Monopoly & the Blue Ribbon Tax Commission

This is my personal response to the report of the partisan Blue Ribbon Tax Commission, to the Vermont Legislature. The response of Professor Gary Flomenhoft of the UVM Gund Institute is here and well worth reading, as it illustrates point-by-point that Vermont has far to go in reforming our tax codes.

The foremost question is, why did the Legislature create a partisan commission to investigate and recommend how Vermont should maintain its tax code? Why does the Legislature not listen to Vermont talent, such as the UVM Gund Institute? Commission members get lobbied by corporations, and their results are predictable.

The power that all governments have, is the power to tax. Whether or not they exercise that power, is a good question: they often don’t.

Not taxing public assets, but allowing them to be privatised, creates a power vacuum. Not taxing pollution gives a windfall, tax-free profit to polluters… which gives them every incentive to pollute. Case in point: Entergy, running a leaky reactor into the ground, polluting our groundwater, and not paying a dime in fines. The State, instead, goes after windmill operators and compost operations, the ‘green’ stuff that they make political speeches saying they support ‘green’.

Corporations step in to fill that vacuum, and the special privileges granted them by the Legislature allow corporations to collect taxes instead of local government. Local government, the Towns of Vermont, can no longer provide basic services and must cut back. Our infrastructure has not been maintained properly as a consequence. School closings, bridge failures, cuts to social services, a budget ‘crisis’ in Montpelier that only gets worse yearly… all symptoms.

Let me explain. Consider a simple example. I have a piece of land, a half-acre. The most it can produce, its highest and best use, is a ton of garlic. That garlic might be worth, say, $1000/year on the open market. So that land is worth $1000/year. My neighbour Joe has a steer on the same sized plot. Every two years he shoots, processes and replaces the steer, with an average yield of $500/year… half my yield.

The tax for each plot is $500/year, leaving Joe with zero profit, and leaving me with $500. If I want to stop working the soil and rent my land to someone who can put it to its highest and best use, I could only get $500, because the other $500 is taxed away. The Rent of my land is $500.

Joe’s land is the MARGINAL LAND because it has a rent of ZERO. Every penny that he makes is collected by government.

Rental value is the difference between the marginal land and the best land.

So far so good?

Now suppose an out-of state water-bottling corporation comes in and buys some adjacent marginal land, happy to pay the $500 tax. They operate under corporate licences which makes overhead nil, capital costs small, and in Vermont the profit margin on bottled water is 90%. They extract enough water to make a profit of $50,000 on the land.

That means that the rental value of the corporation land is now $49,500. My land is only worth its current rental value: I cannot drill for water, I cannot afford the permitting process, I don’t have the connections and lobbyists of a Nestle. And I’m zoned residential anyway.

But wait, it gets better. The corporation would not sell the land for $49,500, because in a year they’d be out. The speculative market value of the land becomes far more, something like five years of profits…. something like $250,000. The corporation can then go to the bank and borrow against the projected future value of that land, and sink the principal into Wall Street on the riskiest terms… after all, the landholder isn’t at risk, he’s got a corporate charter. Only the bank’s at risk… and government bails out the mortgage lenders when the speculative bubble bursts, like clockwork, every 18 years. You and I, the only actual taxpayers, are forced to pay.

A natural opportunity has been created by the community, and then monopolised by a corporation. That privileged monopoly in the example is worth anywhere from $49,500 to $250,000 TAX FREE DOLLARS per year. Your legislators REFUSE to collect one red cent of this as tax. Alaska does, many states do, why not Vermont? Vermont, in fact, is the ONLY state that refuses to tax the exploitation of our public assets.

Government creates monopoly and only government can break monopoly. Why should I have to give up half my crop in tax (and Joe his entire cow), but the corporation only has to pay a tiny amount of property tax?

Legislators argue that resource-extracting corporations such as Perrier, Nestle, Omya, Entergy & TransCanada bring much-needed jobs to Vermont, and that we cannot afford to ‘scare away jobs’. Yet this is exactly what they’re doing, scaring away jobs: by forcing the middle class, small business & farms to pay 100% of the tax burden. The water is not bottled in Vermont because the Legislature taxes productive enterprises too high. So the water is trucked out of Vermont (using highly subsidised fuel) and bottled elsewhere. The lion’s share of the jobs are created OUTSIDE of Vermont.

The remedy is a single tax on the unimproved value of land and resources, as advocated by the Prosper Vermont institute, and to collect the rental value of our natural resources rather than give them away to corporations per the UVM Gund Institute. So, in the remedy, the corporation pays according to a certain percentage of the value of the LAND or OPPORTUNITY and I pay at the same percentage; say, 20%. I pay $200 and the corporation pays $9,900. The Corporation still makes a profit of about 70%, higher than the profits made by the highest-yielding capital investment. More importantly, the Legislature can DROP taxes on capital investment which means that the corporation will have every incentive to bottle the water here, rather than truck it out of Vermont for processing… which costs them fuel.

Meanwhile, I invest the extra cash in extra food production and work smart, because now the government isn’t taking as much of my hard-earned cash away. That means:

• Total Vermont wealth increases
• Land value increases overall
• Total government revenue goes up because land values are taxed instead of productivity
• Vermonters can finally have public transport, public health, fix our infrastructure right
• …and no budget crisis !

Instituting the remedy would mean a serious loss of privilege and prestige to the corporations… so I don’t hold my breath given the current crop of Democrat/Republicans in the Legislature. My approach is to run against them! Tell them if they want to stay in office and have a balanced budget, to contact me and I’ll show them how.

My position:
I am against private collection of rental values by privileged corporations, but…
I am FOR private enterprise.
WHERE GOVERNMENT DO NOT COLLECT TAXES, CORPORATIONS DO ! Corporations have largely replaced government as the collectors of land rent. The remedy is for government to do its job: collect taxes from the corporations.