disparity in wealth of any state in the US

(http://www.census.gov/hhes/www/p60204.html). Every state, including Vermont, has enormous common assets that could be collected for the benefit of the populace, rather than privatized for special interests.

The “Green” Tax Shift

Taxation of resources increases their cost and thereby encourages conservation. Charging for pollution puts a price on what was formerly free and therefore discourages polluting. Taxation of land causes more dense land use and reduction of sprawl (Schwartz 1999). Therefore to conserve nature, taxation of resources, land, and pollution is called for. For economic efficiency taxes on labor and capital should be reduced. A green tax shift is defined by increasing taxes on environmentally damaging activities while simultaneously reducing them on beneficial economic activities. This report will present a viable plan for a Green tax shift in the State of Vermont.

 
Green Tax Principles Figure 2

SOURCES SITES SINKS
Throughput

The concept most relevant to taxing land (ie: nature) is throughput. All economic activity starts with materials and energy extracted from the source of nature creating depletion, transformed by labor and capital into products, with waste energy and materials going back into the sink of nature as pollution. “Throughput is the entropic flow of matter-energy from nature’s sources through the human economy and back to nature’s sinks” (Daly 1993, p326). But where does this activity take place? There has to be a location or site where economic activity takes place. All economic activity takes place on land sites with the exception perhaps of shipping or air travel. So throughput comes from sources, is transformed on sites, and ends up in sinks. Throughput is the flow of resources and energy through the economy resulting in products as well as pollution and waste.

Resource depletion, land use, and pollution are external costs that are not accounted for in normal market transactions. Standard economic indicators such as GDP, stock market level, housing starts, business profits, etc. provide no indication of social and environmental externalities. GDP, for example, measures the total dollar value of goods and services in the economy. Maximizing GDP therefore also maximizes throughput. Wouldn’t it make more sense to maximize GDP per unit of throughput? This would be an efficient economy rather than a wasteful one; smart growth instead of dumb growth. Failure to account for external costs in prices also violates the “polluter pays principle”. A green tax shift can begin to internalize some of these external costs and help make polluters pay. With green taxes resources will be conserved, land will be used more efficiently, and pollution will be reduced.

Environmental Protection-Prices Lie

Creating a sustainable society can be promoted if the prices of products we buy and use accurately reflect the environmental and social costs embodied in them. This is currently not the case. It is much cheaper to do the wrong thing environmentally than the right thing, both for individuals and companies. For example, at $6/ton in Vermont it is much cheaper to take solid waste to a transfer station than to deal with recycling or composting it. A hybrid car having higher mileage and lower emissions costs $5-7,000 more than an equivalent gasoline car. A coal burning powerplant spewing mercury, sulphur, and nitrogen oxides into the air drifting over Vermont produces power cheaper than renewable energy such as solar, wind, biomass, or hydro. Chemical farming and lawn fertilizers turn parts of Lake Champlain into “dead zones”, and farming with pesticides which endanger human health, is generally more profitable than organic farming.

In every case, the massive environmental and social costs are pushed off onto society, and are not reflected in prices, or paid for by producers or consumers. Since most people make their decisions according to prices, the wrong choices get made for the long-term welfare of people and the environment. Only the dedicated few, or wealthy environmentalists make the right choices by ignoring prices. Many people cannot afford to. The following chart details the uncounted environmental and social costs (Illth) in the US.

Figure 3

Genuine Progress

Since GDP doesn’t subtract costs it provides a false view of economic progress. A recent study by the Gund Institute of the Genuine Progress Indicator for Vermont subtracts economic costs (Illth) as well as counting economic benefits. The result shows that Genuine Progress in Vermont is continuing to rise, although it is beginning to level out. Genuine progress in the US has been declining since the 1970’s. A big factor in the data leading to a higher GPI in Vermont was the more pristine and less crowded environment. Green taxes can help maintain a high level of genuine progress.

Figure 4: Estimates of the Genuine

20,000

Progress Indicator (GPI) for Vermont,

18,000

Burlington

Chittenden County, and Burlington, from

Chittenden

16,000

1950 to 2000, Gund Institute, 2003. Vermont
14,000 US
12,000 10,000
8,000 6,000 4,000

2,000

1950 1960 1970 1980 1990 2000
Year

Internalizing External Costs/Making Prices Right (Milne, Primer 1996) A crucial aspect of a green tax shift is the ability to begin to include the uncounted external costs of environmentally damaging activities into the price of products. The market by itself will not impose external costs on products. Only government can do this. Currently many damaging externalities of pollution, such as emissions from burning gasoline in motor vehicles, are not included in the cost. This puts the burden of costs on society, rather than on the user of the product. This violates the “polluter pays” principle, and leads to distorted prices which provide false information to consumers. Even worse, many polluting activities are not only untaxed, but have large subsidies distorting the price even more. Using the example of gasoline, various studies have calculated from $3 to $15 per gallon of uncounted environmental costs (ICTA, 1998). By artificially lowering the actual cost of gasoline, over-consumption results, as demonstrated by the decline in US average vehicle fuel economy since 1987 (Heavenrich, 2005). Green taxes at one level of government could compensate for subsidies at other levels. For example federal oil industry subsidies, combined with a state green tax on carbon would basically redirect lost federal revenue to the state level.

While oil industry subsidies might benefit industry in oil refining states, little or no benefit accrues to states such as Vermont, with no fossil fuel refineries or industry. So it is appropriate that the loss of federal revenue and increase in local environmental impacts due to lower prices of fuel is compensated by a state Green tax. An even better example might be the 80% of mercury pollution in Vermont which comes from mid-west coal burning power plants (Myers, 1999). Very little electricity in Vermont comes from coal, yet Vermont suffers the damage. A VT carbon tax or green tax specifically targeted at coal power purchased through the grid in Vermont, would make coal power more expensive and less used, at least by Vermont utilities.

Economic Efficiency

Taxes on income and capital, are generally considered inefficient for several reasons. “The most obvious cost is that Americans are left with less money to meet their needs for food, clothing, housing, and other items, and businesses are left with fewer funds to invest and build the economy. In addition, the tax system imposes large compliance burdens and ‘‘deadweight losses’’ on the economy. Compliance burdens are the time and administrative costs of dealing with the tax system’s rules and paperwork. Deadweight losses are created by taxes distorting the market economy by changing relative prices and altering the behavior of workers, investors, businesses, and entrepreneurs” (Crane, Boaz 2005) Taxes on income and wages also increase the cost of labor to business, thereby decreasing the supply of jobs. This is true of income taxes, payroll taxes, and workers compensation payments.

Since “investment flees taxation” taxes on labor or capital also discourage innovation, job creation, and risk taking. Taxes generally add to production costs, thereby raising prices and reducing consumption of the item taxed. For example, taxes on cigarettes or gasoline decrease consumption of these items by raising their price. Taking housing as an example, do we really want to increase the cost and restrict the supply of housing, when housing costs are already through the roof in Vermont? Taxes on building improvements have this effect. A green tax shift can replace taxes on productive activities such as building construction with taxes on the use of sources, sites, and sinks.

Solution-Green Tax Shift

Choosing what item to tax and which to exempt from taxes allows a double policy tool of incentives. Since taxes generally decrease consumption of the item taxed, a sensible strategy is to tax undesirable activities more, and desirable activities less. These principles lead to the Green Tax philosophy of “TAX BADS NOT GOODS”, or “TAX WASTE, NOT WORK” (Hamond, et al, 1997). If work, income, wages, and investments in productive activities are taxed less, these items will be encouraged. If resource use, land use, and pollution are taxed more, resources will be conserved, land will be used efficiently, and industry will avoid pollution. This revenue neutral shift is a common green tax strategy and is the policy followed in the recommendations below. While higher green taxes are often promoted by liberals for environmental reasons, conservatives often recommend lower income taxes. Many of the plans to reduce
income taxes are combined with the suggestion to replace them with higher sales taxes (Crane, Boaz 2005). While this would decrease consumption, it is highly regressive, and only indirectly addresses resource consumption downstream. It punishes the labor and capital portion of production. Green taxes are a better alternative to replace income or payroll taxes, and address resource consumption directly. A green tax shift can stimulate the economy and protect the environment at the same time, the holy grail of sustainable development.

