3.8 Taxation policies for a green social democracy

A major tool of a green social democratic government in achieving its socio-economic goals is to make corresponding changes in taxation policy, to which we now turn more detailed attention. 

The taxation policies of green social democrats would support and be consistent with their economic and social policy aims. As a reminder, the fundamental aim of a green social democracy is a just, sustainable society. The achievement of this fundamental aim is comprised of the achievement of subsumed aims, including among others the strengthening of democracy, the protection of nature in its richness and diversity, greater wealth and income equality, and better balance between such social variables as individual initiative and social cooperation.

The takeaway lesson from the results of neoliberal fiscal policy in a political economy dominated by large for-profit corporations is the need for an alternative policy, including taxation policy. The typical taxation policy of neoliberal capitalism over recent decades has included reducing corporate and estate taxes, increasing taxes to consumers on the goods and services they need, flattening formerly more progressive income taxes and increasing tax rates on residential property and other flat taxes. The results, especially when combined with other neoliberal fiscal policies, have included a massive wealth and income transfer, increasing the proportion of total income and wealth going to the top of the economic pyramid. 

One alternative would logically be to reverse this direction, increasing progressivity throughout the taxation system. The need for this reversal is underscored by other green social democratic aims, including the aim of restoring and increasing the health of the natural environment which sustains all human economic activity and improving public services that people depend upon and will depend upon even more as the full effects of neoliberal environmental policy take hold, including health care, education and scientific research to meet the new challenges. 

We have also argued here for a transitional market economy in which the charters of participating enterprises specify the legal priority of human welfare and environmental sustainability over private profit. Furthermore, the green social democratic world view recognizes and accords fundamental importance to the non-market contributions people make to each others's welfare and to the stewardship of nature. It sees this sector of economic activity as one that should grow in the future.

In relation to both the market and non-market economy, green social democratic policies include a reduction in material throughput and waste in order to reach levels that can be sustained by nature‘s regenerative cycles. In contrast to neoliberal policies and their results, an expected consequence of green social democratic policies would be de-growth in the monetary value of the market economy and the qualitative development of the non-market economy. In particular, the role of the non-market economy in a green social democracy is likely to increase rapidly in relation to the provision of services and such goods producing sectors of the economy as agriculture and housing construction & renovation. This growth would come about principally as a result of individual and cooperative initiative and community self-reliance, supported by the institutions of a bottom-up green social democracy. 

Time for voluntary service and non-market goods production would be created by a reduction in the hours of work within the market economy. This reduction would be an intended consequence of public investment in education, health, culture, science and technology, along with strong regulatory control over the market economy. Cooperation would be the dominant characteristic of the total economy. 

The advantages of larger scale that monopolies can have within a market economy can, on logical grounds, also be achieved by coordination within a radically democratic non-market one. Furthermore, radically democratic management within the coordinated chains of enterprises characteristic of a green social democracy would have the advantage of a higher quality of information to guide them. 

The success of green social democratic policy would therefore have some consequences which must seem counterintuitive to those trapped within the box of neoliberal capitalist thinking. With a reduction in both hours of work in the market economy and in material throughput and waste, the real monetary value of the market economy as measured by GDP or GNP is likely to decrease over time. That is, there would be de-growth in the real monetary value of the market economy. At the same time, indices of the quality of human life and the health of the environment would increase. Improvements in human welfare and environmental health would be a consequence of de-growth! 

The speed of the transition from a monopolistic, transnational capitalism to a global green social democracy cannot be known in advance and therefore neither can the severity of the measures to be taken by the people of any given country, including changes in taxation policy, only the general direction of these changes. Here, we attempt to identify, in relation to current practices in the countries we are most familiar with, some of the possibilities.

Phase I. Transitional taxation policies in the initial phase of a green social democracy: Creating conditions for the expansion of the non-market sector of the economy. 

Reallocation of private wealth to social investments. We believe that in its initial phase, the taxation policy of a transitional green social democratic government should include increased taxation of high income and high wealth individuals and the corporations that are the source of their excessive income and wealth. The resulting increased government revenue plus revenue available from savings achieved through elimination of direct and indirect subsidies to profitable corporations and reduction of expenditures on the military-and-security industrial complex should be allocated to social investments, including in education and health, and to the ending of poverty through a basic minimum level of income support. 

Universal social dividend. A basic minimum of income support for all adults and their dependents, would not only improve upon and replace most, if not all, existing welfare programs including, for example, disability and unemployment insurance funds. With the aim in mind of achieving a more just, sustainable society, this basic income support in a green social democracy would be based on the declared right of every person to an equal share in the results of the labor productivity attributable to society's inheritance of knowledge and skills from previous generations. 

