A Green Tax Shift for Vermont Vermont Green Tax and Common Assets Project MPA/CDAE and Gund Institute University of Vermont December 2009 A Green Tax Shift for Vermont Prepared by: Gary Flomenhoft, Research Associate/Lecturer, Community Development and Applied Economics/MPA Program and Gund Institute, University of Vermont Research by: Melissa Bailey. . . . . . . . . . . . Property taxes Thomas A. Benoit Sr.. . . . . . Solid and hazardous waste Amanda Dow Davis. . . . . . . Water John Demeter. . . . . . . . . . . . Total revenue and offsetting taxes Cheryl L. Diersch. . . . . . . . . Chemicals Peter M. Freeman. . . . . . . . . Alternative fuel vehicles Andrew Jope. . . . . . . . . . . . . Energy taxes John Mejia. . . . . . . . . . . . . . . Air emissions Rachel Marie Weston. . . . . . Rail transportation/energy In conjunction with: UVM Master In Public Administration Program Green tax shift for Vermont-PA395, Fall 2004 http://www.uvm.edu/giee/?Page=research/greentax/index.html June 13, 2006 Acknowledgements Chris Koliba, John Erickson, Steven Holmes, Deb Brighton, Janet Milne, Andrew Hudson, Mike Wasser, Susan Messner, Spencer Putnam, Anjanette Merino, Orchard Foundation, Vermont Community Foundation, Schalkenbach Foundation, Walker Foundation, and students of PA 395, especially Rachel Weston. A Green Tax Shift for Vermont A Green Tax Shift for Vermont Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The “Green” Tax Shift. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Green Taxes in Vermont. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Appendix One: European Green Taxes . . . . . . . . . . . . . . . . . . . 15 Appendix Two: New England Green Taxes. . . . . . . . . . . . . . . . . 16 Appendix Three: Vermont Green Tax Shift Revenue Details. . . . . . . 18 Appendix Four: Money Creation and Seigniorage . . . . . . . . . . . . . 27 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 1 A Green Tax Shift for Vermont Introduction to Green Taxes T he 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 widely 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. New England has implemented a Regional Cap & Trade system (RGGI), and 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-tax-conference.uottawa.ca/ index.htm) The Environmental Law Program at Vermont Law School is one of the primary sponsors. Figure 1 Index of Growth of Tax Revenue as Percentage of GDP EU15, Index 1980=100 130 Environment 125 120 Capital 115 110 Consumption 105 Labor 100 95 1980 1981 1982 1983 1984 1985 1986 1987 1988 Source of data: Eurostat, 2000 2 1989 1990 1991 1992 1993 1994 1995 1996 1997 A Green Tax Shift for Vermont The “Green” Tax Shift A green tax shift is defined by increasing taxes on environmentally damaging activities while simultaneously reducing them on beneficial economic activities. 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 productive labor and capital should be reduced. This report will present a viable plan for a Green tax shift in the State of Vermont. 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. Throughput The concept most relevant to a green tax shift 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 Figure 2 Throughput Depletion Pollution Land Use 3 A Green Tax Shift for Vermont Genuine Progress Environmental Protection-Prices Lie 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. 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 4 Estimates of the Genuine Progress Indicator (GPI) Vermont, Chittenden County, and Burlington, 1950 to 2000 20,000 18,000 Vermont $ per capita 16,000 Chittenden 14,000 12,000 10,000 U.S. 8,000 6,000 Burlington 4,000 Figure 3 2,000 1950 ($ Billion) 1960 1970 1980 1990 2000 Gund Institute, 2003 Cost of household pollution abatement. . . . . . . . . 12 Cost of noise pollution . . . . . . . . . . . . . . . . . . . . . . 16 Cost of crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Cost of air pollution. . . . . . . . . . . . . . . . . . . . . . . . . 38 Cost of water pollution. . . . . . . . . . . . . . . . . . . . . . 50 Cost of family breakdown. . . . . . . . . . . . . . . . . . . . 59 Loss of old-growth forests. . . . . . . . . . . . . . . . . . . . 83 Cost of underemployment. . . . . . . . . . . . . . . . . . . 112 Cost of automobile accidents . . . . . . . . . . . . . . . . 126 Loss of farmland. . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Loss of leisure time . . . . . . . . . . . . . . . . . . . . . . . . 