Theories of Internalization

There are three approaches to cost internalization. Pigouvian theory is based on the theories of economist A.C. Pigou who developed the idea that market forces could take care of external costs if prices reflected those costs through the addition of environmental taxes (Pigou, 1932). Another approach is to calculate what restoration costs would be under the “polluter pays” principle. Another approach is to calculate “least cost abatement” for pollution caused by industry. Each of these techniques is imperfect and much research and debate is spent calculating exactly what these numbers would be. An exact figure which internalizes all external costs could never be found. An empirical approach is also possible by implementing a green tax shift, monitoring the results, and adjusting them as necessary. The goal is that prices would begin to reflect the actual costs of the product to society and not just the direct market costs.

Behavioral Approach (Milne, Primer 1996)

Whatever you tax you get less of due to increasing its price (with the exception of real-estate sites). Therefore we can ask ourselves what do we want more of and what do we want less of? Do we want less income, wages, jobs, investment, and housing? If not we should tax these items less. Do we want less depletion of resources, land use, and pollution? If so we should tax these items more. This is the essence of the behavioral effect of taxes in general and the green tax shift in particular. The effect of prices on behavior depends on the sensitivity of consumer demand to changes in prices (price elasticity). If demand is very inflexible (inelastic) with respect to price, then a large change in price will result in a small change in demand. This is true for products such as gasoline, which have very few substitutes in the short term. The demand for gasoline is very inelastic as we saw during Hurricane Katrina, when demand changed little despite a 75-cent increase in the price. Conversely if an item has many substitutes, then demand may be very elastic and will change a great deal with only a small change in price. An example might be for seeing movies at the theatre. There are many substitutes such as renting a video or dvd, downloading video off the internet, live theatre, or some other kind of entertainment. Demand for movies might well be very elastic. This determines the behavioral effect from a change in prices due to a green tax shift applied to various consumer items. It will also affect available revenue, as a decrease in
demand will also reduce tax revenue over time. This principle also applies to reduction in taxes on economic activities such as housing, jobs, or investment. Tax cuts, credits, and deductions are often used to spur various kinds of economic activity. Reduction in price increases demand in the same way.

Figure 5: Price elasticity of demand

INELASTIC: ELASTIC:
Large change in price=small change in demand Small change in price = large change in demand
Revenue Generating (Milne, Primer 1996)

The third green tax principle is revenue generation. It is consistent with green tax principles to target revenues to issues related to the item taxed. This is already the done in many cases. For example a portion of the Vermont gasoline and diesel tax is used to pay for leaking underground fuel tanks. Another question is what taxes to offset with green tax revenues. Possibilities are to use the revenue for deficit reduction, targeted revenues, or to offset other taxes. The Green tax plan we developed for Vermont provides $500 million of additional revenue that is applied to other tax relief. Tax relief could be applied to personal income, payroll, corporate income, sales, or other taxes on “goods”. Options are described below.

Green Tax Criteria (Durning and Bauman, 1998)

Each of the existing Vermont taxes and proposed changes was subjected to scrutiny on the following basis:

1. Economic Efficiency

Does the tax encourage or discourage enterprise, growth in productivity, and job creation? Specifically does the tax cause what economists call a deadweight loss”: a loss of economic output caused by distorted incentives created by the tax? Taxes on wages, for example, increase the cost of hiring labor. Taxes on investment discourage people from investing. Both reduce economic output and efficiency.

2. Distributive equity

Does the tax fall on people in proportion to their ability to pay? Progressive taxation attempts to equalize sacrifice instead of simple percentages by taking a larger proportion of income from higher-income households than from poorer ones. Regressive taxes by contrast, take a larger share from middle-class and poor households than from affluent ones. Because the cost of some taxes is passed on from the initial taxpayer to others, assessing fairness requires paying attention to who ultimately feels the tax bite.

3. Environmental protection

Does the tax encourage or discourage resource conservation and pollution prevention? Does the tax correct the failure of the market to reflect environmental costs, such as pollution’s effects on human health?

4. Ease of administration

Is the tax easy to administer and enforce? Is it easy for taxpayers to comply with the tax? Is it easy to evade?

Green Taxes and Common Assets in Vermont

“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

There are those on the right who dislike green taxes as a “big government” interference in the market. There are those on the left who dislike market-based approaches, and prefer direct regulation which has worked in the past. When you offend people on both sides you know you are on to something. A revenue neutral green tax shift as proposed here should have non-partisan appeal. Green taxes may be user fees for nature, but are still considered taxes. Taxes is a dirty word, but they have tremendous incentive effects in addition to their function to generate revenue for the necessary functions of government. Green taxes combine environmental protection and economic efficiency into a market mechanism by affecting prices and incentives. It is not a panacea, but an important tool to use in conjunction with other policy tools. Green taxes already comprise approximately 25% of Vermont state taxes. What would you expect in the Green Mountain state?

There are many different ways to apply green tax principles. The plan outlined here is just one possibility among many. This plan provides two options of approximately 50% Green taxes, and a more ambitious option which could generate 100% of state revenue from a Green tax shift. Information was combined from numerous revenue-collecting agencies of state government. All of the research and original data can be found at: http://www.uvm.edu/~gflomenh/GRN-TAX-VT-PA395/ This is possibly the only consolidated data source for most of the taxes and fees generated in the state of Vermont. The remainder of this paper is a case study of how green taxes, land taxes, and common assets could be implemented in a state such as Vermont, based on actual state revenue figures.

Figure 6: Vermont Revenue from 1999-2004-NOTHING NEW HERE

Captive Insurance

Captive Insurance Insurance
Insurance VT Taxes 1 Bank Franchise VT taxes 2
Beverage Telephone Company Beverage
Bank Franchise Telephone Property Cigarette
Telephone Company Cigarette
Telephone Property Telecommunications
Telecommunications TOTAL ENERGY Corporate Income TOTAL ENERGY
Corporate Income

TOTAL AIR AND WATER Meals & Rooms TOTAL AIR AND WATER
Meals & Rooms

TOTAL WASTE TOTAL WASTE
Sales & Use
Sales & Use
Estate Tax
Estate Tax TOTAL PROPERTY TOTAL PROPERTY
Personal Income
Personal Income
1999 2000
Bank Franchise Captive Insurance Insurance Captive Insurance
Insurance VT TAXES 2001 Bank Franchise VT TAXES 2
Beverage Telephone Company Beverage
Telephone Company Cigarette Telephone Property Cigarette
Telephone Property
Telecommunications
Telecommunications TOTAL ENERGY Corporate Income TOTAL ENERGY
Corporate Income Meals & Rooms
Meals & Rooms TOTAL AIR AND WATER TOTAL AIR AND WATER
TOTAL WASTE TOTAL WASTE
Sales & Use

Sales & Use

Estate Tax

Estate Tax

TOTAL PROPERTY

TOTAL PROPERTY

Personal Income

Personal Income

2001 2002
Insuranc e Captive Insurance Beverage
1% 1% 0% Cigarette
Insurance Captive Insurance Beverage VT TAXES- Bank Franchise
Telephone Company Cigarette Telephone Com 0p any 2% TOTAL ENERGY VT taxes-2
Bank Franchise Telephon eP roperty 13%
Tobacco Products 0%
Telephone Property Telecommunications Tobacco Products TOTAL AIR AND WATER
1% 0% 0%
Telecommunications
Corporate Income TOTAL ENERGY Corporate Income TOTAL WASTE
3% 0%
Meals & Rooms TOTAL AIR AND WATER TOTAL CHEMICALS
TOTAL WASTE Meals & Rooms 0%
5%

Sales & Use

Sales & Use
12%

Estate Tax Estate Tax
1%

TOTAL PROPERTY
38%

TOTAL PROPERTY

Personal Income

Personal Income 21%
2003 2004
The tax plan in this report was done for the year 2004, but the history of Vermont tax revenue shows that revenue sources have changed little from year to year, so this plan could be applied in any year. The state is not maximizing the opportunity of the tax structure to provide positive incentives for economic efficiency and environmental protection.

