A Third Blog Post on an Agenda for a New America

A Tax Shift, Social Capital, and Sustainability


In economic terms, a tax shift would take taxes off labor and capital and put them on the third factor of production--resources, the gifts of nature.
Labor refers to people working. Capital means physical objects created by people, such as buildings, tools, and machinery. The gifts of nature are resources not made by people, such as air, forests, fossil fuels, land, metals, water, a stable climate, and rivers and other habitats. Taxing labor and capital tells businesses and households to scrimp on workers and tools--in other words, to practice underemployment and under-investment. Taxing the gifts of nature (or, more precisely, taxing actions that degrade the gifts of nature) tells people to conserve these gifts.

Taxes on resources correct one of the most glaring flaws of market economies: blindness to environmental costs. Failure to charge for the use of the atmosphere as a receptacle for poisonous gases, for example, results in too much air pollution. Failure to charge for the disruption of watersheds results in too many floods. Yet for individual firms, there is no place in the ledger for the environmental costs of production that fall on others—externalities or costs such as damage of a worker's DNA that causes disease decades later, the draining of a wetland that offers wildlife habitat, or the release of toxic substances so mobile they eventually permeate the breast milk of women. Environmental taxes put these costs--or at least crude monetary approximations of them--on the books. The prospect of aiding both economy and environment has sparked modest tax shifts in the Netherlands, Spain, the United Kingdom, and three Scandinavian countries since 1991.

Compared with the rest of the world, European countries have very well-developed "green" fiscal policies. While most of the these are applied to transportation (motor vehicles, gas and diesel), "green taxes" are used to address various other issues such as waste management, packaging, air emissions, fertilizer use, and extend to other market-based incentives such as trading "credits," take-back programs for manufactured goods, deposit-refund schemes, rebates, the removal of perverse subsidies (and introduction of others) and various other programs. While many of these measures were originally used to target certain environmental issues, there has been a trend towards more comprehensive tax reform to shape environmentally responsible practices across the board.

Scandinavia, the Netherlands, Western European countries and Japan have set up commissions to explore the opportunities for and issues surrounding introducing broader green tax shifts. In the three decades up to the Rio Earth Summit in 1992, there was growing awareness in Sweden of carbon dioxide emissions and global warming, and the signing of the Rio Declaration pushed them towards more clear commitments. The government had been trying to find the best way to reduce all types of emissions, but the economy had slowed down. Their dilemma was how to do this and still raise employment and also survive in a transforming global system that put increasing pressure on national industries to become more "efficient" by externalizing costs.

Knowing that environmental regulation was unpopular, especially among industry, the government decided to introduce several taxes in 1991. One of these was the carbon tax, levied on a two-tiered basis for two classes of users, household and industrial. They were able to introduce them to households (who depended on this mainly for home heating and transport) because there was broad popular support. Introducing these taxes began to have an effect on heating infrastructure, where the use of biomass increased in local heating districts. It also created new demand for biomass and led to innovations in the field, as well as improvements in other technologies in home heating efficiency.

For industry, which was opposed to the taxes, there were initial exemptions and incremental expansion of taxes. Sweden was among the first countries to initiate the "feebate" system, which was a way to get support from business. The revenue collected from these various taxes was returned to any businesses who increased efficiency of their plants, proportionate to the increase; in other words, the bigger the improvement, the bigger the refund. This would help businesses offset the costs of investing in improved efficiency. Under this feebate system, NOx emissions fell by 35% in the first year alone, and investment in abatement technologies went up accordingly. (This is a situation where heavier polluters are transferring resources to, or subsidizing, lighter polluters--instead of the case where government and public typically subsidize heavy polluters with elevated health care costs and reduced quality of life).

The taxes have influenced emissions even more dramatically on carbon and sulfur than on nitrogen. The tax on sulfur led to a reduction in sulfur content on fuels 50% below the legal requirement and halved SO2 emissions in the last eight years. The total decrease in emissions since 1970 has been over 70%, and Sweden has led the 30% club, in a pledge to reduce SO2 emissions by 1993-95, and other countries such as France, Canada, Norway, Denmark, the Netherlands and West Germany followed suit, pledging reductions of 40-50% by the mid-nineties.

The effects of these changes are apparent on ordinary lifestyles. Emissions controls are used on cars, appliances are energy efficient, homes are energy conserving, and household and industrial materials are recycled. One of the cleanest garbage-to-fuel plants in Karlstad separates and recycles most of its input and burns the rest for energy. Co-generated steam from the plant provides hot water and heating for 60,000 of the area's residents, and an adjoining landfill feeds a biogas system for additional energy. There is a "solar" village above 58 degrees latitude where households have managed to meet their heat and hot water needs by solar alone for five months of the year, which shows the potential for northern regions to take advantage of the longer days of summer. Taxes on nuclear energy have also been part of a plan to phase out nuclear power by 2010, while retaining limits on hydroelectric power. Over the years these programs have evolved and extended to nitrogen fertilizers, pesticides, scrapping cars, gravel extraction and others.
In 2000, a broad tax "shift" created revenue and raised employment levels through job skill training. The word "shift" is important because while the goal may be have been aimed at raising revenue, it has also redirected the flow of money through the Swedish economy where the tax burden is heaviest on those who exact the greater costs on society. For example, some of the taxes on home heating and electricity have been combined with offsetting tax cuts, which include lower income taxes and social security contributions.