276 Cost of ozone depletion. . . . . . . . . . . . . . . . . . . . . 306 Loss of wetlands. . . . . . . . . . . . . . . . . . . . . . . . . . . 363 Cost of commuting . . . . . . . . . . . . . . . . . . . . . . . . 386 Cost of long-term environmental damage . . . . . 1,054 Depletion of nonrenewable resources. . . . . . . . . 1,333 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $4.372 trillion 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 Costs of Illth in the United States, 1998 Source: Why Bigger Isn’t Better: The Genuine Progress Indicator Update, Redefining Progress, November, 1999. 4 A Green Tax Shift for Vermont Solution-Green Tax Shift 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. 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. 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. 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. 5 A Green Tax Shift for Vermont Behavioral Approach (Milne, Primer 1996) 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. 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 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. Figure 5 Price Elasticity of Demand Inelastic Demand: Gasoline Elastic Demand: Movie INELASTIC: Large change in price = small change in demand ELASTIC: Small change in price = large change in demand 6 A Green Tax Shift for Vermont Green Tax Criteria (Durning and Bauman, 1998) 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. 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. 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? 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 7 A Green Tax Shift for Vermont Green Taxes 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 T here 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 Figure 6: Vermont Revenue from 2000-2008 Nothing New Here Vermont Taxes 2000 Vermont Taxes 2001 8 A Green Tax Shift for Vermont 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-TAXVT-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. Vermont Taxes 2002 Vermont Taxes 2003 Vermont Taxes 2004 Vermont Taxes 2008 9 A Green Tax Shift for Vermont 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. Onethird 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. . . . . . personal income . . . . . . . . . . . . . sales and use . . . . . . . . . . . . . . . . energy taxes . . . . . . . . . . . . . . . . . 35% 20% 12% 12% 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 . . . . . . . . . . . . . . . . . . . Personal income . . . . . . . . . . . . . Sales and use . . . . . . . . . . . . . . . . Energy taxes . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . 24% 20% 12% 12% 11% Figure 8: Vermont Taxes 2004 Tobacco Products: 0% Cigarette: 2% Beverage: 0% Captive Insurance: 1% Insurance: 1% Bank Franchise: 0% Telephone Property: 0% Telephone Company: 0% Telecommunications: 1% Corporate Income: 3% Rooms & Meals: 5% Figure 7: Vermont Taxes 2004 Other General Taxes: 1% Other Fees: 3% Total Energy: 12% Total Air and Water: 0% Total Waste: 0% Total Chemicals: 0% Speculative Gains Tax: 0% Current Use Property: 0% Land–NICU: 11% Sales & Use: 12% Estate Tax: 1% Personal Income: 20% Buildings–NICU: 24% 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 10 A Green Tax Shift for Vermont 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 Existing Green Taxes in Vermont consumption, but they tax the labor and capital valueadded 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. 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. 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-youthrow” (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. 11 A Green Tax Shift for Vermont Revised Green Taxes Main Features (For details see appendix 3) Energy. . . . . . . . . . . . . . . . . . . . . . Carbon @ $100/ton. . . . . . . . . . . . . . . . +$262,270,853 Property. . . . . . . . . . . . . 1/3 on buildings 2/3 on land in growth centers . . . . . ($782,118,363) same Waste . . . . . . . . . . . . . . . . . . . . . . . . $2/bag PAYT. . . . . . . . . . . . . . . . . . +$149,103,672 Air and Water. . . . . . . . . . . . . . . . . . $.01/gal >100gals . . . . . . . . . . . . . . . . . +$89,851,516 Chemicals. . . . . . . . . . . . . . . . . . . . $300 pesticides fee. . . . . . . . . . . . . . . . . +$ 2,215,900 Total Increase. