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Biophile Magazine -- » Move over, Mr Manuel!

"We are constantly taking ideas from the spiritual world and forming them into our own conception of the things we desire. Sometimes the finished product does not satisfy or please us. That is because we have taken the idea away from its true parents, wisdom and love." Daily Guru

Move over, Mr Manuel!

by Margaret Legum, SANE

FILED IN: Big Business and Globalisation · Issue 4


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The search for alternative taxation world-wide is driven by two imperatives. First, we need to diminish dependence on conventional sources of public revenue, without depriving governments of funding. Second, taxation is the least authoritarian and invasive way to limit activities which are destructive to people and the planet. Without actually banning anything, taxation can encourage people to act in the interests of the common good while also meeting their own needs.

What we need are alternative taxes!

Conventional taxation may be divided into five broad categories:
• personal income tax
• company profits tax
• taxes on consumption via VAT
• local rates on land and property, and
• levies on goods like petrol and alcohol.

Except for the last, all are taxes on the money that has been earned by work. Thus conventional taxation penalises work which produces income. This is the first reason why in principle we need to replace conventional taxes: they tax what we want to encourage, instead of what we want to discourage.

Moreover, there are reasons why these conventional sources of taxation are drying up. The globalised markets in capital and skills mean that governments dare not introduce high tax regimes for fear of losing mobile factors of production. Thus they are forced to cut expenditure on public activities and services previously taken for granted.

Second, with ageing populations, it becomes increasingly difficult to finance governments’ needs from a diminishing proportion of its citizenry. Third, growing volumes of e-commerce through the Internet means that an increasing proportion of transactions fall outside the remit of national taxation systems.

Therefore we need to find other ways to raise funds for the public purse. The New Economics movement believes governments can raise even more revenue than today, and by means that have a benign effect on the future of the planet and humanity.

Taxes on income and consumption are perverse if we want to encourage work. It is true that as a redistributive tool, income tax has some merit, since it can be tailored to different income levels. But VAT, the tax on consumption, is highly regressive, being paid equally by everyone. Poor people feel the effect of VAT much more than the rich.

The positive reason for using alternative taxes relates to the negative aspects of the levies described above. Through taxation we can encourage new forms of economic activity and discourage — rather than simply banning — some of the old. In particular we need to shift activity away from the consumption of non-renewable or limited resources and away from activities which have destructive effects — such as pollution of land, air and water.

It has become clear that the planet’s natural environment is under severe threat from modern economies. It is also clear that some aspects of modern economic activity create dangerous self-destructive instabilities as well as inequalities of access to income at an exponential rate. The taxation system could be a means to reconcile modern economies with sustainable ecosystems, sustainable economic systems and human fairness.
On a small scale governments already do this. We tax cigarettes and alcohol explicitly to discourage addiction, as well as to raise funds; and we exempt certain basic and nutritious foods from taxation to encourage healthy eating by poor people. In other words we have taxed things we do not want to happen, and removed taxes from what we do want. But so far the scale is tiny.
Another reason for new taxes is to incorporate into the price of the product all of its costs. At present some products cause problems to society at large which society has to resolve. Industrial air pollution, for instance, causes ill-health which individuals, health services, tax payers and others have to treat at cost to themselves.

The cost of responding should be built into the product itself. This has the effect of ‘internalising’ the full cost, by making consumers pay a tax. For lack of this “full cost accounting” — which is used in measuring efficiency in the market system — most goods and services traded today have been chronically under-priced and over-consumed. To not do so constitutes a serious “market failure.”

I propose that governments move from the first type of taxation (on work, production and income) to the second (undesirable activity or use of scarce resources). Clearly the process needs to be gradual and strategically phased.

For example, choosing to end corporation tax first would have the immediate effect of encouraging investment; and would also gain powerful allies for the alternative taxation approach. It would release resources from the often ill-matched cat-and-mouse game played between governments and corporations, the latter being adept, through the efforts of their well-paid advisers, at finding ways to hide profits.

