Preface:

Why Markets Democracy & Survival?

Today, our central challenge is for economic growth to mean ecological improvement, not ecological destruction. This is possible if we can craft new market rules that send proper price signals. What's polluting, depleting, or ecological damaging must cost more. What's sustainable must cost less.

The crucial means I have considered for us to get the prices right is to phase out all taxes on income and phase in a smart sales tax, an ecological value added tax on all goods and services. The more polluting, depleting, or ecologically damaging, the higher the tax rate, and therefore, the higher the price. Buy cheap, save the planet. Prices, not just regulations, are the key to a prosperous and sustainable future. Making prices send signals for sustainability is not all that needs to be done. But it is a vital step for our democracy to take in order to help guide the global market system.

Democracy and markets in the 21^st century will have their way.  We can build a sustainable and prosperous future.  The time to act is now.

Roy Morrison 

Chapter One 

I. Democracy's Market & Tax Solutions

 1. The 21^st Century Challenge

Sustainability as an essential practice for prosperity and growth and a guide to action. Making economic growth mean ecological improvement, not ecological destruction. Market prices, not regulation, are the key. Crucial is ending all taxes on income and instead taxing pollution, depletion, ecological damage with a smart sales tax, an ecological value added tax or E-VAT, averaging 18% on all consumption. This is supported by a Negative Income Tax (NIT) that can end welfare and poverty, and a National Trust to invest in sustainability. The Plan is outlined on pages -- to -- .

How Can We Be Prosperous Without Being Self-Destructive?

Our hearts tell us what we should do. Market prices tell us what we will do. The challenge of the 21^st century is to make prices reflect what we know is right.

By finding a way for democracies to help markets make what's polluting more expensive, we can help answer some of the fundamental questions posed by the 21^st century: How can we be prosperous without being self-destructive? How can we meet the global warming and sustainability challenge?

And the answers will contribute to resolving a third conundrum: How can we build an international order based on peace, freedom, and justice?

In Markets, Democracy & Survival, we will examine an ecological consumption tax, specifically an ecological value added tax, or E-VAT for short, as a practical path to long-term prosperity and ecological survival. It's strong medicine: replacing income taxation with ecological consumption taxes. This isn't just another marginal fix for what's basically working. Ecological taxation is a way of using the market to help cure fundamental problems of the market. 

An ecological value added tax can systematically make what is sustainable cost less, and what is unsustainable cost more. This is a world, not of pollution allowances, but a world where polluters pay from the first gram of poison, and where market forces move us not just away from the brink but toward sustainable prosperity. (See What's a VAT later in the book if  you are unfamiliar with consumption taxes.)

Can Economic Growth Be Sustainable?

Economic growth is essential for our prosperity and for the world's poor and aspiring. Sustainability need be understood as a tool for growth and prosperity, not an impediment. Economic growth in the 21^st century can and must mean ecological improvement, not ecological destruction. It must be an expression of the sustainable. How can this be possible?  This is not a seemingly insolvable riddle, or a problem awaiting dramatic, new technological marvels to save the day. In fact, only some economic activity is dramatically unsustainable. Much is not. We need to help the market recognize the difference between the two and then do its job.

There is, for example, no practical ecological or economic limit on trade in information in cyberspace. It is no accident that information is the high profit center of the 21^st century.  Google and Microsoft and their challengers are ascendant. GM and Ford, who tied their prosperity and futures to gas guzzling trucks and SUVs, flirt with bankruptcy.

What in the World is Sustainability?

The World Commission on Environment and Development in Our Common Future (the so-called Bruntland report) in 1987 defined sustainable development as meeting "the needs of the present without compromising the ability of future generations to meet their own needs." [i]

This is the kind of bland prescriptive definition that leads immediately to more questions than to clear answers. Is sustainability an ideal or a limit, at best only approached, like speed of light, but never reached? Or is sustainability a practical necessity acting as ongoing spur to ever evolving manifestations, much as profit drives market societies?

Our conduct is not sustainable. That much we know. The news is checkered with a parade of reports of Class 5 hurricanes, droughts, resource wars, large New England lakes, like Champlain and Winnepausaukee, that now never freeze completely over. We have the growing realization in our guts and in our hearts that some things are very wrong with business as usual. The long-term consequences of our everyday acts are quickly catching up to us. When will the party be over?  This seems to be the question of the moment.

Sustainability is becoming central, not peripheral. It 's the missing part of the operating manual and guide for 21^st century civilization. Markets, Democracy & Survival is meant to provide some practical answers, points of entry that are powerful, politically efficacious, and consistent with democracy and markets, Sustainability does not have the usual Left or Right pat answers. It belongs exclusively to no party, not even the ones waving a Green banner.

In many ways, we find ourselves in a situation similar to that of the American colonists become revolutionaries by necessity, attempting to both define and implement what freedom and democracy really means. That's our challenge, and our opportunity. What does sustainability mean? This is a call not only for definition, but for practical implementation.

Sustainability must serve in the 21^st century as a supporting structure or substrate for freedom and democracy. Sustainability, by guiding the 21^st century everyday, must become part of the calculations of economists, the setting of market prices, the determination of supply and demand.  Sustainability must inform the judgement of citizens and the deliberations of politicians.