This income support should come with the explicit social obligation of recipients to contribute voluntarily and in accord with their ability to the stewardship of nature and improvement in the quality of human life. The intention of a green social democratic government in this first transitional phase, consistent with its fundamental aims, should be to increase in tandem the level of basic income support, the role of the non-market economy and the health of the natural environment. It would enable this by improving labor productivity in the market economy, financially supporting the non-market economy, and legislating the reduction of material throughput and waste. As already emphasized, it would accomplish this improvement in labor productivity through increasing public investment in education, health, culture, science and technology and not through increased intensity or duration of labor effort. In a green social democracy the workplace would become one that is supportive, not destructive of human health and well-being. 

Reduced hours of work. Improved labor productivity should as a matter of policy lead directly to a reduction in the hours of work required in the market economy and thus to an increase in the time available for rest and leisure and for voluntary contributions to the non-market economy. The proviso is that working for the common good become an increasingly prominent part of human culture and behavior. In a society where the basic material needs of all are being met, and probably only in such a society, social recognition for voluntary contributions to the common good can then become an increasingly important driving force in human culture and behavior. This development would build on this already salient social characteristic of human beings and human society. 

Other strategies. Business charters and their strict enforcement, rather than taxation, might be a more effective means than taxation to direct businesses away from wasteful, environmentally unsustainable practices in an essentially non-profit economy. Priority investment from public banks in renewable energy development and in businesses that operate in a sustainable manner would be a synergistic strategy. 

Taxation detail. Some specific detail on suggested taxation policies for the initial transition phase in the building of a green social democratic society might at least be illustrative. For taxation policy that serves green social democratic aims, distinctions should be made between personal use and business use goods and services and between personal property and capital property

Within the categories of personal use goods & services and personal property, a distinction should also be made, at least during the initial transition period to a green social democracy, between (i) property, goods and services deemed essential to a satisfying and dignified existence, such as a family home, personal clothes and affordable public transportation, which can then be designated as "non-discretionary", (ii) those deemed to be beyond the essential level, but nevertheless consistent with the aim of sustainable development, which we might then designate as "discretionary" and (iii) those which in kind or amount are deemed to be non-sustainable over the long run, designated as "unsustainable luxuries". 

With these distinctions, the following taxation practices are suggested:

  1. There should be no sales taxes on goods and services of the quality and in the amount deemed non-discretionary
  2. There should be no income tax payable on amounts of income deemed non-discretionary, that is, needed for a healthy, dignified existence. 
  3. A system of progressive income taxes should be applied to levels of income deemed to correspond to savings for or purchase of discretionary kinds and amounts of goods, services and personal use property. 
  4. Steep sales and estate taxes should be applied to unsustainable luxury goods, services and personal use property
  5. For businesses that maintain their public charters by serving the public good, savings invested by these businesses to achieve public policy should be taxed only to the extent of the associated costs to the commonwealth, such as additional educational expenditures, health care costs, new roads and other expanded public services to the new business. 

The intended result of these green social democratic taxation policies would include an increasingly wider distribution of ownership and a decreasing use of resources on unsustainable luxury goods, services and personal property. 

One way to conceptualize how the implementation of these taxation policies can be shaped to achieve income and wealth equality and other social democratic goals follows.

Standards for basic family income and basic family wealth

Given that taxation is the means that government has for re-allocating part of personal income and wealth to serve national/federal, state/provincial and municipal purposes, there is need of standards that society endeavors to achieve. These are the broad shapes that specific policy detail should then attempt to fill.

Taxation policy can begin with a national or federal policy determination of a basic family income standard and a basic family wealth standard applicable in relation to essential needs and the resources of the country. These become untaxed amounts that are the right of every family as their inheritance from the labor and accomplishments of previous generations. Those that have family income below the basic standard are brought up to standard by redistribution through the taxation and social security systems. Those that have family wealth below the basic standard might, for example, be provided a voucher from government to purchase property at public expense up to the value of the basic family wealth standard. Family wealth up to the level of the basic family wealth standard could be inheritable free of estate taxes.

We note parenthetically that the recent housing bubble in some developed countries has already clearly demonstrated that the productive forces of these countries long ago reached a sufficient level to permit the construction of private homes for all who want them. See David Harvey (2010, Oxford University Press) The Enigma of Capital, which focuses on capital flow, particularly Chapter 1 on the 2006-8 disruption of that flow. "By the spring of 2009, The International Monetary Fund was estimating that over $50 trillion in asset values worldwide (roughly equal to the value of one year's total global output of goods and services) had been destroyed. The US Federal Reserve estimated an $11 trillion loss of asset values for US households alone." p.6.