Existing Vermont Sources of Revenue

The 2004 Vermont Budget was about $3.574 billion of which $2.117 billion was generated from in-state revenue (Vermont Legislative Joint Fiscal Office and other state offices, 2004). The tax department has 37 line items in revenue account reports, each with their own set of rules and regulations, not including property taxes. There are hundreds if not thousands of fees administered and collected by various agencies. No complete compilation exists of all these fees. One-third of updated fees are reviewed annually by the Joint Fiscal office. No single source of this information was available. Dozens of Vermont agencies were contacted to assemble the entire Vermont revenue picture shown below. Of total in-state revenue the largest items were:

Property taxes comprising 35%

personal income 20%

sales and use 12% energy taxes 12%

Beverage Tobacco Products Figure 7
Cigarette

Captive Insurance Other general taxes
VT taxes-2004

Insurance

Other fees

Telephone Company

Bank Franchise
TOTAL ENERGY
Telephone Property TOTAL AIR AND WATER
Telecommunications TOTAL WASTE
Corporate Income
Meals & Rooms

Sales & Use

Estate Tax

TOTAL PROPERTY

Personal Income

Vermont Instate Revenue-Another look at Property tax

If we further divide property taxes into land and buildings (NICU=not in current use program) we find that 24% of instate revenue is coming from taxes on buildings. This is due to the fact that the average property in Vermont has 2.3 times as much value in the buildings and other improvements compared to the land itself. (Batt, 2002) Since assessed value of property consists of the land value and building value combined together, this results in 2/3 of the property tax burden falling on buildings. It is worth considering if this negative incentive structure is worth keeping in a state where there is a severe lack of affordable housing, and large wage gap between income and housing costs. Revised tax summary:

Buildings 24%
Personal income 20%
Sales and use 12%
Energy taxes 12%
Land 11%
Tobacco Products Other general taxes Figure 8
gegarette 0% 1%
Bevera
2% VT Taxes-2004
Captive Insura nce
TOTAL ENERGY
1% Other fees
Insurance 12%
3%
1%
TOTAL AIR AND WATER
Bank Franchise 0%
Telephone Property 0%
0% TOTAL WASTE
0%
Telephone Company
TOTAL CHEMICALS
Telecommunica0i%ns
0% Speculative Gains Tax
1%

Corporate Income 0%
3%
current use property
land-NICU
0%

Meals & Rooms 11%
5%

Sales & Use
12%

Estate Tax
1%

buildings-NICU
24%

Personal Income
20%

Property Transfer Tax
2%

Existing Green Taxes in Vermont

If we define green taxes as taxes on throughput: either resource depletion, land use, or pollution we find that approximately 25% of current Vermont instate revenue comes from Green taxes. These taxes and fees include energy taxes such as gasoline and diesel fuel, fees on solid and hazardous waste, chemicals such as pesticides, air and water emissions including cigarettes, and the land portion of the property tax. Sales tax is colored light green due to the fact that sales taxes do tax consumption, but they tax the labor and capital value-added portion in addition to the resource portion. We feel that taxing resource use directly is more effective and doesn’t provide a disincentive to labor and capital as a sales tax does.

VT Taxes-2004

Beverage TOTAL ENERGY
Captive Insurance Cigarette Tobacco Products
Other general taxes
Insurance
Telephone Company TOTAL WASTE
Other fees
Bank Franchise TOTAL AIR AND WATER
Telephone Property TOTAL CHEMICALS
Telecommunications Speculative Gains Tax
Corporate Income current use property
Meals & Rooms land-NICU
Sales & Use

Estate Tax
buildings-NICU
Personal Income
Property Transfer Tax
Figure 9: Existing Green Taxes in Vermont
Topic Main Features 2004 Revenue
Energy varies $259,269,147
Property 2/3 on buildings, 1/3 on land $782,118,363
Waste $6/ton on haulers 5,901,672
Air and Water $1170 impervious surfaces 1,201,769
Chemicals $100 pesticides fee 932,100
General varies $1,012,614,704
Other fees varies $56,585,608
TOTAL $2,118,623,363
Revised Green Tax Plan Additional Revenue-$500 million

A thorough review of all possible green taxes was performed based on the Green tax criteria listed above. A comprehensive program of increased green taxes was devised which are detailed in Appendix 3. The areas addressed include energy, property, air and water emissions, water use, solid and hazardous waste, pesticides and chemicals. These recommendations are just one possibility among many following green tax principles of taxing bads, not goods. Many other possibilities are viable for Vermont or any other state. This plan is an attempt to put down some real numbers to start the conversation, and to demonstrate that green taxes can replace some or all other taxes.

Energy-In the energy area the primary recommendation is a $100 per ton carbon tax falling on all fossil fuels. A large hydro and nuclear tax was added to compensate for environmental hazards and damage of large non-fossil power plants. Many of the other energy taxes were eliminated to simplify the collection of revenue. The carbon tax would result in only a 10 cent per gallon increase in gasoline. These changes would generate an additional 262 million dollars of revenue.

Property-The state Property tax in Vermont is highly controversial due to its primary use to equalize education funding around the state. The total revenue was not changed, but the recommendation is to reverse the ratio of revenue collected from buildings and land within downtowns and growth centers, and leave the current structure in place outside growth centers for now. Instead of 2/3 of the revenue coming from buildings, the revision recommends 2/3 of the revenue come from land value. The logic of this is to encourage building improvements and development within the growth centers, but to discourage it outside the growth centers. The justification for this is that land value in Vermont is very dispersed throughout the landscape. Towns are not that far apart, and farms are being converted to residential housing at a rapid pace. The current property tax structure provides some disincentive to development. Therefore, the recommendation is to retain the current property tax structure outside of growth zones.

Waste-The current tipping fee of $6 per ton does not provide much incentive to reduce, reuse and recycle. The recommendation is for a $2 per bag “pay-as-you-throw” (PAYT) plan and doubling of tipping fees. A recent $1.20 per bag payt plan in Victoria, British Columbia resulted in an 18% reduction of trash in one year. This system would generate $149 million additional revenue, accounting for a 20% reduction in trash, and preserve scarce landfill space.

Air and water- A number of recommendation were made which would have beneficial environmental effects, but not much additional revenue. The main revenue generating recommendation is a 1cent per gallon surcharge on residential water use over 100 gallons per day generating 89 million dollars.

Pesticide and chemicals-A number of these fees were revised with the largest additional revenue coming from raising the pesticide license fee from $100 to $300.

All of the recommended changes are detailed in the chart below amounting to additional revenue of $500 million.

Revised Green Taxes Main Features (For details see appendix 3)
Energy Property

Waste Air and Water Chemicals
Total Increase Carbon @ $100/ton 1/3 on buildings 2/3 on land
in growth centers

$2/bag PAYT 1c/gal >100gals $300 pesticides fee +$262,270,853 ($782,118,363) same

+$149,103,672

+$89,851,516 +$ 2,215,900

~$500 million

Tax Shifting Options

Keeping to our theme of revenue neutrality, the next step was to choose which taxes to reduce with the additional green tax revenue. All of the following were reviewed and considered: Sales and Use tax, Meals and rooms, individual income tax, Corporate/business income tax, Fed payroll tax, or even to eliminate all other taxes.

Analysis-Reduction of Sales and Use tax, 2004 revenue $255,569,644

Sales and use taxes are considered semi-green as they do tax throughput in the form of consumption, but also tax the value added labor and capital portion of products. They could be revised to tax environmentally damaging products more heavily than benign ones. Exemptions could be reviewed to leave only those necessities used by all people. Sales and Use tax was left as is for now, a semi-green tax.