Briefly, we can offer a couple of grand abstractions about sustainability, before spending almost all our time here on practice. Sustainability rests on the well being of the inextricably linked natural and social ecologies. A sustainable world is not a recipe for stasis. It is a guide to the healthy co-evolution of interdependent social and natural ecologies. The health of living ecosystems is crucial to human well being and prosperity. The key intent of sustainability is to serve as creative guide, not as a fetter, to human action.

For non-renewable resources, for example, oil, an applied sustainability strategy is two pronged. First, we can use oil much more efficiently. Second, we can replace oil with new technologies, like fuel cells, and with renewable fuels, like bio-diesel and ethanol, at a sufficient rate of speed to both meet current needs and to obviate the negative effects of pollution and ecological damage. Getting the price mechanism right though ecological taxation is key for the market system to send signals for sustainability. And getting the prices right also inclines us to consider, both individually and collectively, why we really want or need to consume all that much fuel (whether renewable or nonrenewable).

Sustainability is then more than a tool for bureaucrats, economists, and experts. Operationalized, that is, brought to life, sustainability is a manifestation of 21^st century freedom and democracy. In Markets, Democracy & Survival our democracy is urged to use ecological taxes to help inform and guide the conduct of our market society toward sustainable means and ends. This comes down to dollars and sense as the daily manifestation of lofty goals and pressing necessities.

Can We Follow Market Means for Sustainable Ends?

Getting prices right, more than laws declaring what we can and cannot do, will unleash a global torrent of entrepreneurial energy in the cause of sustainability and challenge polluters to change or fail. Getting the prices right means phasing out all taxes on income and instead phasing in an ecological consumption tax system using an ecological value added tax or E-VAT.

After the ecological tax is phased in, there will be no more IRS and no income tax code.  For consumers, there are no forms to file. You just pay the tax at the point of purchase. For businesses, thereís only a simple form used to report the ecological tax collected from your sales, and to get credit for the tax you've paid to suppliers. Businesses are rewarded for filing by getting credit for the tax they have already paid to their suppliers. You simply subtract the tax paid to your suppliers from the tax you collected from your sales and send the government the remainder. That's it.

Businesses reduce taxes by buying sustainable supplies and selling sustainable products. There is some complexity for government in setting E-VAT rates, first by industry and then by product. But that's something we can easily handle.

We can replace all income taxation with an 18% E-VAT on all U.S. consumption of goods and services and fully fund the federal budget at current levels (see Table 2 below).  The E-VAT is supported by the enormous U.S. appetite for goods and services, $13.2 trillion in 2005, and still rising in 2006.

The ecological value added tax is the means. The end is sustainability and prosperity, the triumph of markets and democracy in the 21^st century. This is a leadership challenge. This is a legislative challenge, a market challenge, and, above all, this is a challenge to all citizens.

Can Sustainability Rest on Democracy and Markets?

Democracy and markets are what we know best and what we do best.

We need to recognize the power of market forces and consumer choice to transform behavior far more quickly than the projections of planners and regulators. In 2005, after Katrina, gasoline prices rose 50%. In the following quarter, the sales of the best selling and gas guzzling, Ford Explorer SUV declined 50%. Ford is on the ropes, closing factories. Toyota with its hybrids and high mileage cars is ascendant, even though Toyota is still far from sustainable in its conduct.[ii]

Remember, since World War II global carbon dioxide emissions have declined only in the years 1974, and 1980-1983 following OPEC oil embargoes that sent oil prices soaring. Prices did the job, not regulations, not new inventions, not laws.  It was the power of the marketplace that transformed ecological outcomes.

Of course, the solution to our problems is not simply to let OPEC, a self-interested producer's cartel, run wild. We need to craft new market rules that will encourage the transformation from fossil fuels already underway.

Ecological taxation puts the market in charge of our deliverance, not our destruction.  What's polluting will cost more. What's sustainable will cost less. The market, not a rulebook, business success and failure, not regulators, will show us the way.  Ecological consumption taxation is not all that needs to be done. But it is, I believe, the single most important step toward prosperity and sustainability.

The market will force polluters to change or put them out of business. Entrepreneurs and financiers respond with startling speed and creativity to price signals. Hedge fund managers can earn a billion dollars a year (based on a share of the profits they make) by understanding what makes prices move up and down.

Ecological taxes will swiftly make sustainable business, good business.[iii] And ecological taxes can make looking for bargains not just part of the joy of shopping, but also part of saving the planet.

Why Ecological Taxation Now?

The current system is broke. Now is the time to fix it!

We must be bold. We cannot creep toward a solution while current market forces push us toward ecological disaster. But boldness need not mean military conquest or huge construction projects. Boldness can involve new market rules. Fundamental to a sustainable future is implementing the social innovation of ending taxes on income, and phasing in a new ecological consumption tax, the E-VAT.

Ending income-based taxes will not be a bitter pill to swallow for individuals, businesses, investors, and pensioners. The major drawback of consumption taxes can be turned to an advantage, potentially ending both welfare and poverty through a Negative Income Tax (NIT) explained in detail later in the book.

Remember, income taxes did not come down from Mt. Sinai.  They were first used in the United States by the Lincoln administration to pay for the Civil War, and then implemented by the 16th constitutional amendment in 1919, less than 100 years ago.

In the 21^st century, if sustainability is our end, then the replacement of income taxes with ecological consumption taxes is our means.

Chapter Two

2. The Plan: A Summary

The plan for the 21^st 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.

1.      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.

2.      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)n 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).

3.       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.