BLUE RIBBON TAX COMMISSION Dec 8 2009 Revenue
BLUE RIBBON TAX COMMISSION Dec. 8, 2009 Revenue for a Sustainable Economy: Green Taxes, Common Assets, and Subsidy Reform Gary Flomenhoft, Research Associate/Lecturer in Public Administration, Community Development and Applied Economics Gund Institute Fellow
Acknowledgements Student Researchers Green Taxes Melissa Bailey Thomas A. Benoit Sr. Amanda Dow Davis John Demeter Cheryl L. Diersch Peter M. Freeman Andrew Jope John Mejia Rachel Marie Weston Common Assets Ross Saxton Mark Kolonowski Beth Nolan Colin Mc. Clung Conor Casey Ian Raphael Will Murray Elliot Wilkinson-Ray Susan Skalka Invitation: Rep. Dave Sharpe & Commission
WHO AM I AND WHAT AXE AM I GRINDING? • BS Mech Eng, Tufts • Master Public Policy & Eco-Economics UMD • Came to UVM in 2002 with Gund • Teach RE, Macro, Intl Development • Research in Public Finance for Sustainability • Worked in all sectors: private, government, and non-profit: • Taught HS, resorts, aerospace engineer, environmental groups, HUD, started three businesses. • Love Vermont and see it as a laboratory of democracy where good ideas can be implemented through open government • Political independent, everyone has part of the truth • Policy wonk
TAXES=THIRD RAIL OF POLITICS
WHOSE OX WILL YOU GORE? OR WILL IT GORE YOU?
GREEN ECONOMY? PRICES VT GREEN ECONOMY Always cheaper to do the wrong thing.
SUMMARY-make prices tell the truth GREEN TAX SHIFT: “TAX BADS, NOT GOODS” COMMON ASSETS: "PAY FOR WHAT YOU TAKE, NOT FOR WHAT YOU MAKE" SUBSIDY REFORM: “STOP SENDING GOOD MONEY AFTER BADS”
ECONOMY = THROUGHPUT (Value added) ECONOMY (By K & L) POLLUTION DEPLETION LAND USE Purpose: Max GDP = max throughput = DUMB GROWTH!
ECONOMY = THROUGHPUT (Value added) ECONOMY (By K & L) POLLUTION DEPLETION LAND USE Purpose: max value added/ minimum throughput=SMART GROWTH!
GREEN TAX SHIFT WHATEVER YOU TAX YOU GET LESS OF, THEREFORE: TAX DEPLETION, LAND USE, AND POLLUTION MORE TAX VALUE ADDED (LABOR, CAPITAL INVESTMENT, BUILDINGS, ENTREPRENEURSHIP, ETC LESS REVENUE NEUTRAL
Survey-EU Green taxes
1999 VERMONT TAXES
2000 VERMONT TAXES
2001 VERMONT TAXES
2002 VERMONT TAXES
2003 VERMONT TAXES
2004 VERMONT TAXES
2008 VERMONT TAXES
2004 VERMONT TAXES
2004 VERMONT TAXES: LAND&BLDGS
2004 VERMONT GREEN TAXES
GREEN TAX CRITERIA 1. ECONOMIC EFFICIENCY 2. DISTRIBUTIVE EQUITY 3. ENVIRONMENTAL PROTECTION 4. EASE OF ADMINISTRATION Tax Commission Mandate 1. Sustainability 2. Appropriateness 3. Equity Minimize regressivity-minimize tax on LI Fair, efficient, effective administration
GREEN TAX NEW REVENUE
Additional revenue from Green Taxes – where should it go? • • • Offset Individual income tax? Offset Corporate/business income tax? Offset Telecommunications tax? Other Recommendations? Offset Fed payroll tax?
GREEN TAX SHIFT OPTION 1 • Offset Individual income tax -$429. 5 M • Offset Corporate/business income tax -$55. 5 M • Offset Telecommunications tax -$15 M
PAYROLL vs INCOME TAX Income employee FICA employee $10 -$15 K VT income tax 0 FICA Selfemployer employed $956 $1912 $15 -$20 K $79 $1340 2680 $25 -$30 K $633 $2486 $4972 PAYROLL TAX MUCH MORE REGRESSIVE!
GREEN TAX SHIFT OPTION 2 -$500 M Payroll tax <$35 K income and pro-rate above Or cash refund
FINANCIAL EFFECTS OF 1999 ETR IN GERMANY (IN BILLION EURO) Energy taxes in Germany increased by 55 percent, additional increase in 2005 through truck toll ~ 56 ~ 53 200 +4, 3 +2, 5 +3, 0 +2, 5 2 200 1 200 0 199 +4, 3 9 18, 7 bn € = 55% increase Energy taxes 199 8 3, 0 200 5 6, 5 5, 0 1, 8 16, 0 ETR ~ 34 + 3, 0 Road toll for trucks 22, 8 Energy taxes 2003/2005 Road Toll cents/km) Electricity cents/k. Wh) Natural gas cents/k. Wh) Fuel oil Diesel cents/l) Petrol cents/l) (0 → 9 -14 (0 → 2, 1 (0, 2 → 0, 6 (4, 1 → 6, 2 cents/l) (31, 7 → 47, 2 (50, 1 → 65, 6 Total green taxes almost 90 Bn (incl. tobacco, land etc. )
GERMAN ETR: RECYCLING OF THE RETURNS Almost 90 Percent was recycled to citizens in order to reduce labour cost Environment Projects • Renewable Energies • Less CO 2 in buildings • Tax break bio-fuels Budget use Govt. Social Security Economy Pension system Decrease in pension costs = 16 Bn relief for employers, employees and pensioners Our Comment: • Great idea, in principle • Less than perfect execution
POSITIVE EFFECTS ON NATURE, INNOVATION AND LABOUR First Results of Ecological Tax Reform Ø Fuel consumption (-16%) Ø CO 2 -emissions (2 -2, 5%) Ø Pension costs (-16 bn) Ø Costs for industry (-1 bn) Ø Empty truck travel Ø Imported fossil fuels (13%) Ø Overall tax burden (-4 %) Less More Ø Tax share of Nature Ø Car sharing (+70 %) Ø Public transport (+5 %) Ø Energy saving technologies Ø Energy efficiency Ø Gas-powered cars (x 10) Ø Bio-fuelled cars (x 2) Ø Job creation (≈ 250. 000) Ø Renewable energies
JOBS IN THE ENERGY SECTOR IN GERMANY 2005 More jobs in RENs than in our heavily subsidized problem energies REN: 150. 000 Water Geothermal power Solar jobs Bioenergy Problem energies: 107. 000 jobs Windpower Source: BEE 2005
100% Green shift-OPTION 3 Carbon $300/ton Land 9. 6% Waste $2/bag Water 1 c/gal >100 gals Chem $300 on product pesticides fee $2. 6 B revenue
Why should we?
. 25% Financial speculation tax (A NO BRAINER) Credit default swaps Mortgage backed securities currency 95% Speculation hedges options derivatives Land bubble $269 Million Exemptions IPOs, new stock Venture Capital Angel Investors Small business loans Etc.
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