Ecotopia
Carbon Tax, UBI + Land Value Tax = Ecotopia
by Douglas R McLain, PhD
The two greatest challenges humanity faces in the world today are:
the climate crises
wealth inequality
Capitalist economics provides amazing economic growth but the richest 1% suck up most of the financial gains. Eight people now own as much wealth as the poorest 50% of humanity, that struggles to just stay alive. Concentrating enormous power in very few hands often leads to terrible decisions, violence or revolution.
What is the best tax system to solve future problems in the world?
How can revenue be raised in a way to protect the environment and reduce the gap between rich and poor?
We strongly recommend the dual strategy proposed by climate scientist James Hansen in his excellent book, Storms of my Grandchildren.
impose a carbon tax
provide a citizen’s dividend (Universal Basic Income)
Carbon tax uses market forces to reduce emissions and encourage alternative energy sources.
Citizen’s dividend (UBI) returns tax money, directly, to people negatively impacted by the carbon tax.
If we expand the carbon tax to include taxation on use of all natural resources and expand the citizens dividend to a Universal Basic Income (an idea owed to Henry George), we can mitigate climate problems, alleviate global poverty and reduce economic inequality.
Our goals are to:
• Provide low-cost, zero-carbon electricity to everyone,
• Tax the use of all natural resources
• Distribute the tax revenue equally to everyone.
CARBON TAX
A global carbon tax would use market forces to reduce carbon emissions and encourage development of alternative fuels. Increasing the carbon tax annually would make it increasingly effective.
CITIZEN’S DIVIDENDS
Revenue from the carbon tax would be dispersed in a citizen’s dividend, paid directly and equally to everyone globally. The citizen’s dividend for a family would start at only a few tens of dollars per month and rise to a few hundreds of dollars per month. These amounts might seem small to rich westerners but they would eliminate poverty for the 3.4 billion people on earth who live on less than $5.50 a day. Dividends would be paid via a debit card or automatically deposited into a bank or cell phone account. Facial recognition or other digital techniques can protect against fraud and duplicate accounts.
LAND VALUE TAX
The carbon tax and citizen’s dividend can go much farther if we expand the carbon tax to include other natural resources, especially land. This idea dates back to Thomas Paine’s 1797 essay “Agrarian Justice” with Henry George’s best-selling Progress and Poverty popularizing the reform in 1879. The strategy is commonly called a Land Value Tax, where the “land” means both land and all the resources associated to it.
The basic idea of LVT is that no one can truly own a bit of air, water or land; in actuality, we all own the earth and its resources in common and when a user uses a bit of the resources, he owes a rent for it. The rent is the wealth produced by the bit of resources and is paid to the rightful owners of the resources, that is, to everyone else, an expanded citizen’s dividend, a Universal Basic Income. LVT is thus a compromise between capitalism’s privatization and socialism’s nationalization of resources.
Imagine a giant cooperative that owns the earth. We each receive a share in the cooperative when we’re born and we own the cooperative jointly. Shares expire when we die so they can’t be inherited or accumulated. We are customers of the cooperative when we use land or other resources. The more resources or the more valuable the resources we use, the more we pay. As shareholders in the cooperative, we receive equal dividends.
LVT has many benefits. A major effect would be to reduce land values and thus promote home ownership and reduce homelessness. It would also reduce land speculation, a major cause of high land prices, economic inequality and boom/bust economic cycles. Since LVT taxes only land, not buildings, it encourages property owners to improve their buildings to get a higher return as they pay the same rate whether a building is improved, decayed or vacant. By promoting efficient use of land, LVT reduces sprawl and urban costs, making cities more compact, walkable and better able to support public transit. LVT is efficient to collect and resistant to fraud. Unlike other taxes, LVT does not distort the economy since the amount of land is fixed, land is economically inelastic and taxing it does not affect the supply. LVT has been called a “Single Tax” as it could replace less efficient, less fair, less fraud-resistant taxes, such as on incomes and sales. Many economists consider LVT the most fair tax. https://www.bournbrookmag.com/home/the-case-for-land-value-tax
Taxing land value is an idea that has long been obstructed by landowners who have lawyers, lobbyists and politicians to shift taxes to other sources, such as workers and sales. Moving to LVT might reduce land values as much as half. This would be particularly dramatic in areas of rampant land speculation and artificially low property taxes such as coastal California.