A very detailed study of alternative taxes has been carried out by an American organisation, Sustainable America (SA), which describes these as Taxes for Sustainability. Its latest report enumerates ten kinds of environmentally friendly taxes. They provide income for governments, incentives for protecting the environment, and healthy development for cities. They are:

A Land Value Tax
This proposes removing taxes on buildings and other improvements to land — and instead taxing the commercial value of the land only. This would discourage speculative hoarding of land, encourage its best use, and reward decentralisation of activity to where land is cheapest. The principle behind it is that when we use land we deprive others of its use, since it is a fixed and limited asset.

Because its commercial value is a measure of its value to others it is logical to tax that value. It is not logical to tax the effort and resources that people put into improving the land with buildings or other assets.

A Tax on Carbon in Fuels
This would tax all non-renewable sources of energy, all of which are carbon based. Clearly we need to discourage their rapid depletion, and encourage instead the application of technology to renewable energy sources. Taxing carbon “upstream” — when it is mined — would privilege alternatives. Moreover, all production which uses carbon-based processes, like transport, would be more expensive than those which do not. This would constructively privilege, for instance, locally grown food over food which travels distances to consumers.

A tax on motor vehicle emissions,
managed through regular compulsory tests to all vehicles.

A tax on industrial pollution of land, air and water
So far, self-regulation and the use of legislation prohibiting such activity has not been successful, but in the US there are already schemes in terms of which companies must buy ‘permits for pollution’, which are in effect taxes on discharges into the air, the earth or water.

Some companies who discharge more than the legal amount can buy permits from others who do not need their full allowance. These charges are used for the cleaning up process. There are moves to allow this same kind of trading in permits to take place between countries.

A tax on municipal solid waste
People who create waste should pay for it directly rather than indirectly as part of their payment of general rates. Already some municipalities make a charge for enterprises which need to dispose of waste. Others make a positive virtue of recycling by paying for waste products and turning them into new resources.

A tax on fertilisers and pesticides
While adding to the profitability of the product to the owner, these create health hazards in the general population; and attention to these is not included in the price to the consumer.
Taxation provides a way to internalise into the price of the product the full cost of producing it. This would encourage organic food production which would become relatively cheaper for not having used toxic substances.


A tax on paper
and other uses of timber, where the timber is not replaced by new planting.

A tax on the use of water,
especially in agriculture, to encourage least wasteful ways of irrigation, and to encourage recycling

A tax on fish harvested using methods that deplete stocks

A tax on the mining of minerals, which are non-renewable resources

All of these will raise money by discouraging activity that poisons the earth or diminishes its capacity to regenerate. But it will be seen at once that some of them are in effect regressive, since poor people may be at least as hard hit as the rich. A tax on petrol and all its uses will, for instance, make all transport and heating fuel more expensive. There is a case for subsidies where such hardship and inequality is caused.

However, subsidies are not a new idea. At presently we perversely subsidise destructive activities like the use of petrol-driven cars, by building roads, financing parking regulations and so on. Subsidies to reduce hardship would not be a new principle — only its more constructive aspect.

Some alternative taxes would be best introduced at an international or regional level to limit the chance of tax evasion or disadvantaging one country as against another.
But the great majority could be introduced by governments of nation states without disadvantage. If for instance there were no agreement to tax carbon fuels upstream, governments could tax the carbon content of products as they landed: this is not much different from the marked differences now obvious in the rates at which petrol is now taxed.

International taxes
Two other taxes are now under serious international consideration. The first is the Tobin tax — named after a Swedish economist — which would help to reduce destabilising speculative capital flows by taxing each transaction. As well as discouraging speculation — as opposed to capital investment in productive enterprise — the tax would raise very large sums indeed.
Currently $2-3 trillion is traded daily so that a tax of only 0.01% would raise enough money, say, to run the entire operations of the UN. Clearly there is scope for a higher tax if it is to make an impact on the dangerous flows of speculative capital; and that would make chicken-feed of current tax revenues.