It remains to determine taxation levels needed to support the standards we suggest.

Redistribution through taxation and the national or federal budget 

Taxation and government budgets. In a fiscally responsible green social democracy, the total amount of taxes collected by government should be made equal to government expenditure of those funds, including the cost of bringing every family up to the basic standards for income and wealth plus the amount needed for public services. Tax rates (including income taxes, sales taxes, property taxes and estate taxes) should be set on the basis of the sum of the national/federal, state/provincial and municipal budgets and could be collected by a single agency responsible to the three levels of government. Businesses and other organizations would pay taxes on the basis of the services they receive from government. 

Public investment in the productive economy. As argued previously, a major economic change that should accompany the election of a green social democratic government is the creation at the behest of the new government of public banks where these do not already exist. 

So, where does the money come from that green social democratic governments will need for investment in such projects as renewable energy? To the extent that subsidies are needed during the start-up phase of the new industries, the cost of these can come, at least in part, from withdrawing subsidies from the industries the government chooses for environmental reasons to phase out and, as needed, additional taxes on these industries. Investments in new and existing businesses would not come from taxes paid by low and middle income tax earners. 

Beyond the expected need for subsidizing technologically new development, where do the principal funds come from that are needed by new businesses and those expanding their businesses? They can come from public banks that will create that money in the same way private for-profit banks do now. The public's banks will make accounting entries in the amounts needed by the new or expanded businesses and balance these accounting entries against the amounts they expect to be paid back by those to whom they loan the money, just as private banks do. If all could be expected to go perfectly well, this would be a zero sum game, without the need of profits to cover losses. In practice, public banks will need to receive back more than they loan out to cover expected losses from borrowers whose businesses fail. But public banks will have no cause or constitutional right to siphon funds from the productive economy to make non-productive investors and bank directors wealthier. That should make them more than competitive with private for-profit banks.

Progressive taxation. Tax collection in a green social democracy will be according to a progressive system of taxation, graded in accord with social democratic policy goals, including the aim of an increase over time in the degree of income and wealth equality. 

The national/federal budget and international fairness

Achieving green social democratic aims, including the protection of the biosphere we share, will require a high degree of international cooperation and mutual assistance. To achieve this in a way that is fair and responsible, transfers from the more developed countries to the less developed ones of technology and knowledge needed in relation to energy conservation and safer forms of energy generation and use should be an international priority. Such transfers are morally justified by the net harm that the fossil-fuel based economic activity of the more developed countries has done to the less developed countries, mainly through the pollution of the biosphere and the capture by more developed countries of a net imbalance in trade in commodities (exploitation of nature). A major incentive for this transfer is the common interest of all people in protecting the global commons and achieving a sustainable relationship with nature.

Phase II. Taxation policies in the intermediate (second) phase of the transition to a green social democracy: Moving from a predominantly market economy to a predominantly non-market one. 

Shift in culture and behavior. The beginning of a fundamental shift in human culture and behavior from an emphasis on competition to increasing emphasis on cooperation makes possible and necessitates corresponding shifts in taxation and other economic policies. The second phase in the transition towards a green social democracy should include the setting of maximum levels of income and wealth and maximum allowable hours of work in the market economy. A corresponding shift in the focus of taxation from individuals to businesses would make the true cost of doing business in a market economy more transparent. This transparency should assist further policy development to achieve a just, sustainable society.

Some specific detail on suggested taxation policies for the second phase. To make the costs and results of market economic activity more transparent, it is suggested that the principal source of public revenue in the intermediate (second) phase of a green social democratic market economy should be taxation of businesses based on their revenue. Taxation of individuals could then decline, corresponding to the emergence of a society with a more equal distribution of wealth and income. Among other things, taxes on businesses in a market economy should cover the following: 

  • the full costs of knowledge generation and sharing, such as public education, scientific and technological research and development, news media and other forms of generation and dissemination of knowledge and information;
  • personal income distributed by government in the form of a basic minimum income (the social dividend referred to earlier);
  • health care and other essential services;
  • public investment in public transportation and public transportation infrastructure;
  • environmental costs not attributable directly to individual businesses but to the totality of business activity; and
  • any remaining costs to government for free goods and services made available to all, regardless of their personal wealth and income.

Expansion of the non-market sector. The principal way of reducing taxes in a green social democracy would therefore be the expansion of the non-market provision of goods and services, that is, to free provision and receipt of goods and services. A green social democracy could encourage such a development by passing on the benefits of increasing labor productivity in the form of reduced work time in the market economy, thus making available more time for increasing voluntary labor. Properly designed and organized, such positive feedback could lead to a gradual transformation of society from a preponderance of market based exchange of work for its monetary value to a non-market exchange in a society where the desire to contribute to the common good might become the principal motive for work. 