Analysis-Reduction of Meals and Rooms tax, 2004 revenue $108,392,469

Perhaps it was Huey Long who had the expression, “Don’t tax me, don’t tax thee, tax the man behind the tree.” Meals and rooms is a perfect example. Sources indicate that this tax is popular since it taxes out of state tourists more than Vermonters. It was left be.

Analysis-Reduction of Other taxes, 2004 revenue:

Telecommunications $12,949,990
Telephone Property $9,126,836
Telephone Company $1,206,583
Bank Franchise $8,335,660
Insurance $20,399,766
Captive Insurance $10,036,744
This chart lists the other major sources of tax department revenue in Vermont. The available revenue from increased green taxes could be used to offset any or all of these taxes.

Green Tax Shift Option 1-Cut personal income, corporate income, and telecommunication taxes, 2004 revenue ~$500 million

Taxes reduced

Personal income tax cut -$429,488,824
Corporate income cut -$ 55,497,257
Telecommunication cut -$ 15,000,000
Total Reduction $499,986,081
Cigarette Figure 10
Beverage
VT Taxes-2004 REVISED
Captive Insurance Tobacco Products
Other general taxes
Insurance
Bank Franchise
Other fees
Telephone Company
Telephone Property
TOTAL ENERGY
Telecommunications
Meals & Rooms
Sales & Use
TOTAL AIR AND WATER
Estate Tax
Property Transfer Tax
TOTAL WASTE
buildings-NICU
TOTAL CHEMICALS
Speculative Gains Tax
current use property
land-NICU
Analysis-Elimination of personal and corporate income taxes, and telecommunication taxes. Vermont is often accused of having an unfriendly business environment, particularly in comparison to neighboring New Hampshire which has no income tax. This reduction could help to silence critics. However, state income tax is already progressive so lowest income filers have little or no liability. Offsetting income tax may not help compensate for higher fuel costs. Current work was being done in 2005 to change corporate taxation requiring unitary combined reporting to crack down on income-shifting. The suggestion is that Corporate taxation be left as is during this revision. Telecommunications is a high tech industry that should be promoted in Vermont, and reduction of taxation on this industry could be beneficial to job creation. While property tax revenue was not changed, a shift of the ratio is recommended from 2/3 on buildings to 2/3 on land. These changes would result in state revenue 3/5 based on green taxes.

Green Tax Shift Option 2-Decrease federal payroll tax by $500 million starting with wage earners below $35,000/yr

Figure 11

Employee VT income FICA FICA Self
income tax employee employer employed
$10-$15K 0 $956 $956 $1912
$15-$20K $79 $1340 $1340 2680
$25-$30K $633 $2486 $2486 $4972
Analysis-$500 million reduction in federal payroll tax. Payroll tax burden is much higher than income tax for low-income taxpayers and business as shown on chart above. Reduction of payroll tax is therefore much more progressive and better for business who pay half. This amounts to a 7.65% tax break for employees and employers of these individuals. The total payroll taxes paid in Vermont in 2004 was calculated to be $1,852,073,396, which nearly equals the instate revenue of $2.1 billion. To reduce payroll taxes by $500 million it is possible to

eliminate payroll taxes on all employees in Vermont making below $35,000, and allow the reduction to be tapered-in for incomes above that amount. The Economic Benefits of FICA Reduction are multiple including returning income to those most likely to spend it, and aiding businesses as well as workers. It provides an incentive for employment by reducing the cost of labor, thereby boosting the Vermont economy. This option results in half of state revenue coming from green taxes, as well as $500 million in payroll taxes paid. This option was the recommended plan of the Green Tax Public Administration students at UVM.

Green tax shift Option 3-Let’s go all the way: 100% Green tax shift-$2.6B revenue. Increase energy, waste, air, water, chemicals, and land tax. Eliminate all other taxes in Vermont, and reduce federal payroll tax by $500 million.

Figure 12

2004-100% GREEN

TOTAL ENERGY
36.0%

land

54.5%

TOTAL AIR AND
WATER

3.5%

TOTAL CHEMICALS TOTAL WASTE
0.1% 5.9%
Details of 100% Green Tax
Topic Main features Revenue
Energy Carbon @ $300/ton $946,800,000
Property Land @ 9.6% $1,433,117,922
Waste $2/bag $155,005,344
Air and Water 1c/gal >100gals $91,053,285
Chemicals $300 product fee on $3,486,000
pesticides
TOTAL 100% Green $2,629,462,551
Analysis: A 100% Green tax shift is feasible, and could simplify taxation and revenue generation enormously by shifting to a few broad-based green taxes. Green taxes imposed in this plan are the same as option 1&2 above with the following two changes: Carbon tax is increased from $100 to $300/ton, and taxes on buildings are eliminated and replaced with a 9.6% tax on land only. This would simplify taxes enormously with a “single tax” on nature, and none on income, sales, or any other productive activity in Vermont.

Common Assets

Closely related to the issue of Green tax shifting is the concept of Common Assets. Green tax revenue is generally derived from items that are considered part of the “commons”. Resources, land, and pollution (use of the environment as a sink for waste) are examples of the natural commons. Science, the internet, and the money system are all examples of the social commons. As discussed earlier there is growing understanding that many of our common assets have been privatized, and that we should recover these values. It is consistent with efforts to establish individual development accounts (CFED.org) and to create an “ownership” society. Many items which have been defined as government assets could reasonably be redefined as common assets.

Natural Assets

Many aspects of the natural commons provide ecosystem service functions to human beings, but have no marketable financial value. Examples are photosynthesis, waste absorption, nutrient recycling, and fresh water replenishment, not to mention oxygen production, which we couldn’t live without. (Barnes, Rowe, Bollier, 2004) We all enjoy public forests, beaches, and parks. Natural assets consist of those items created neither by capital nor by labor, but are pre-existing parts of nature that are used in all economic activities. In addition to generating government tax revenues by charging for the use of nature, proposals have been made to rebate some of this revenue to the public, as their rightful share of the commons:

“Men did not make the earth…it is the value of the improvements only, and not the earth itself, that is individual property…Every proprietor owes to the community a ground rent for the land which he holds…from this ground rent…I…propose to create a national fund, out of which there shall be paid to every person…a sum.”
–Thomas Paine, Agrarian Justice 1797

Alaska Permanent Fund Corporation: (http://www.apfc.org/)

Public rights to natural assets have been most fully implemented in the State of Alaska, where citizens have obtained legal ownership rights to 25% of oil royalties received by the state on the northern slope. Oil royalties of 12-15% are collected on oil and natural gas. This plan was first promoted by Republican governor Jay Hammond in the late 1970’s after seeing exploitation of local fisheries by industrial fishing operations, to the detriment of local people. Revenue goes into a Fund called the “Alaska Permanent Fund” which pays annual dividends from interest on the fund of $300-$2000 per person in Alaska. The fund enjoys an 80% approval rating, and attempts to convert the dividend to state revenue are always voted down by referendum required by statute. The fund is administered by a transparent process governed by a board of trustees.

As of Dec. 20, 2005, the Alaska Permanent Fund had a value of $32.5 Billion, and is invested in stocks, bonds, Alaska CDs, and alternative investments. Dividends vary from year to year depending on the return on investment as shown below. The relationship of fund income to oil revenues demonstrates that when oil runs out, the fund will continue to grow, based on reinvestment of some of the returns. . This illustrates the principle that revenue from non-renewable resources should be put in a permanent fund, while non-depletable or renewable resources could have revenue distributed on an ongoing basis.
Figure 13. Source: Alaska Permanent Fund Corporation- http://www.apfc.org/

Social Assets

Socially created assets such as the internet, stock market, monetary system, government funded research, broadcast spectrum, etc. are extremely valuable. Many of these assets have been privatized contrary to legal rights, such as the public’s legal entitlement to the broadcast spectrum established by the Communications Act of 1934.