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . ~$500 million 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 one cent per gallon surcharge on residential water use over 100 gallons per day generating 89 million dollars. 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 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. 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. All of the recommended changes are detailed in the table above amounting to additional revenue of $500 million. This table 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 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. 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 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 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. 12 A Green Tax Shift for Vermont Figure 10: Green Tax Shift Option 1 work was being done in 2005 to change corporate taxation requiring unitary combined reporting to crack down on income-shifting. Elimination of corporate income taxes would make this a moot point, and simplify reporting for business. 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 Figure 11: 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/year Green Tax Shift Option 2 Federal Payroll Tax 13 A Green Tax Shift for Vermont VT income tax FICA employee FICA employer Self employed $10-$15K 0 $956 $956 $1912 $15-$20K $79 $1340 $1340 2680 $25-$30K $633 $2486 $2486 $4972 Employee income 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 table 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 by MPA students at UVM. This is exactly what Germany did in 1999 with their Eco-Tax Reform. Fuel taxes were increased by 55% and payroll taxes were reduced. The result was that Germany reduced their GHG emissions, and developed the largest renewable energy industry in the world, with 18% of world wind and 40% of world PV installations. Figure 12: Green Tax Shift Option 3 Total Energy: 36.0% Land: 54.5% Total Air and Water: 3.5% Total Chemicals: 0.1% Total Waste: 5.9% Details of 100% Green Tax Topic Energy Property Waste Air & Water Chemicals TOTAL Main features Revenue Carbon @ $300/ton $946,800,000 Land @ 9.6% $1,433,117,922 $2/bag $155,005,344 1c/gal >100gals $91,053,285 $300 product fee on pesticides $3,486,000 100% Green $2,629,462,551 By 2006 Germany had 150,000 jobs in renewable energy compared with 107,000 in traditional energy. 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. 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. Summary The recommendations in this report 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. 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. 14 A Green Tax Shift for Vermont Appendix One European Green Taxes Development in environmental tax bases in EU Member States, 1996-2000, indicating year of introduction of CO2 taxes Tax on: A B DK FI FR GE GR ICL IRL IT L NL NO P SP SW UK Energy CO2* 1992 1990 2001 1999 1999 1992 1991 1991 2001 Transport Diff annual car tax Sin car fuel Water effluents Waste-end Dangerous waste Tires Disposable razors Beverage containers Disposable cameras Raw materials Packaging Bags Disposable tableware Pesticides CFCs Batteries Light bulbs PVC/phtalates Lubrication oil Fertilizers Paper, board PE Solvents Aviation noise NOx SO2 Minerals (P, N) In 1996 New in 2000 *Years of introduction From Environmental Taxes; Recent Developments in Tools for Integration, European Environmental Agency, Nov. 2000. 15 A Green Tax Shift for Vermont 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. 16 A Green Tax Shift for Vermont Appendix Two 17 A Green Tax Shift for Vermont Appendix Three Vermont Green Tax Shift Revenue Details tor 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. 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. Vermont 2004 Energy Taxes Electric Energy Tax: 1% Energy Tax Shift Fuel Gross Receipts Tax: 2% 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 distribuEnergy Tax Est. Revenue from Sales Tax on Commercial Energy Use: 6% Motor Vehicle Registration Fees: 21% Diesel Tax: 7% Total Motor Vehicle Purchase and Use: 21% Total Gasoline Taxes: 28% ’04 Revenue Rate Utilities Gross Receipts Tax: 2% New Rate ‘04 Revised Revenue Gasoline tax $.19 / gal $71,400,000 0.02 $7,200,000 Diesel Tax $.17-.26 / gal $18,000,000 0.02 $1,800,000 Sales Tax on Commercial Energy use 5%* (with exceptions) $15,000,000 0 $0 Utilities Gross Receipts Tax .3-.5% of gross operating revenue $5,669,316 0 $0 Fuel Gross Receipts Tax .5% on