Tax Credits to Improve the Environment

People search for complicated solutions and ignore simple & elegant ones easily at hand: incentives encourage & costs discourage. To address environmental concerns, the carbon tax is one elegant solution and land use tax credits are a balancing side of the equation.

Owners of field and forest land do their fellow citizens a great unpaid service. Their lands purify water, support wildlife, clean the air, absorb CO2 and just make the world more pleasant. For this service, we charge them real estate taxes. In places where development is rapid, these taxes can be high enough to force landowners to convert their forests to parking lots and subdivisions. This is because land is taxed at its “highest” use, which usually means development to the bureaucrats making the decisions.

Land use taxes can permit some forest owners to keep their land in trees for a longer time. Land use taxes recognize the lower cost to the municipality of open land. In the northern Piedmont region of Virginia, for example, municipalities spend only $.11-$.21 on services for every dollar in tax revenue they get from farm land and open space, while residential land consumes $1.16 to $1.39 in services for every dollar of revenue. Land use tax breaks are a good, but tax breaks alone do not make a incomplete solution to carbon and development issues.

But land use taxation can only postpone development and it still insufficiently rewards owners for the services their land provides the general society. Beyond that, giving undeveloped land a break is not practical in the places with the most open land. Some counties are mostly field or forests. They just do not have the industrial or residential base to make up for the losses from fields or forests. Those municipalities cannot afford to exempt the lion’s share of their tax base. People living in densely populated areas are benefiting from the essential environmental services provided by their rural neighbors. If they are really concerned with the environment, they will be eager to pull some of their own environmental weight.

My elegant solution is simply to provide Federal tax credits to those who maintain their land in forests and fields. Tax credits for maintaining land in forest or field is a logical destination for some of the revenues of the carbon tax. This kind of credit is extremely simple to use and check for cheaters. Land can be surveyed from the air at regular intervals. If a tract of land has been developed, it can be taken off the tax credit roles.

Think of how much more elegant this is that a clumsy carbon offset credit. With a land tax credit it is almost impossible to get away with cheating, the cost of enforcement is rock bottom and it requires no additional bureaucracy to administer. This, BTW, is why politicians probably will not go for it. Politicians are fond of complicated rules because they can hide subsidies within the wrinkles and the complexity creates numerous opportunities to reward friends and contributors and punish enemies.

As is often the case, the simple is better, but simple is not easy.

Posted by Jack at July 28, 2007 2:47 PM
Comments
Comment #227672

I think it is important to remind that people do not actually “own” land. When they purchase land and improvements they are actually purchasing what is regarded as a “bundle of rights” and implicit in those rights are obligations, two of which are the payment of taxes and certain restrictions on use enacted by federal, state and local authority. (ask any real estate agent (hardly a liberal lot) and they will tell you this). As much as certain sociopathic conservatives would want to deny it, there IS a concept of greater societal good to be considered. If society, in the form of government, needs the holder of land to preserve it in a certain way but restricting usage, they will pass the ordinance that will compel him to do so. No incentive is needed.

Posted by: Charles ross at July 28, 2007 4:41 PM
Comment #227674

Charles

What a frightening perspective. I hoped we had learned from the experience of the Soviet Union or Germany in the 1930s. The government, in this formulation, essentially owns the people and all they have and knows best how to use them. If government wants to do something, it simply needs to employ compulsion.

I believe in persuasion. The left prefers compulsion in many cases, but they rarely phrase it as clearly as you do. A mix of incentives and costs allow people to use their intelligence to figure out innovative solutions. Government compulsion usually doesn’t get this from people. If you believe government bureaucrats and politicians have a monopoly on good ideas, I guess compulsion is a good idea.

Property rights is one of the most effective ways of protecting the environment. Most people do not want to destroy what they own. Most forest and almost all farm land near population centers is privately owned. These owners often want to keep there land open, but sometimes they cannot afford to do so. You can make a law to compel them not to change the land use, which will have the effect of bankrupting many and driving them away. You know in countries where property rights are viewed with less enthusiasm, you have a lot more illegal logging. An owner will tend his land. Government inspectors cannot be everywhere.

Returning to your original method, it is nothing new and sometimes works. In eastern Poland and Belarus is a beautiful forest called Bialowieza. (no - it is not pronouned as you are reading it). What many people do not know is that we can thank Soviet population purges and then Hermann Goring for clearing out the people and reintroducing some of the mega fauna like Bison. Unfortunately, the systems that did not respect property rights had other flaws and managed to destroy the environment in ways we Americans did not even think possible.

Posted by: Jackj at July 28, 2007 5:07 PM
Comment #227681

And some people search for an easy simple solution ignoring the facts that some problems are quite complex and multivariate fraught with unintended consequences.

The trick is to know which is which. Nothing about the interface of economics, sociology, and psychology is simple or elegant. Adam Smith wrote 1100 pages on the sociology and psychology of human sentiments as a groundwork for understanding the Wealth of Nations, another 1000 plus page book. Every paragraph important and pregnant with meaning for public policy and a free electorate to act on their sentiments.

Republicans try to reduce too much to a simple matter of money. It explains why Bush continues unsuccessfully to convince the majority of Americans that our economy is better now than in the 1990’s. Bush selects easy numbers for his persuasion, but the public feels the complexity of economic changes and stagnation at the same time. Bush’s attempts fall on deaf ears save his loyal children fond of hearing his classroom fairy tales, while the towers and terrorists crush the twin towers and murder 3000 Americans.