The second is a tax being taken up by Klaus Topfer of the UN Environment Programme. It is rather along the lines of the American traded ‘pollution permits’. Topfer points out that the effects of climate change, due to the use of fossil fuels, are now so severe that they cannot be reversed, only contained. They include severe flooding, drought, El Nino and rogue hurricanes.
Every year the rich countries produce some 90% more greenhouse gasses than the earth can cope with. Topfer proposes that since the rich countries apparently lack the political capacity to reduce their consumption of these fuels, they should “buy” from the poor countries their allocation of the right to produce greenhouse gasses.

The level of taxation is set by calculating how much the Earth can stand in the way of destructive emissions and still regenerate. This total of sustainable emissions should be divided as to entitlement between the nations of the world by population.

The rich countries — who now use many times their entitlement — should pay the poorer countries for the use of their quota. The G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) are now running up annual carbon “debts” to the value of $13 trillion. The Highly Indebted Poor Countries (HIPC), by contrast, have carbon credits to the value of £612 billion.

This is three times the size of their conventional debt, on which Jubilee 2000 is trying to make an impact. This constitutes not exactly a tax, but it should be included in our thinking about alternative tax systems.

Total Economic Activity Level (TEAL) taxation
Finally, it is worth mentioning the fruits of a new Alternative Taxation Association, calling itself TEAL, which stands for Total Economic Activity Levy. It suggests a transactions tax that would replace all others.

Its principle virtue is that it is an extremely simple way of collecting taxes. Its principle failing is that it does not specifically use taxation to discourage harmful and encourage benign activities.

The basic concept of a TEAL tax structure is the following:
A small tax — say 0.5% — is levied on both sides of all transactions which are routed through financial institutions. For example if a R100 transaction is effected, the seller is credited with R99.50, and the buyer will pay an extra R0.50.

Both will go directly to the Reserve Bank from the bank which has made the transaction. The advantages are huge, including tax collection being immediate, unavoidable, continuous and predictable. It would spell the end of tax returns; the redeployment of tax lawyers and accountants to more productive activities; and increased government revenues at much lower cost. Attempts to avoid the tax by using cash would run up against the shortage of notes in the economy — now a small proportion of the money which circulates.
Although the simplicity of the TEAL proposal would be compromised by widening it to include other taxation objectives, it does not seem in principle incompatible with alternative taxation having wider social purposes.

The role of government
Whatever our personal ideologies in terms of what proportion of national resources should be directed by government and what through the private sector, one thing is accepted by everyone, from the IMF to COSATU.

There is a potent role for government in all societies. Only governments can create national strategic public education and health systems, defence arrangements as well as transport infrastructures. Governments are needed to design and oversee energy creation and agricultural policies. In terms of productive enterprise, at the very least governments are needed to create conditions in which private enterprise can flourish within a regulatory framework. None of this is disputed today — not even by the most fervent advocates of minimum government and privatisation.

But government is inevitably inefficient, particularly if it is chronically under-funded.

If the salaries paid are poor, if services provided decline, or if the public sector is demoralised, the rest of the economy will decline with it. For the past ten to fifteen years, governments everywhere have been teetering on the edge of that situation because conventional forms of taxation are becoming scarce. They still are.
We need urgently to secure an agreed way to fund government activity out of the undoubtedly enlarging international capacity of regenerating the earth and its resources and of distributing them effectively. These alternatives deserve serious consideration.

It will be argued that to the extent that alternative taxes have the desired effect of discouraging unwanted activities, they will also reduce revenues. That is true for some of these taxes, but by no means all.

Land value taxation will bring in revenue, as long as humanity needs land to live. Most taxed activities will persist and the movement of international footloose capital will continue.
Cigarette and petrol taxes have reduced smoking and motoring to some extent; but revenues have risen as taxes have increased. There is no sign that increased taxes will succeed in altogether ending these practices.

Indeed, alternative taxes and alternative tax structures have a great role to play in the creation of a sustainable world. ?

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