retail sales $5,532,603 0 $0 Electric Energy Tax 2.75% of appraised value $2,767,228 0 $0 Petroleum distributor license fee (clean-up) Part of gasoline tax (.01) ($3,600,000) 0.02 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 tax 6% of purchase price of motor vehicle $86,200,000 same $86,200,000 Motor vehicle registration fees based on type, size, weight, and purpose of vehicle $54,700,000 same $54,700,000 $259,269,147 Total Energy Taxes 18 $7,200,000 $521,540,000 A Green Tax Shift for Vermont 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. Recent studies indicate this would increase the price of gasoline by about 89 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. 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. 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: 0.3% Motor Vehicle Registration Fees: 10.5% Total Gasoline Taxes: 1.4% Carbon Tax: 42.0% Total Motor Vehicle Purchase and Use Tax: 16.8% Nuclear and Large Hydro Tax: 28.8% 19 Vermont 2004 Energy Taxes A Green Tax Shift for Vermont 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 Speculative Gains Tax: 1% Current Use Penalty Tax: 0% eee Property Tax (Prop68): 0% Current Use Property Tax: 1% Property Transfer Tax: 4% Land: 29% 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 Buildings: 65% Tax Rate Property Transfer Tax .5%- 1.25% Speculative Gains Tax Current Use Penalty Tax Property Tax (State Portion) 5-80% 10-20% avg 1.52% Total Property related taxes 2004 Revenue $33,951,657 $4,288,132 $404,155 $741,600,000 $782,118,363 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 20 A Green Tax Shift for Vermont 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. 2004 Revised Vermont Property Taxes No change in revenue Current Use Penalty Tax: 0% eee Property Tax (Prop68): 0% Speculative Gains Tax: 1% Current Use Property Tax: 1% Property Transfer Tax: 4% Land-NICU: 65% BuildingsNICU: 29% 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 Solid and Hazardous Waste Taxes Total waste taxes, 2003 Annual tank assessment fees: 5% Petroleum Clean-up Fee: 52% Solid Waste Tax: 40% 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 $2/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 Hazardous Waste Tax: 3% 2003 Total Waste Revenue: $7,956,749 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. 21 A Green Tax Shift for Vermont Revenue Solid and Hazardous Waste Taxes Annual tank assessment fees: 0% Petroleum Clean-up Fee: 3% Hazardous Waste Tax: 0% Solid Waste Tax: 97% 2004 Revised Revenue: $155,005,344 Comparison of 2003 and Revised Revenue $180,000,000 $160,000,000 $140,000,000 Petroleum Clean-up Fee Hazardous Waste Tax $120,000,000 $100,000,000 $80,000,000 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 $60,000,000 $40,000,000 $20,000,000 $0 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. 2003 Annual tank assessment fees Petroleum Clean-up Fee Hazardous Waste Tax Solid Waste Tax 2004 Final Revision 2003 $364,060 $4,115,480 $277,920 $3,199,289 2004 Final Revision $364,060 $4,770,454 $546,808 $149,324,022 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 nonpoint 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: 22 A Green Tax Shift for Vermont Title V Fees for Construction Basic Fee Schedule 2004 Amount Type Permit Application Major Stationary $11,500 $15,000 $750 $1,000 $4,000 $5,000 Clerical $100 $100 Technical $500 $500 Non-Major Stationary Indirect Source Minor Amendment Supplemental Fee Schedule for Non-Major Stationary Sources Recommended New Rate Type Amount Engineering Review New Rate $1,460 $2,000 $600 $600 $1,170 $2,000 Observe and Review Emissions Testing $1,750 $2,000 Audit Performance of Ambient Air Monitoring $1,750 $2,000 $500 $500 $159,458 $248,519 Screening Model Air Quality Impact Analysis Refined Model Implement Public Comment Requirement Revenue 1990 Total AP Emissions (as estimated by the CEP) 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. Point: 17% Air Toxics – Definition “Air toxics” refers to 188 hazardous air pollutants (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 five 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 to 11,086 tons of toxins into the air during 2000. Mobile: 53% Area: 30% 23 A Green Tax Shift for Vermont Air Toxics Revenues 2003 Amount Basic Fee Schedule Recommended New Rate For facilities with emissions greater than 5 tons but less than 10. $ 0.016 per pound of emissions of