“It is the purpose of this Act, among other things, to maintain the control of the United States over all the channels of interstate and foreign radio transmissions; and to provide for the use of such channels, but not the ownership thereof, by persons for limited periods of time, under licenses granted by Federal authority, and no such license shall be construed to create any right, beyond the terms, conditions, and periods of the license.”

Communications Act of 1934

The value of the US broadcast spectrum was estimated at $782 billion dollars in 2003. 2% has been auctioned and 98% has been given away (Snider, 2003). The internet was created with public Funds by the US Defense Advanced Research Projects Administration (DARPA), yet the public has received no return on its investment. Nearly all pharmaceutical drug patents are the result of government funded medical research, yet the public gets no return. The creation of money has been granted by government to the federal reserve system. Commercial banks now create 93% of the money supply, and collect the resulting interest, yet the public gets no return. Peter Barnes estimates that the government regulated stock exchanges result in 30% greater stock values due to the liquidity of the stock markets, yet the public gets no return on this publicly created value (Barnes 2001).

 

Figure 14

The Sky Trust

A sky trust based on common ownership of the ability of the atmosphere to absorb carbon. Fuel companies would pay for carbon permits that would go into a trust paying dividends to the public. A cap and trade permit system would set limits on emissions of carbon, and generate revenue from the sale of permits. This system has already been implemented in Europe, and has recently gone into effect in New England. Barnes Sky Trust concept differs in that permits fees would go into a trust fund that would pay dividends to the public. In addition to carbon permits, Barnes suggests collecting rent on other common assets such as broadcast spectrum, air and watershed, wildlife habitat, and stock market liquidity.

Government is supposed to act on behalf of the public, but economic interests exert extraordinary influence over the national government, and are able to direct most of the rent on common assets to themselves. Payment of citizen

dividends such as the Alaska Permanent Fund or the Sky Trust are an antidote to the corruption of government by special interests.

Summary of Vermont Common Assets

An preliminary attempt was made to determine the value of common assets in Vermont. This choice of assets is consistent with social and natural commons, but is certainly subject to debate. This is not intended to be the final word on the topic, merely to point out the tremendous value of common assets which have been privatized, and begin a debate on the topic. A different set of choices could be made for Vermont or other states following the sky trust or other choice of assets.

A preliminary assessment of potential revenue available from

ASSET REVENUE
common assets in Vermont (not including the internet) is

MINERALS-10% $7,300,000 approximately $711+ million dollars per year. Divided by the
2000 Vermont population of 608,827 this would provide an

PUBLIC FORESTS $62,237
annual dividend of $1168 per person. With the exception of

WATER -1c/gallon) $87,831,410 minerals, all of the common assets on this list are renewable,
or non-depletable such as spectrum, speculation, money

LAND-1% $149,283,117
creation, water, forests, and internet access. Therefore the
revenue could be distributed on an annual basis. A permanent
SPECTRUM-10% $161,965,394
fund could be created from minerals and any other non-
SPECULATION-.25% $268,891,964 renewable assets. (Details in Appendix 4)
MONEY Creation-1% $35,744,500
INTERNET ?
TOTAL $711,078,622
Summary

Regulatory approaches to the environment have been effective in the past, but face the obstacle of economic incentives working against them. A green tax shift allows prices to more accurately reflect the environment cost of products, creating market incentives for environmental protection. Simultaneously, it allows taxes on production to be reduced, resulting in a “greener” more productive economy. By joining the popular movement for Green Taxes the broader goal of payment for use of natural opportunities, and exempting private effort can be achieved more readily. Common asset dividends, with an 80% approval rating in Alaska, can help deliver on the promise of government to provide for the common good, which government social spending alone has not achieved.
Appendix One

European Green Taxes

From Environmental taxes; Recent developments in tools for integration, European Environmental Agency, Nov. 2000.
Appendix Two

New England Green Taxes

From: Environmental Taxes in New England, an Inventory of Environmental Tax and Fee Mechanisms Enacted by the New England States and New York, Janet Milne, Environmental Law Center, VT Law School, 1996.
Appendix Two

New England Green Taxes (continued)

Appendix Three:

Vermont Green Tax Shift Revenue Details:

Note: Much of the work compiling a Green Tax Plan for Vermont was done in conjunction with a group of Public Administration Graduate students in fall of 2004. When this report refers to our plan, or recommendations we made, it is referring to decisions made by this consortium of researchers including Melissa Bailey, Thomas A. Benoit Sr., Amanda Dow Davis, John Demeter, Cheryl L. Diersch, Peter M. Freeman, Andrew Jope, John Mejia, Rachel Marie Weston.

Energy Tax Shift

The rationale behind our energy tax recommendations is to simplify the numerous existing energy taxes, encourage reduced consumption of fossil fuels, thereby reducing CO2 emissions, and to use the revenue to purchase energy saving efficiencies and invest in alternative transportation and energy. This plan largely follows recommendations found in Taxing Pollution, by Rebecca D. Ramos and Deb Brighton, published by the Vermont Fair Tax Coalition in Winter 2000, updated for 2004. The plan involves the added imposition of a $100/ton carbon tax, a $0.0084 tax on large nuclear and hydro powerplants, while retaining existing motor vehicle purchase and registration fees. The petroleum distributor license fee was doubled from 1c to 2c for the gasoline tank clean-up fund. The gasoline and diesel taxes were reduced to 2cents per gallon each which also funds tank clean up. Sales Tax on Commercial Energy use, Utilities Gross Receipts Tax, Fuel Gross Receipts Tax, and Electric Energy Tax were eliminated in this plan. Existing revenues and recommended changes are shown below.

Vermont 2004 Energy Taxes

Electric

Fuel Gross Energy Tax
Estimated Revenue
Utilities Gross
Receipts Tax 1%
from Sales Tax on
Receipts Tax 2%
2%
Commercial Energy
use
6%
Motor vehicle
Diesel Tax
registration fees
7%
21%

Total Motor Vehicle

Total gasoline taxes

Purchase and use

28%

tax

33%

Energy Tax Rate ’04 Revenue New Rate ‘04 Revised
Revenue
$.19 / gal $71,400,000
Gasoline tax 0.02 $7,200,000
$.17-.26 / gal $18,000,000
Diesel Tax 0.02 $1,800,000
5%* (with $15,000,000
Sales Tax on Commercial Energy use exceptions) 0 $0
.3-.5% of gross $5,669,316
operating
Utilities Gross Receipts Tax revenue 0 $0
.5% on retail $5,532,603
Fuel Gross Receipts Tax sales 0 $0
2.75% of appraised $2,767,228
value
Electric Energy Tax 0 $0
Petroleum distributor license fee Part of gasoline tax ($3,600,000)
(clean-up) (.01) 0.02 $7,200,000
Carbon tax none 0 $100/ton $216,200,000
Nuclear and large hydro tax none 0 0.0084 $148,300,000
Total Motor Vehicle Purchase and use 6% of purchase price
tax of motor vehicle $86,200,000 same $86,200,000
based on type, size,
weight, and purpose
Motor vehicle registration fees of vehicle $54,700,000 same $54,700,000
TOTAL ENERGY TAXES $259,269,147 $521,540,000
Analysis

The advantages of carbon taxes include broad impacts throughout the economy. Heating fuel, vehicle fuel, and power plant fuel are all affected. Low transaction costs are due to the fact that carbon taxes are an upstream source that taxes carbon-containing fuels as they enter the state, since Vermont has no instate source of fossil fuels. There are many fewer sources of fuels than users downstream to tax, and therefore lower compliance costs. Closely related is the ease of administration due to simplifying the energy tax code and the vastly fewer sources to tax. The additional revenue generated can be recycled to energy and transportation related projects, and to offset other taxes.

A $100/ton carbon tax could generate $216 million in revenue, yet looking at gasoline for example, we see a net increase of only 10 cents per gallon. In the past, opponents of carbon taxes have claimed an unacceptable increase in the price of fuels. In light of the recent increase in gasoline prices of 75 cents in two days during the Katrina crisis, this argument no longer has any merit. We didn’t see the economy collapse or demand reduce much, although public transit did see an increase in ridership. Increases in the price of other fuels would also be moderate.