Social capital:

Social capital is a concept in business, economics, organizational behavior, political science, public health, sociology and natural resources management that refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of modern society, they tend to share the core idea "that social networks have value. Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so too social contacts affect the productivity of individuals and groups"

Triple bottom line or People, Planet, Profit:

The process by which we meet our national needs is called “economic development. “There are significant differences between economic growth and economic development. The term "economic growth" refers to the increase (or growth) of a specific measure such as real national income, gross domestic product, or per capita income. National income or product is commonly expressed in terms of a measure of the aggregate value-added output of the domestic economy called gross domestic product (GDP). When the GDP of a nation rises economists refer to it as economic growth. The term economic development on the other hand, implies much more. It typically refers to improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP is a specific measure of economic welfare that does not take into account important aspects such as leisure time, environmental quality, freedom, or social justice. Economic growth of any specific measure is not a sufficient definition of economic development.” A critical examination must include not just economic processes and institutions, but also the theology of “growth,” and ecological, cultural, social, and political processes.

"Society must cease to look upon "progress" as something desirable. `Eternal Progress’ is a nonsensical myth. What must be implemented is not a `steadily expanding economy,’ but a zero growth economy, a stable economy. Economic growth is not only unnecessary but ruinous. Alexander I. Solzhenitsyn

Sustainability:

Sustainability provides a framework for the integration of environmental, economic policies, and development strategies. It recognizes that economic development is essential to satisfy human needs and improve the quality of human life. But economic development must be based on the efficient and environmentally responsible use of all of society’s scarce resources – our natural, human, and economic resources.

“Sustained growth” is a cruel falsehood if it just means increasing production and consumption: on a finite planet, ultimately such growth is a physical impossibility. Talking about growth with no context is meaningless: growth can be good or bad or irrelevant; it must be judged in terms of its effects on people and nature, not in terms of the cash value of goods and services. Increased spending on nuclear weapons and increased spending on preventive health care services both contribute to the Gross National Product (GPN), but only one is of any value in a society concerned with human welfare.”

In the new American Agenda – government, entrepreneurs, environmentalists, and consumers must cooperate to find ways to finance the inevitable transition from sunset industries (an industry in decline or one that has passed its peak) to the sectors of a “conservation economy” that promotes economic relationships which maintain ecological integrity while advancing social equity. In a conservation economy, economic arrangements of all kinds are gradually redesigned so that they restore, rather than deplete, natural capital and social capital. The fundamental needs of people - and the ecosystem services that sustain them - are the starting point for a different kind of economic prosperity that can endure.

A conservation economy can be imagined as a healthy mosaic of bioregional economies forged within coherent units. Even in a globalizing economy, diverse bioregional economies that are more self-sufficient in meeting their own needs will be more competitive and less vulnerable.

Sunset industries are those most tied to carbon while the conservation economy is one that embodies the nurturing of diversity and productivity in natural systems; that uses renewable resources and eliminates waste in built systems; that fulfills social and environmental goals to create market opportunities in economic systems; and helps citizens to understand the whole in order to improve social systems.

Durable Economic Prosperity: Part 2 An Agenda for a New America

Durable Economic Prosperity:

Any plan for sustainability must insure that everyone in the United States has fundamental needs met as a non-negotiable condition of attaining a robust economy based on sustainability. At a minimum, these needs include nutritious food; shelter; healthcare; education; and ecosystem services – all provided affordably and reliably.
In order to achieve a sustainable or durable economic prosperity we must promote a diverse national economy as well as local economies that provide a wide range of employment opportunities; build assets that broadly distribute wealth; and encourages human-scale communities that provide shelter; and opportunity for all. Economic prosperity also requires that we work towards a tax shift that fully values social benefits and takes into account the externalized cost of pollution, and other negatives.

Over the mid-term, we must decrease economic dependence on activities that deplete natural resources or social capital . In the shorter-term investments must be made that have a triple bottom line, one that includes, economic, social, and environmental - returns. And we must begin to harness both market forces and changes in laws, taxes, and policies that favor a sustainable economy.

A sustainable or durable economy requires the development of programs, policies, and implementable initiatives that encourage activities that will empower communities and conservation of resources; promote environmental justice; preserve ways-of-life; and promote by example and through discourse the ideas of ecological and participatory democracy and its real world implications.

“Sustained growth is a cruel falsehood if it just means increasing production and consumption: on a finite planet, ultimately such growth is a physical impossibility. Talking about growth with no context is meaningless: growth can be good or bad or irrelevant; it must be judged in terms of its effects on people and nature, not in terms of the cash value of goods and services. Increased spending on nuclear weapons and increased spending on preventive health care services both contribute to the Gross National Product (GPN), but only one is of any value in a society concerned with human welfare.” Roy Morrison Ecological Democracy
Sustainable development is a process of continuous improvement by design, of natural, built, economic and social systems. Meaning__

 Nurturing diversity and productivity in natural systems;
 Using renewable resources and eliminating waste in built systems;
 Fulfilling social and environmental goals to create market opportunities in economic systems;
 And helping citizens to understand the whole in order to improve social systems.