SO2,PM, 00, NOR, or Hydrocarbons $250 plus $0.032 per pound For facilities with emissions greater than 10 tons. $840 plus $ 0.016 per pound $1,680 $ 0.032 per pound Hazardous Contaminant Surcharge Fee assessed based on emissions with regard to public health. Please consult the Air Division for type definitions. Excludes emission from the combustion of fuels except for “solid waste” fuel. Excludes emission from the combustion of fuels except for “solid waste” fuel. Type 1: $ 0.008 per pound emitted Type 2: $ 0.084 per pound emitted Type 3: $ 0.840 per pound emitted Type 4: $ 8.40 per pound emitted Type 1: $ 0.08 per pound emitted Type 2: $ 0.84 per pound emitted Type 3: $ 8.40 per pound emitted Type 4: $ 84.00 per pound emitted Hazardous Contaminant Surcharge on the amount of fuel burned annually. Coal: $0.43 per ton Wood: $ 0.103 per ton #6 Fuel Oil: $ 0.0005 per gallon #4 Fuel Oil: $ 0.0004 per gallon #2 Fuel Oil: $ 0.0002 per gallon LPG: $ 0.0002 per gallon Natural Gas: $0.87 per million cubic feet Coal: $0.86 per ton Wood: $ 0.206 per ton #6 Fuel Oil: $ 0.001 per gallon #4 Fuel Oil: $ 0.0008 per gallon #2 Fuel Oil: $ 0.0004 per gallon LPG: $ 0.0004 per gallon Natural Gas: $1.74 per million cubic feet Toxics Revenue Title V Revenue (from above) Total Air Emissions Revenue $153,576 $159,458 $313,033 $307,151 $248,519 $555,670 Air Emissions Summary $310,000 $260,000 $210,000 $160,000 $110,000 $60,000 $10,000 $0 Toxic air emissions by the pound by chemical Current Title V-EPA air emissions permit-facilities Revised 24 A Green Tax Shift for Vermont Water Fees 2004 Rates 2004 Rates Revenue Revised Rates Water Discharge Fees Permit application Review fee $100 $50-$30,000 Stormwater Fees Administrative fee $100 $300 $300/acre of impervious surface in class B watershed $1170/acre of impervious surface in class A watershed $900 Application review fee $1,710,000 $570,000 $300 $150-$90,000 $956,205 $318,735 Annual Operating Fee $50/acre in Class B watershed $235/acre in class A wateshed Water consumption Fee 0 $3510 $150 $705 0 Total Revenue 1 cent/gallon over 100 gallons/day $87,831,410 $90,497,615 $888,736 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. Revised Revenue Summary of Water Fees $100,000,000 Current Revised $10,000,000 $1,000,000 $100,000 $10,000 $0 25 Water discharge fees Stormwater fee Water consumption fee A Green Tax Shift for Vermont 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 Pesticide and Fertilizer Fees Product Fee 2004 Rate Recommended Rate Product registration fee $75.00 $300.00 Dealer’s license & application fees for pesticides $41,000 $82,000 Fertilizer product registration fees @$15.00/nutrient max. $105.00 @ $30.00/ nutrient, max. $210.00 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. Air, Water, Chemicals Fees $3,010,000 $2,510,000 $2,010,000 $1,510,000 $1,010,000 $510,000 $10,000 $0 Registration annual fee for new pesticide products, household products Commercial pesticide dealer’s license & applicator licenses fees Current Revised 26 Fertilizers product registration fee Fertilizers tonnage tax A Green Tax Shift for Vermont Appendix Four Introduction I n addition to green taxes, another source of revenue that was briefly investigated was revenue from common assets, those assets created by nature, by government, or by society as a whole. In 2008 a comprehensive study of revenue from common assets was done by the Green Tax and Common Assets Project. It can be found under documents at: http://www.uvm.edu/giee/?Page=research/greentax/commonassets.html. For this study, creation of money and speculation were briefly assessed for revenue potential. Money creation/seigniorage Banks create 93% of the money in the US through the fractional reserve system, which allows the banking system to loan out many times more money than they have on deposit. The monetary system is a socially created system, which has been almost completely privatized by the Federal Reserve. If we are going to give banks the privilege of seigniorage (money creation) we should at least recover a 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. International 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 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. Goods and Services . . . . . . . . . . $30 Trillion/yr U.S. Govt (Currency). . . $600 Billion. . . . . 7% Banks (Loans). . . . . . . . $8 Trillion. . . . 93% Total. . . . . . . . . . . . $8.6 Trillion. . . . 