Hydro/Nuclear Power tax

In Taxing Pollution, Ramos and Brighton make the case that a carbon tax provides an unfair market advantage to large hydro and nuclear power plants, which also have undesirable environmental and social effects. Therefore part of the recommendation is to add a $.0084/KWH tax on nuclear and large hydro for equity and market competitiveness.

2004 revised energy taxes

Diesel Tax Total gasoline
0.3% taxes
Motor vehicle
1.4%
registration fees
10.6%

Total Motor
Vehicle

Purchase and
use tax

16.8% carbon tax
42.0%

Nuclear and large hydro tax 28.8%

Revenue

In our revised Energy Tax plan all the motor vehicle fees and taxes are retained, but Utilities Gross Receipts, Fuel Gross receipts tax, Electric Energy, Sales Tax on Commercial Energy, have all been replaced by carbon tax and nuclear and large hydro tax. A side-by-side comparison is shown below, showing total revenue in the revised plan is double the previous revenue, amounting to an additional $248.4 million dollars in revenue and comprising about half of the increased revenue generated by the total green tax plan. About 5 Trillion BTUs of energy would be saved, and Greenhouse gas emissions would be reduced by the equivalent of 386,000 tons of CO2. In the 2006 Vermont legislative session a significant hike in the gasoline tax was considered, but huge opposition and a threatened governor’s veto killed it.

Vermont 2004 Energy Taxes

$500,000,000

Nuclear and large hydro tax

$400,000,000 carbon tax
Motor vehicle registration fees

Total Motor Vehicle Purchase and use tax

$300,000,000

Total gasoline taxes Diesel Tax

$200,000,000 Estimated Revenue from Sales Tax on Commercial
Energy use Utilities Gross Receipts Tax Electric

Energy Tax

$100,000,000

Fuel Gross

Receipts Tax

$0

2004 2004 final
revision
Total $259,269,147 $521,540,000 (revised)
Carbon Trading Potential for Vermont

There is an emerging market for “carbon trading credits”. The Kyoto protocol calls for carbon limits and trading systems. Europe already has a carbon-trading program in place, and the New England states have also organized a regional cap and trade program for carbon in 2005. The Vermont State legislature recently passed H.860 to
establish a cap and trade system for carbon dioxide in Vermont. The Chicago Climate Exchange (CCE) is operational on a voluntary basis. R. Sandor of Northwestern University claims that the carbon exchange may become the biggest commodity market in the world. Carbon taxes can supplement cap and trade carbon permitting systems.

Nebraska and Kansas have already begun quantifying the carbon sequestration (absorption) potential of their land. This is consistent with the US position on the Kyoto protocol, which calls for counting sequestration equal to carbon reduction. Vermont forests held a carbon stock of 492 million metric tons of carbon (MMTC) in1997. Carbon tax revenues could be used to quantify the capacity of Vermont land holdings for carbon sequestration, and define compliance mechanisms for trading. US farmers can sequester 200 MMTC, which could add $4-6 billion in gross income from carbon permits, which would amount to a 10% increase in average net farm income.

Vermont Property Related Taxes

Current Property tax structure

2004 VT Property taxes

Current Use Penalty Tax

eee property tax (PROP68) 0% Speculative Gains Tax 1%
0%

current use property
1%

Property Transfer Tax
4%

land 29%

buildings
65%

Tax Rate 2004 Revenue
Property Transfer Tax .5%- 1.25% $33,951,657
Speculative Gains Tax 5-80% $4,288,132
Current Use Penalty Tax 10-20% $404,155
Property Tax (State Portion) avg 1.52% $741,600,000
Total Property related taxes $782,118,363
Vermont Property tax

Vermont has a number of property related taxes. Similar to a number of other states, Vermont has a system of use-value appraisal or “current use”. This allows residents living on agricultural or actively forested properties to be assessed at a lower rate than the residential rate, as long as the property is engaged in the defined use. A large amount of property in Vermont is enrolled in use-value appraisal. If the property is converted or sold for residential use, the Current Use penalty tax is applied at this time. Speculative gains taxes apply to agricultural or forested properties if they are sold within a short period of time to avoid speculation. Property transfer taxes apply when property is sold. The State portion of generic property taxes is mainly used to fund education, and has a system to help equalize funding for all towns in the state regardless of local tax revenue.

Land value tax shift

In most states including Vermont assessments of land and improvements values are combined together and the property tax is applied to the total. Since the average Vermont property has 2.3 times as much value in the buildings and other improvements compared to the land itself, this results in 2/3 of the property tax falling on buildings. As previously mentioned, this means that 24% of total state revenue is coming from taxes on buildings. This is a huge disincentive to affordable housing, renovation, infill-development, and helps create sprawl, and slums. A better system is to shift most or all of the taxes to the land value only, and abate the tax on improvements. Total assessed value of buildings in Vermont is $33.2 billion, and land is assessed at $14.9 billion. Therefore a tax rate of 5% on land only would generate the same level of property tax revenue as currently generated. A land value tax reduces speculation by making it less profitable, and spurs compact development by putting vacant properties to use.

Revised Property tax Plan

Rather than make such a drastic transition, this plan calls for a reversal of the current ratio of revenue generated from land and buildings. Instead of 2/3 of the revenue generated from buildings, the plan calls for 2/3 of the revenue to be generated from land. Furthermore, due to the fact that land value is very dispersed in Vermont, and it is desirable to preserve the rural agricultural landscape, this land value tax shift should be applied initially in “growth centers” only. Growth centers refer mainly to village centers where development is desirable to reduce sprawl. The Vermont legislature in 2006 did in fact pass “The Downtowns and Growth Centers Bill” (S.142). This legislation provides for financial and tax incentives to encourage development in growth centers, and a land value tax shift would be an ideal policy for these new growth centers. The revised property tax plan maintains the same level of property tax revenue, but reverses the ratio of taxation falling on land and buildings within the growth centers. Outside of growth centers this plan recommends the standard property tax be retained, seeing as it discourages development.

Current Use Penalty Tax Speculative Gains Tax 2004 REVISED
0% 1% VT Property taxes
eee property tax (PROP68) current use property
0% 1%
Property Transfer Tax
4%

buildings-NICU
29%

land-NICU
65%

No change in Revenue
Solid and Hazardous Waste Taxes

2003 Total Waste Revenue: $7,956,749

Current status of Solid Waste

Operators of solid waste facilities and transfer stations in Vermont currently pay a $6/ton tipping fee. Vermonters generate approximately 3.4 pounds per capita every day and pay for waste disposal on a per capita or flat fee rate. Vermont has two permitted lined landfills that will reach capacity in about seven years. Vermont has a $.05 deposit on glass, metal, paper, or plastic containers for beer, malt beverages, mineral waters, mixed wine drinks, soda water, and carbonated soft drinks, but many larger containers are exempt from the bottle bill.

Current status of Hazardous Waste

A fee of one cent per gallon is assessed on all motor vehicle fuels sold in the state for the purpose of providing cleanup funds for leaking petroleum storage tanks. A tax is assessed on hazardous waste in Vermont when the waste is shipped, or when facilities recycle, treat, store, or dispose of hazardous waste. The tax is based on the quantity of hazardous waste and its ultimate destination (e.g. whether it is destined for recycling, treatment, or land disposal.) Standard fee for underground storage tanks (USTs) is $200 per tank, but some gasoline outlets and municipalities that use smaller amounts of motor vehicles fuel pay $100 per tank. Petroleum cleanup fees and tank assessment fees are deposited into the Petroleum cleanup fund.

Solid Waste Tax Recommendations

The plan increases the solid waste tax from $6 per ton to $12 per ton. Revenue calculation includes an adjustment for behavioral change assuming a 20% reduction in waste due to the increase. In addition it is recommended to institute a statewide mandatory Pay as You Throw (PAYT) programs with a .13/pound PAYT fee (~$260/ton or $1/bag). To assist the process we suggest Instituting a mandatory recycling and enforcement program, and to increase funding for market development for recycled materials. The bottle deposit should be retained at 5 cents, and all beverage containers should be added to the bill.