Sustainable development means dynamic abundance, not static scarcity . If we apply our collective ingenuity, creativity, and know-how in a comprehensive planning process, it is possible for our social and environmental goals to be transformed into ecological improvement and economic opportunities. For example, environmentalists and businesses need no longer be opponents as long as those businesses get that environmental compliance is in their bottom line interest. A vision of a durable or sustainable future includes a market for creative entrepreneurs motivated by enlightened self-interest. The future is not something to be feared or fought over – it is something we have to guide creatively and cooperatively. We can work together, live better, and waste less.

Local Economies:

The wealth of our nation depends in large measure on the economic health of its cities, towns, and bio-regions. Strong local economies are the foundation of strong communities that can withstand the pressures created by an increasingly urbanized society – one in which many live far from their roots, have less direct social contact, friends and support.
Strong communities require an approach that not only provides the traditional deliverables of economic development—jobs, income, wealth, security—but also protects the environment, improves community infrastructure, increases and develops local skills and capacity, strengthens the social fabric, and respects heritage and cultural identity. This systematic approach assures that the whole is examined rather than simply its individual components.

While individual actions and lifestyle choices, such as buying organic produce, participating in local politics, or supporting the work of a regional environmental organization are important personal contributions. Strengthening local economies requires a cooperative shift in individual actions and choices. The cooperative economy of Emilia Romagna in northern Italy, the Grameen Bank in Bangladesh and other micro banking initiatives, Vancity Credit Union in Vancouver, the Women’s International Sewing Cooperatives of Nueva Vida, the Mondragon Cooperative in Spain, urban farms in Burlington VT, Brooklyn NY, and Detroit, “eco-villages, and the campaigns for local trade across North America are all examples of the potential of community mobilization to help strengthen local economies.

The migrations from central cities during the 1950’s and 1960’s and the decentralization of urban centers have created “centerless” communities where suburbanites commute from the outer suburbs and formerly rural areas along highway corridors and rail lines that slice through the inner ring suburbs. Big box stores, the mortgage crisis, and the disconnection of eating and our food supply have all led to the loss of local communities.

Even in our most rural areas, people drive from their farms miles to the local “gigantomart” to buy “ organic” fruits and vegetables flown and trucked from all over to the world, and inexpensive tools, clothing, and toys, made in many cases in sweatshops in third world countries to the detriment of the local economy.

Strong local economies give communities the capacity and resources to address specific and immediate problems such as the provision of health care, adequate housing, clean water and sanitation, and disaster prevention and response. Human settlements—large and small, rich and poor—need strong local economies to withstand the pressures created by an increasingly urbanized and isolating world.

A tax shift:

The traditional relationship between the environment and the economy usually pits the environment against the economy. Instead of pursuing economic activities and distribution as primary and looking at the consumption of natural resources and the impacts on the environment as incidental, we must begin to put the environment first. This means committing ourselves to conserving resources, including habitat resources. It also means including the environmental “costs” of an economic activity as integral to the overall costs of that activity, not treating those costs as incidental or an afterthought – not as clean-up or “mitigation. Economics and the environment must be completely integrated in the decision making and lawmaking process – not just to protect the environment and human health, but also to protect and promote sustainable development

Economics tells us that when you tax something, you get less of it. Our problem is that we tax things we want more of, such as income and enterprise, instead of things we want less of, such as toxic waste and resource depletion. The logical outcome is that we get less money and more messes. Tax Shift is about doing the opposite--removing taxes from "goods" and putting them on "bads." Whether you think government is too big, too small, or just right, tax shifting appears to make sense.

A tax shift would allow us to reduce or eliminate many existing taxes: regressive property, payroll, and sales taxes that are hardest on the lower and middle classes; enterprise-killing business taxes; perhaps even personal income tax. Instead we could tax actions that corrode the public good. We could tax emissions of deadly fine particles, greenhouse gases, and other air pollutants; discharges of toxic metals and other water pollutants; and the manufacture and use of pesticides and other hazardous chemicals. We could tax away most traffic jams, by charging drivers for use of major routes at rush hour. We could protect natural ecosystems by taxing the pumping of fresh water, the impounding of rivers behind dams, and the felling of virgin timber. Finally, by moving the weight of the property tax off buildings and onto urban land values, we could promote the growth of compact, walk able neighborhoods and slow the creep of our suburbs into farms and forests.

Shifting the tax burden would send out powerful signals--signals that would reorient consumption and production in our homes and businesses. Tax shifting would harness the profit motive for environmental ends and wring out the waste of resources. Governments would still get their money, and--because taxes on "bads" do not bog down the economy as much as many existing taxes on "goods"--employment levels and incomes would rise.
In economic terms, a tax shift would take taxes off labor and capital and put them on the third factor of production--resources, the gifts of nature.