Phase III. Taxation policies in the advanced (third) phase of the transition to a green social democracy: The non-market economy as the dominant economic sector. 

The dominant economic system in a more fully developed green social democracy would be the non-market economy. In that economy, only qualitative indices of human welfare and the health of the sustaining natural environment would have significance for economic policy. Monetary measures would be applied to a much diminished market economy, if at all. In other words, monetary expenditures and monetary incomes would become insignificant. 

Such a state of affairs is likely to remain hypothetical for an extended period of time into the future. Nevertheless, it does have significance for green social democratic policy even at the outset. Namely, no barriers to the growth and prominence of the non-market economy should be put in place by green social democrats. To the contrary, the aim of a just, sustainable society is consistent with - and only consistent with - the ultimate replacement of such a market, as defined here, by non-market activity and the consequent end of all the inequalities that are the motive for the functioning of market economies. 

The achievement of a totally non-market economy would not only correspond to a vast cultural change, it would, on the basis of such a cultural change, also correspond to the end of production and provision of goods and materials that are too expensive to be provided for free or to be shared by all, that is, an end of luxury goods. From that point on, a voluntary decline in the birth rate would have to be at least as great as the slow, but inevitable decline in the ability of the biosphere to support a human population as large as it is currently on route to becoming. 

Finally, economic policy includes appropriate measures of achievement, to which we now turn our attention.

Welcome!

This website was launched September 1, 2010 in support of a green social democratic alternative to neoliberal capitalist policy and practice. The primary result is a work by Charles and Karen McFadden of seven chapters, grouped under the title, Towards a Green Social Democratic Alternative to Capitalism available here in pdf and html formats.

Below under the heading What’s New can be found the most recent materials posted on this website, including opinion pieces, book reviews, articles and selections from the 2017 edition of the main work.  For the interest of new and returning visitors, new materials will be included quarterly.

What's New

NEW & REVISED

Authors' Preface

1.6 The epochal nature of the period we are entering

6.0 The socialism we need against the "socialism" of the 20th century

6.8 Additional concerns about 20th century variants of "socialism"

6.9 The people united!

7.1 Policy alternatives and political movements to advance them

OPINION

Charles and Karen McFadden, Is revolutionary transformation on the agenda

Charles and Karen McFaddenHumanity on the Brink

Charles and Karen McFaddenMovements of Resistance to Movements for System Change

Charles McFaddenTranslating Green Principles into Education Policy and Practice

Charles and Karen McFadden, The Role of Revolutionaries in the Labor Movement

REVIEWS

Charles McFadden, The People United for a More Just Sustainable Future

Karen and Charles McFaddenCan emergent early 21st century neo-fascism be defeated without coming to grips with late 20th century restructuring of capitalism into a global system

Karen and Charles McFaddenA Dominant Capitalism or a Sustainable Environment? Why we can't have both.

US CORNER

William I. RobinsonThe Crisis of Global Capitalism and Trump's March to War

William I. RobinsonTrumpism, 21st Century Fascism, and the Dictatorship of the Transnational Capitalist Class

CANADA CORNER

George HewisonWINNIPEG 1919 & THE COLD WAR

George HewisonArt Manuel - "Unsettling Canada

George HewisonThe NDP and LEAP

RECOMMENDED

Albert Einstein, David Swanson, Jill Stein, Chris Hedges, William I. Robinson, and others Selected articles for Winter 2018

FEATURED WORK

ECONOMICS

1.7 The dynamics of capitalism as a system and the limits of single issue reforms

2.11 The economy in transition towards a new deal for labor and the community

3.1 The challenge of a moribund economic system

3.7 Public banking: A cornerstone of a green social democracy

4.7 Economics and culture

6.5 Using the non-market economy as an opportunity to begin moving beyond capitalism

HISTORY

1.6 The epochal nature of the period we are entering

2.0 Theoretical Perspective: Defining Green Social Democracy

2.5. Socialism and green social democracy in historical materialist theory

4.3 Culture in historical perspective

5.1 Contrasting a green social democratic world with the currently prevailing, but challenged neo-liberal one

6.2 Socialism and capitalism as coexisting social systems

LABOR

2.11 The economy in transition towards a new deal for labor and the community

5.7 Defeating neo-liberal capitalism: The role of social movements

7.3 Justice: Creating a just society, based on the right of all to a dignified, secure existence

Creative Commons License

Creative Commons License: Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) applies to all work posted on this website except that which appears with authors whose last name is other than McFadden, in which case standard copyright should be assumed to apply.