Hazardous Waste Recommendations

In order to provide additional funding for leaking petroleum tanks, the petroleum clean-up fee should be raised from one cent per gallon to two cents per gallon. This will also fund increased compliance and inspection visits for tank owners. Additional education and outreach to tank owners and the general public should also be conducted.

Waste-rev

Petroleum Clean-up Fee
3%

Annual Tank assessment fees
0%

Hazardous Waste Tax
0%

Solid Waste Tax
97%

2004 Revised Revenue: $155,005,344 Comparison of 2003 and revised revenue

TOTAL WASTE TAXES

$180,000,000

$160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0

2003 2004 final revision
Annual Tank assessment fees $364,060 $364,060
Petroleum Clean-up Fee $4,115,480 $4,770,454
Hazardous Waste Tax $277,920 $546,808
Solid Waste Tax $3,199,289 $149,324,022
Total $7,956,749 $155,005,344
Revenue

As shown in the chart above, there are small increases in the hazardous waste and petroleum tank clean-up programs. The increase in the solid waste tax is quite large amounting to $146 Million. We expect this will have multiple beneficial results.

Solid Waste

 Decrease our current rates of fill for the two permitted lined landfills

 Mandatory recycling and enforcement will level the playing field for all those involve. Recycling will
take place at all levels (residential, business, institutional)

 PAYT will create personnel incentives to reduce waste generation and increase recycling.  Market development will make waste reduction a very appealing option

Bottle Bill-Increase recycling and generate more materials for the recycling markets.

Hazardous Waste

 Regulated tanks will be operated and maintained properly due to increased inspections, which will result
in fewer leaking tanks

 Current sites will have more resources to help eliminate environmental pollution.  Tank owners and the general public will be more aware of improper maintenance and contamination.

Air and Water Pollution

Air and water emissions consist of discharges into lakes, rivers, harmful air emissions, and use of hazardous household products. Farms contribute runoff including pesticides and fertilizers. Air pollution is regulated by the federal EPA under the Title V Air Toxics program. The problem is that most air pollution is from non-point sources. Due to the rural nature of our state, 50% of energy expenditures in VT are for transportation and this accounts for most of the air pollution in the state. This transportation related pollution has been dealt with somewhat by the carbon tax explained earlier. For stationary sources under title V, the following recommendations are suggested:

Title V Fees for Construction

Basic Fee Schedule Type 2004 Amount Recommended New
Rate
Permit Application Major Stationary $11,500 $15,000
Non-Major Stationary $750 $1,000
Indirect Source $4,000 $5,000
Minor Amendment Clerical $100 $100
Technical $500 $500
Type
Supplemental Fee Amount New Rate
Schedule for Non-
Major Stationary
Engineering Review $1,460 $2,000
Air Quality Impact Screening Model $600 $600
Analysis
Refined Model $1,170 $2,000
Observe and Review $1,750 $2,000
Emissions Testing

Audit Performance of $1,750 $2,000
Ambient Air Monitoring

Implement Public $500 $500
Comment Requirement

Revenue $159,458 $248,519
Title V fees for Operating: Emitters have to pay for permission to release harmful chemicals into the atmosphere. They pay fees to the state to cover the cost of monitoring their businesses and then get charged by the amount of pollution emitted. Usually by the pound or gallon of
chemical.

Air toxics-Definition

“Air toxics” refers to 188 hazardous air pollutant (HAPs) listed in the Clean Air Act of 1990.

HAPs include industrial chemicals, solvents, metals, pesticides, and combustion by-products. Mobile Sources include on and off-road vehicles

and aircraft. Area Sources include Burn barrels, gasoline filling stations, woodstoves, paint stripper, surface coatings, drycleaners, industrial boilers, (small stationary sources). Point Sources include manufacturing operations (large stationary sources). Entities producing more than 5 tons of “criteria” air pollutants must register with the state. These include approximately 218 entities including UVM, Cargill, OMYA,

Burlington electric, Middlebury College. Total emissions amount to11,086 tons of toxics into the air during

 

Air toxics Revenues

Basic Fee Schedule 2003 Amount Recommended New Rate

For facilities with emissions greater than 5
tons but less than 10. $ 0.016 per pound of $250 plus
emissions of SO2, $0.032 per pound PM, 00, NOR, or Hydrocarbons
For facilities with emissions greater than 10 $840 plus $ 0.016 per pound $1,680 $ 0.032 per pound tons.

Excludes emission from the Excludes emission from the
Hazardous Contaminant
combustion of fuels except for combustion of fuels except for
Surcharge
“solid waste” fuel. “solid waste” fuel.
Type 1: $ 0.008 per pound emitted Type 1: $ 0.08 per pound emitted
Fee a ssessed based on emiss ions
Type 2: $ 0.084 per pound emitted Type 2: $ 0.84 per pound emitted
with regard to public health.
Type 3: $ 0.840 per pound emitted Type 3: $ 8.40 per pound emitted
P lease consult the Air Division fo r
Type 4: $ 8.40 per pound emitted Type 4: $ 84.00 per pound emitted
type definitions.
Coal: $0.43perton Coal: $0.86perton
Hazardous Contaminant

Wood: $ 0.103 per ton Wood: $ 0.206 per ton
Surcharge on the
#6 Fuel Oil: $ 0.0005 per gallon #6 Fuel Oil: $ 0.001 per gallon
amount of fuel burned
#4 Fuel Oil: $ 0.0004 per gallon #4 Fuel Oil: $ 0.0008 per gallon
annually. #2 Fuel Oil: $ 0.0002 per gallon #2 Fuel Oil: $ 0.0004 per gallon
LPG: $ 0.0002 per gallon LPG: $ 0.0004 per gallon
Natural_Gas: $0.87 per million ft3 Natural_Gas: $1.74 per million ft3
Toxics Revenue $153,576 $307,151
Title V Revenue (from $159,458 $248,519
above)

Total Air Emissions $313,033 $555,670
Revenue

Air Emissions Summary:

red=current blue=revised

 

Water Use and Discharge fees

Water discharge permit fees as well as design review fees are currently required for new construction. Storm water discharge requires administrative, application review, and annual operating fees. We recommended increasing these fees, as well as adding a water consumption fee. Taxation on the excess consumption of water promotes efficiency and conservative use. It encourages recycling, reuse, and innovation. Meters already in place, or can be placed on wells. First 100 gallons are free of charge, only use over 100 gals will be taxed. A water consumption tax will generate a large amount of revenue that can displace other taxes.

2004 Rates Revenue Revised Rates Revised
Revenue
Water Discharge Fees $570,000 $1,710,000
Permit application $100 $300
Review fee $50-$30,000 $150-$90,000
Stormwater Fees $318,735 $956,205
Administrative fee $100 $300
Application review $300/acre of impervious $900
fee surface in class B watershed
$1170/acre of impervious $3510
surface in class A watershed
$50/acre in Class B $150
Annual Operating watershed $705
Fee $235/acre in class A
wateshed
Water consumption 0 0 1cent/gallon over $87,831,410
Fee 100 gallons/day
Total Revenue $888,736 $90,497,615
Summary of water fees red=current blue=revised

 

 

Pesticide and Fertilizer Fees

Currently in Vermont Products containing toxic chemicals require a $75 registration fee to be sold in the state. This includes products such as RAID bug spray, lawn chemicals, and even anti-bacterial soap. Dealers who sell pesticides and farmers who apply them pay fees. Fertilizers require product registration fees and tonnage tax as well. Recently a sales tax exemption was created for agricultural use of pesticides and fertilizers as an attempt to assist family farmers who are struggling to compete with large scale agribusiness farms elsewhere in the country. Although this violates the Green tax principle of taxing environmentally harmful items, we were convinced that this exemption should remain, and focus the increased fees on dealers.

