sales tax consumption goods and services resource tax

Researchers Find the Growth-Friendlyest Tax
land rent

Site Value Tax in Program for Irish Government

2009, from Ireland, Emer O’Siochru writes that on October 10th, the ruling Coalition Government of the Fianna Fail (Soldiers of Destiny) and the Green Party announced they will introduce a Site Valuation Tax for non-agricultural land while lowering stamp duty on residential property. Real political progress!

On the academic front, Caspar Davis forwards a journal article, ”Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries“, that ranks taxes according to their relationship to economic growth. Taxes on immovable property seem to be the most growth-friendly while corporate income taxes appear to have the most negative effect on GDP per capita. There is a negative relationship between the progressivity of personal income taxes and growth. click here We add that a tax on land alone, not on any buildings, would be better still. Plus, since the richest own the best locations, progressivity is built in.

And for insights into a sales tax, please continue. The author is with the Green Party of Ontario Canada among other organizations.

by Frank de Jong,

Everyone hates taxes, of course, but since they are unavoidable Ontario should at least choose taxes that are good for the economy and for the Earth. The HST is neither.

Like the GST and the soon to be absorbed Ontario retail sales tax, the HST will continue to tax consumer items. Taxing goods raises the cost of products, discouraging people from buying what they want and need, knocking jobs out of the economy. And taxing sales hits both green and grey products equally, adding costs to people who shop green. A better way would be to apply a levy on resource use, energy and pollution at source in order to incent manufacturers to use resources and energy more efficiently, plus do more value-added, labour-intensive production (more jobs). Levying resource use rather than taxing sales is good for the planet and the economy.

Taxing services is equally counter productive. The 8% PST on top of the 5% GST means a 13% dead weight tax on service providers. Bad for the planet because service jobs -- like hair cuts, bicycle repairs, internet access fees, legal services, home renovation -- are green jobs that require few resources; exactly the kinds of jobs we want. Bad for the economy since it will kill many service jobs that the additional tax will render unaffordable.

The ecology-friendly and economy-friendly alternative would be to untax consumption and services altogether and generate needed government revenue by charging fees on the use of resources like oil, trees, gravel, water and land. Government revenue should come from the use and abuse of nature, not from the ingenuity and hard work of humans. Alberta and Alaska have no sales or services taxes since they generate sufficient revenue by collecting some of the economic rent of oil. Ontario doesn't have oil but we have some resources and we import many more.

Most importantly, land is Ontario's oil. Our main source of economic rent is the wealth that accrues to desirable locations. Land is a gift of nature which belongs to all Ontarians equally, yet the financial benefit of owning land goes mostly untaxed to its owners. Instead, "the royalties" from land should be collected to cover the cost of government services or returned to Ontarians equally as a citizen’s dividend.

The Ontario Liberals are implementing the HST without even a pretense of revenue-neutrality, it's a tax grab to help reduce the projected $18.5 billion deficit brought about by car company bailouts and lost tax revenue from manufacturing job losses. True, the harmonization will make collection more efficient, but this benefit will be negated by the dampening effect on the productive economy. The Liberals also intend to significantly reduce business taxes, which would make good sense if the shift was onto collecting economic rent, but there will be no economic or environmental benefit to shifting it onto goods and services.

The optimal way to invigorate the economy AND conserve nature is to untax consumption and services and instead finance government through fees and levies on the use and abuse of nature. When governments collect the “unearned income” or “economic rent” that accrues to resources, land, pollution, or community-owned assets like the EM spectrum, airport runway slots, or internet access, it removes the incentive for capital to invest in the speculative economy. Speculation causes recessions and drives the liquidation of nature. With this tax shift, capital will move to the productive economy, conserving nature and creating resource-efficient, green jobs. This way everyone, including the Earth, wins.

JSS: Another problem with most taxes is avoidance. Big guys can, little guys can’t. The US magazine Businessweek (article, April 23) maintains a list at their website of which corporations pay the least of the 35% federal tax rate (legally). One company, FPL Group, owner of Florida Power & Light, over the past four years, has reported earnings of nearly $7 billion and corporate taxes of $88 million -- a bit over 1% of their income. From 1998 to 2005, 55% of large US companies had at least one year of paying no taxes at all. And McKesson, in health care, not only did not pay last year but got back $66 million. When they get back from the public treasury, guess who makes up the difference? Well, never too late to geonomize.


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Some steps backward but more steps forward

Is History Siding With Obama's Economic Plan?

Home sales rise as Eurozone lending rates drop

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