100% Buying and selling of paper. . . . $1.5-2 Trillion/day =$500-700T/year Vermont Bank Loans 2004. . . . . . $3,574,450,000 1% Suggested Rate . . . . . . . . . . . $35,744,500 U.S. and Vermont Financial Speculation (Annual Rates) Current Trading Volume Projected After-Tax Volume Tax Rate (both sides) Revenue Stocks Gov Bonds Corporate Bonds Futures Contracts Currency $11 trillion $7.3 trillion 0.5% $36.5 billion $41.6 trillion $27.7 trillion 0.1% $27.7 billion $22.1 trillion $14.7 trillion 0.1% $14.7 billion $100 trillion $66.7 trillion 0.02% $13.3 billion $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 U.S. Revenue @.25% Tobin Tax rate: $128.4 billion x .21% Vermont Revenue $268,891,964 From Taxing Financial Speculation: Shifting the Tax Burden From Wages to Wagers, Dean Baker, Center for Economic and Policy Research, February 2000. Vermont total is pro-rated by population: Vermont was .21% of 2000 US population $128.4 billion x .0021 = $269 million. 27 A Green Tax Shift for Vermont References Bacher, John C., Petrotyranny, Science for Peace, September 1, 2000 Bailey, Melissa, Recommendations for Land Related Taxes in Vermont, www.uvm.edu/~gflomenh/GRNTAX-VT-PA395/papers.html, 2004 Barnes, Peter. Who Owns the Sky, Island Press, Washington, DC, 2001 Barnes, Peter, Rowe, Jonathan, Bollier, David, State of the Commons, 2003/04. Tomales Bay Institute, 2004 Batt, William H., A Draft Study of Site Value Taxation in Vermont: An Empirical Study Showing How it Would Work, Central Research Group and Center for the Study of Economics, 2002. Benoit Sr., Thomas A., Solid Waste Green Tax Recommendations, www.uvm.edu/~gflomenh/GRNTAX-VT-PA395/papers.html, 2004 Bollier, David, Silent Theft, Routledge, NY, 2002. Brþnnlund, R., Gren, Ing-Marie (eds) Green Taxes; Economic Theory and Empirical Evidence from Scandinavia. 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Progress and Poverty. R.S. Schalkenbach Foundation. NY, 1981 (First printing 1879) Hamond, M. Jeff, et al., Tax Waste, Not Work: How Changing What We Tax Can Lead to a Stronger Economy and a Cleaner Environment. San Francisco, CA: Redefining Progress, April 1997 Hausauer, Brenda. Tax Reform that Agrees with Vermont. Vermont Fair Tax Coalition, March 1999, 2005 Cobb, Clifford, Goodman, Gary Sue, And Wackernagel, Mathis, Why Bigger Isn’t Better: The Genuine Progress Indicator, 1999 Update, Redefining Progress, November 1999 Heavenrich, Robert M., Light-Duty Automotive Technology and Fuel Economy Trends: 1975 Through 2005, Advanced Technology Division, Office of Transportation and Air Quality, U.S. Environmental Protection Agency, EPA420-S-05-001, July 2005 Costanza, et al, Estimates of the Genuine Progress Indicator (GPI) for Vermont, Chittenden County, and Burlington, from 1950 to 2000, Gund Institute, 2003. International Center for Technology Assessment (ICTA), The Real Price of Gasoline, Washington, D.C.: November 1998 Daly, Herman and Townsend, Kenneth, editors, Valuing the Earth, MIT Press, 1993 Jope, Andrew, The Case for a Vermont Carbon Tax, www.uvm.edu/~gflomenh/GRN-TAX-VT-PA395/ papers.html, 2004 Davis, Amanda D., The Unaddressed Issue of Water Consumption in Vermont, www.uvm.edu/~gflomenh/ GRN-TAX-VT-PA395/papers.html, 2004 Milne, Janet. Environmental Taxation: An Introductory Primer, Vermont law School, 1996. 28 A Green Tax Shift for Vermont Milne, Janet. Environmental Taxation: Why Theory Matters, in Janet Milne et al., editors, Critical Issues In Environmental Taxation: International and Comparative Perspectives, Vol. 1 (Richmond Tax & Law 2003), pp. 1-26. 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Oct. 2001 29 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 Green Tax Shift Option 2: Decrease federal payroll tax by $500 million starting with wage earners below $35,000/year Summary of New Revenue-Option One or Two Item 2004 Revenue 2004 Revised Revenue New Revenue $259,269,147 $521,540,000 $262,270,853 Air and water $1,201,769 $91,053,285 $89,851,516 Waste $5,901,672 $155,005,344 $149,103,672 $932,100 $3,148,000 $2,215,900 Property $782,118,363 $782,118,363 no change General $1,012,614,704 $1,012,614,704 no change $56,585,608 $56,585,608 no change $2,118,623,363 $2,622,065,304 $503,441,941 Energy Chemicals Other fees Total Vermont Green Tax and Common Assets Project 617 Main Street Burlington, VT 05401 802-656-2996
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