Expected Outcomes from air, water, chemicals fee changes

Healthier Vermont residents

Pure water

Fresh Air

Increased tourism Family Farms flourish

Product fee 2004 Rate Recommended rate
$300.00
Product registration fee $75.00
Dealer’s License & Application Fees $41,000 $82,000
for Pesticides
Fertilizer product registration fees max. $105.00 @ $30.00/nutrient, max. $210.00
@$15.00/nutrient
Fertilizer tonnage tax@ $.25/ton with a min. of $50.00 @ $.50/ton with a min. of $100.00
Total $932,000 $3,203,000
6.0% Sales Tax Exemption for Agricultural Use of Pesticides and Fertilizers-We recommend this be maintained, and substitute product fees for Pesticide sales.

red=current blue=revised

Summary of New Revenue-Option One or Two

Item 2004 Revenue 2004 Revised New Revenue
Revenue
Energy $259,269,147 $521,540,000
Air and water $1,201,769 $91,053,285
Waste $5,901,672 $155,005,344
Chemicals $932,100 $3,148,000
Property $782,118,363 $782,118,363
General $1,012,614,704 $1,012,614,704
other fees $56,585,608 $56,585,608
Total $2,118,623,363 $2,622,065,304 $503,441,941
The recommendations explained above would have resulted in additional revenue of over $500 million dollars in fiscal year 2004, by increasing fees on energy, air and water use and emissions, solid and hazardous waste, and chemicals and pesticides. This demonstrates the viability of the green tax shift, and the possibility of reducing taxation of productive activities, while increasing taxation of resources, land, and pollution.

 

Appendix Four

Vermont Common Assets Revenue Details

Both natural and social assets were evaluated in Vermont. Vermont has no fossil fuels and few mineral resources except for marble. Each state has a different mix of resources to choose from. Natural assets chosen in Vermont were minerals, forests, water use, and land. Social assets are universal across the United States due to sharing the same monetary, investment, broadcast, and internet systems. Therefore these assets might be similar in other states. The financial values however, would be quite different depending on the population level, economic level, and types of investment.

Natural Assets

Minerals

Gemstones $1,000
Vermont has no fossil fuels, gold, silver, or many
valuable minerals, mainly limestone and rock. A Swiss
company named Omya is the primary mining operation
Sand and gravel, construction $21,200,000
in the state. Minerals mined in Vermont include sand
and gravel, crushed stone, and products such as marble
STONE:

and talc. Total revenue from mineral extraction in

Crushed $22,800,000
Vermont was estimated at $73 million. A 10%

Dimension $29,000,000
severance tax was proposed for the common assets fund.

Since minerals are a non-renewable, depletable resource, Talc, crude Not released
revenue should go into a permanent fund like the Alaska

Total $73,000,000
oil fund.
Proposed Rent 10% $7,300,000
Forests
FORESTS (cords-2002) 791,035 x $50/Cord = $39,551,750 x 10%= $3,955,175
Public Forests (2004) $622,371 x10% = $62,237
Private forest revenue in Vermont was estimated at $39.5 million dollars, and revenue on public forests at $622, 371. For purposes of this calculation only public forests were counted. 10% tax on revenue from public forests would amount to only $62,237.

Vermont Natural Assets-Water

WATER: 1C/GAL>100 GALS $87,831,410
As explained in the green tax section on water use, a 1 cent per gallon tax on residential water use over 100 gallons per day would generate $87.8 million. This could be applied either to public revenue or to a common assets fund.

Vermont Natural Assets-Land

VT LAND VALUE $14,928,311,688
RENT 1% $149,283,117
Total land value in Vermont is estimated at $14.9 Billion dollars (Batt, 2003). A 1% land tax would generate $149.3 million for a common assets fund.

 

Social Assets

Spectrum

The value of the US broadcast spectrum was estimated at $782 billion dollars in 2003. Without detailed information about all of the radio, television, cellphone, and other EM wavelength used in Vermont, the best guess was to divide the US population by Vermont population to get a fraction of US spectrum value contained in Vermont. This is a very crude estimate, but was judged adequate for a preliminary measure. Vermont contains .21% of the US population which resulted in an estimate of $1.6 billion in spectrum value in Vermont. A 10% annual rental fee was applied resulting in estimated fund contribution of $161.9 million.

US spectrum value From Explanation of

TOTAL US SPECTRUM VALUE $771,000,000,000
The Citizen’s Guide to the Airwaves, J.H.
Snider, Senior Research Fellow VT population 619,107
New America Foundation US population 294,712,028
Washington, DC, 2003
ratio 0.21%
VT Value $1,619,653,939
RENTAL rate 10%
ANNUAL RENTAL VALUE $161,965,394

financial speculation Of all the financial transactions that take place internationally, it is estimated that 95% are speculation in paper assets only, and only 5% in actual goods and services. Economist James Tobin suggested a tax (Tobin Goods and Services

Buying and selling of
paper $30 Trillion/yr

$1.5-2 Trillion/day =$500-700T/year

Tax) to slow down the rate of speculation, which creates

no new goods or services. Financial markets and regulatory bodies that monitor them are socially created assets that allow financial transactions to take place. Therefore the public deserves a share of the money generated in these markets. Creating a Vermont .25% “Tobin” tax could generate $268.9 million annually for the common assets fund.

US and Vermont Financial Speculation

Current Trading Projected Tax Rate Revenue
(Annual Rates) Volume After-Tax Volume (both sides)
Stocks $11 trillion $7.3 trillion 0.5% $36.5 billion
Gov Bonds $41.6 trillion $27.7 trillion 0.1% $27.7 billion
Corporate Bonds $22.1 trillion $14.7 trillion 0.1% $14.7 billion
Futures Contracts $100 trillion $66.7 trillion 0.02% $13.3 billion
Currency $200 trillion $133.3 trillion 0.1% $33.3 billion
(worldwide) (U.S. share = 25%)
Swaps $22 trillion $14.7 trillion 0.02% $2.9 billion
Options Not available NA 0.01% NA
Suggested Total US Revenue @.25% Tobin Tax rate
$128.4 billion
x .21%
Vermont Revenue $268,891,964
Money creation/Seignorage

Banks create 93% of the money in the US

US GOVT (CURRENCY) $600 BILLION 7%
through the fractional reserve system, which allows the banking system to loan out many

BANKS (LOANS) $8 TRILLION 93%
times more money than they have on deposit.
TOTAL $8.6 TRILLION 100%
The monetary system is a socially created
system, which has been almost completely
privatized by the Federal Reserve. If we are
VT BANK LOANS 2004 $3,574,450,000
going to give banks the privilege of seignorage
(money creation) we should at least recover a
1% suggested rate $35,744,500
share of it for the public. A 1% tax on bank money creation would generate $35.7 million for the common assets fund in Vermont.

Internet Access

The internet was created by public

WEB SERVERS AND EMAIL

financing through DARPA.The public

ACCOUNTS?

deserves a return on their investment: This would be a Share of access, not

commerce. The same is true of publicly funded pharmaceutical research that is privatized by pharmaceutical companies. Additional research is needed to calculate these values in Vermont.

Summary of Vermont Common Assets Fund

MINERALS-10% $7,300,000
PUBLIC FORESTS $62,237
WATER -1c/gallon) $87,831,410
LAND-1% $149,283,117
SPECTRUM-10% $161,965,394
SPECULATION-.25% $268,891,964
MONEY Creation-1% $35,744,500
INTERNET ?

TOTAL $711,078,622
Total Revenue Available

A preliminary total of revenue available from common assets in Vermont is $711+ million dollars per year. Divided by the 2000 Vermont population of 608,827 would yield an annual dividend of $1168 per person. Some depletable assets should be placed in a permanent fund which only distributes interest, but much of the suggested fund is renewable, or non-depletable such as spectrum, speculation, money creation, water, forests, internet access, etc. These are funds which are currently being privatized, but rightly belong to the public.

 

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