LVT could be phased in by splitting property taxes to tax land at a higher rate than buildings. After several years, “property taxes” would be only on land. At the same time, income, sales and other unfair taxes would be reduced. Tax codes would be greatly simplified and tax evasion and fraud reduced.
Depending on the tax rate, LVT has potential to raise large amounts of money, as much as half of GDP! This is money that is now being privatized and greatly increasing economic inequality. It could fund governments, pay for all the nuclear reactors we need LINK, electrify our economies and mitigate climate warming. All public expenses could be funded out of land rent; delivering the old ideal of government without taxation.
Taxing land value at a rate of 4 or 5 percent would reduce land prices, enable more people to buy houses, reduce homelessness and help restore the commons. As land prices drop, land monopolies would disappear and land usage would be allocated solely on the rental value of the land. Land speculation would disappear, reducing boom/bust economic cycles.
LVT is also known as Annual Ground Rent as it’s really a rent, not a tax. Scotland is proposing an AGR that might cut rents in half, greatly benefiting the public and reducing homelessness. The AGR revenue would be spent by the government rather than a UBI, however, and would allow the government to favor special interests. Distributing the revenues directly to the public would be more equitable. https://slrg.scot
EXPANDED DIVIDENDS
LVT revenue would expand the citizen’s carbon dividend to support Universal Basic Income programs. UBI is not welfare but each citizen’s share of the expanding global economic productivity. How big should the UBI dividend be? I think at least half of a nation’s poverty level. The payments should provide a floor under other incomes as workers are replaced by automation but not so high as to discourage working. Military budgets should be reduced to support expanded UBI payments.
As UBI programs raise incomes to eliminate poverty and make everyone wealthy, birth rates everywhere will fall below replacement levels of 2.1 children per woman, allowing the global population to peak and begin to decline.
NATURAL RESOURCES TAX
Finally, expand the LVT to tax use of all natural resources; not only air and land but all resources, including rivers, lakes, forests, aquifers, wild animals, ocean fisheries, radio spectrum, and geostationary satellite orbits. These additional revenues could be dedicated to global ecology improvement projects.
The resource taxes will promote efficient use of resources. We will recycle much more than now, reducing our demand for materials and continuing the slow processes of decoupling economic and physical growth rates. We will continue to move to cities with more of the countryside “rewilded” as open space and parks. Wasteful agricultural products like ethanol fuels will disappear with the electrification of transportation.
CONCLUSION
We can fix many of the problems of our global capitalist economic system if we use the transition from fossil fuels as an opportunity to make our economy fairer. With the combination of low-cost nuclear power, a tax on the use of all natural resources and equal distribution of benefits, we can reduce burning of fossil fuels, reduce economic inequality and poverty, reduce air pollution, improve cities and promote recycling of materials. Together with other programs such as reforestation and regenerative agriculture, zero-carbon nuclear power can help us reach net-zero carbon emissions by 2050 and mitigate extreme climate change.
CAN WE ACTUALLY DO IT?
There will be many problems in implementing this proposal including the difficulty of getting international agreement on taxes and widespread lack of understanding of the Single Tax. Because of three recent events, however, I think it’s possible to reach agreement. First, we were able to agree to a global minimum corporate tax rate of 15%. Second, rapidly increasing gas prices and lack of reliable winds over Europe have convinced many people of the need for reliable, low-cost electricity. Third and most important, all of us are increasingly realizing that we must transition away fro