The Plan: A Summary

The plan for the 21st century has three basic and related elements: An Ecological Consumption Tax (E-VAT) on all goods and services to make the market send signals for sustainability; A Negative Income Tax to maintain tax equity after the abolition of income taxes; A National Trust to invest in sustainability to overcome institutional barriers.

A. An Ecological Consumption Tax: Taxing Pollution, Not Income

End all income taxes and instead phase in a smart sales tax on consumption, an ecological value added tax (E-VAT) on all goods and services. The more polluting, the higher the tax rate. Phase out income taxes over ten years and phase in, dollar for dollar, an ecological consumption tax, The market will send price signals for sustainability and economic growth will mean ecological improvement, not ecological destruction. An 18% E-VAT, in addition to a small amount of non-income based taxes, will be able to fully fund the federal budget.

B. A Negative Income Tax

The Negative Income Tax (NIT) responds to the regressive nature of the ecological consumption taxes, their major flaw. The poor spend all their income while the rich do not. Under an E-VAT, a net increase of $64.5 billion in yearly federal spending would keep total federal tax rates level for the 40% of households (44.6 million of them) with the lowest income. This $64.5 billion is spending beyond the existing Earned Income and Child Tax Credits. Total low-income tax relief under an E-VAT would be $104.3 billion (in 2003 dollars).

C. National Trust Investment Bank

A National Trust is an investment plan to save and invest tax dollars to prime the pump for sustainability, overcome institutional barriers, and invest in needed sustainability infrastructure projects. The National Trust will be an investment bank funded through tax dollars raised by the E-VAT. Devoting 2% of the federal budget to savings for the National Trust can provide 50 billion dollars a year in new investment capital. The National Trust will be decentralized and democratically controlled. Its mission will be to invest in sustainability, jobs and community. It will be a bank run by responsible bankers, not a charity. The National Trust will help overcome barriers to market entry and remedy market failures that will unnecessarily retard an ecological transformation.

Strength of the Plan

The ecological value added tax when combined with the Negative Income Tax and National Trust passes four basic tests:

• It will have a positive long-term effect on the economy, ecology, and society.
• It is comprehensive and is fair.
• It can raise sufficient revenue.
• It is political feasible.

Why is the E-VAT and Negative Income Tax Combination Politically Smart?

• The E-VAT and the NIT combination will appeal to more than economists and ecologists. It is politically efficacious as well. This dog can hunt.
• Attempts at eco taxes, a gas tax, for example, despite their occasional good sense have gone nowhere. The common interest has wilted before the very special interests of the oil and automotive industries and their unions. Their focused self-interest is assisted by the lukewarm enthusiasm of American motorists to pay yet another tax and still more at the pump despite the gas tax’s allegedly good long-term effects.
• The E-VAT-NIT combination changes the game. By abolishing all income taxes for everyone, an ecological tax regime enlists the combination of self- and common interest in the cause of ecological sustainability.
• Information age companies, by their nature comparatively low polluting, and of almost all individuals with high incomes who will benefit from an end to income taxation now have a dog in the fight with the relatively small number of mega-polluters unwilling or uninterested in changing their ways. And the Negative Income Tax enlists those concerned with poverty and social justice.
• Politically, from both right and left, it’s a win-win remedy and an enormous political opportunity for the person and the party that seizes the E-VAT-NIT initiative.