No, the trick is to know when a simple solution will suffice and when it won’t, like reading the previous administration’s state of security memos and acting on intelligence community reports instead of doing photo ops with the children to impress the parents.

Or like invading a nation without planning for contingencies already warned of in CIA Fact Books on public book shelves prior and during your presidency.

Posted by: David R. Remer at July 28, 2007 6:32 PM
Comment #227693

David

I am not worried about all the theoretical details. I know that there are several ways to accomplish goals.

Coercion, as Charles suggests, works very well if you have a simple and certain goal and you are not worried about how time will affect the situation. People with the power to coerce like this tool. Governments have often liked this too.

Using incentives and costs is harder to manage, but works better in the long run because it encourages people to use their intelligence and imagination to create better solutions. There is a place for both sorts of tools and a mix of them. But a system dominated by coercion in the long run is less pleasant, less productive and less successful.

Saying that a solution is simple does not imply that it is easy. Incentives have a lot more aspects than simply money. Money, however, can often enable other things to happen. You might want to preserve your stream zones, but if you just cannot afford to do that, your good intentions will be meaningless. You notice this when people are w/o proper resources. They destroy their environments, they over graze and deforest. Even in the cases of temporary deprivation this happens. The people of Vienna denuded their beloved Vienna woods for firewood in the hard times after WWI. People will need to WANT to do the right thing AND they will need to have the capacity to do the right thing. If either of those things is lacking, we get no good results.

I did not address Iraq or the economy in this post. I was mostly thinking about land use and preservation of open land. But since you bring them up, I will make the short answers.

Re Iraq - Execution was a screw up. This sometimes happens in wars and their aftermath. In fact, it is the usual situation.

Re economy - the economy today is about as good as the economy of 1998. American generally are not as prosperous as we were from 1999 - 2001, but we are better off than in all the other years of American history. This is decent achievement considering the downturn that began in 2000, the bursting of the dot.com bubble and 9/11. I do not recall Bush saying the situation today is better than ever. If he said that, he would be incorrect. If he says that the economy is very good in comparison to historical economies or those of other countries of the world, he is correct.

I pity the people who are having a hard time in today’s economy. It really does not get very much better than we have right now. If they are unhappy with what they got today, there is probably little hope for them to become happier tomorrow.

Posted by: Jack at July 28, 2007 10:54 PM
Comment #227709

Jack
FYI I live in a large coastal county in N,Ca. County of Sonoma,of some snooty wine aclaim. All but one city here have what are known as “greenbelt” zoneing laws. Developement is forbidden on large tracts of very pricey land between cities,mostly ag with some forrest.It is legal for the landowners to build a home or two on their property.Ca. has a property tax exclusion for ag land.
This counties residence voted some time ago to tax ourselves,a sales tax,to establish an “open space district” whose function it is to purchase open space and often conservation easements protecting lands from developement but leaving the ownership in the original hands.
Plus side is this has worked to preserve a great deal of land. The county is a jewel.Redwoods,majestic coast,rolling hills etc. There is some pressure on the OSD to provide more public access to some of their purchases etc.
Downside is I just looked at a three bedroom fixer for$ 519,000. Properties in the greenbelts are rapidly becomming the place for houseing for the wealthy. They raise silly things like pygmy goats and maybe a few grapevines to qualify for the property tax exclusion for ag land.This kind of makes it hard for us mere mortals.

Posted by: BillS at July 29, 2007 1:34 AM
Comment #227715

BillS

These local fixes work for the local open space issues. If we are talking about the greater environment, especially carbon sinks, we probably need something a more comprehensive.

People are talking about buying carbon credits. This can lead to a complicated system that does not work well and is subject to significant cheating. The tax credits I refer to helps avoid some of this. It is easily enforced and available to anybody who maintains a natural landscape. In that way it encourages and enables conservation.

In the case of your greenbelt, it is probably true that most residents benefit from the open space. Inevitably, those near - or in - the greenbelt - will benefit more. To the extent that this is a scarce resource, the price will be bid up and eventually mostly the rich be able to take advantage of this. As long as your access is not resticted and they mainatain the land as they should, why should anybody care?

We are dealing with something approaching a tautology here. The rich always benefit more. That is part of the definition of being rich. In some ways this is more beneficial to your commmunity, since they have the resources necessary to maintain the well appointed farms and fields that everybody likes and they are less likely to have junked cars in the front yard or old couches on the front porch.

I lived in Oslo, Norway where they had a very nice greenbelt. The same thing happened there, even though they have a very different point of view toward wealth and property. In fact, one of my colleagues bought land and they required him to raise animals. He raised pygmy goats. The funny thing is that he got to like farming and ended up doing all right at it. Those goats can be a good specialty meat.

Posted by: Jack at July 29, 2007 8:22 AM
Comment #227753

Jack, I wasn’t really offering a “perspective”. I’ve often bought and sold real estate; I hold an (inactive) real estate license; out of those experiences I know that the concept of owning a “bundle of rights” instead of owning your property is a given in all aspects of property ownership. Even recent property rights initiatives enacted by certain states acknowledge this concept. They all give the states the right to enforce land use ordinances, not only original to the property owners date of purchase but all subsequent ordinances created AFTER the date of purchase. (The public entity may have to pay compensation but it still has the right to enact and enforce a land use ordinance).
Even public utilities have rights of easement that may super-cede your rights as owner.
Even a squatter could take your property through an adverse possession action (physical possession/occupation of your property + payment of apportioned property taxes as two of the conditions). What happens if a neighbor builds a fence a few feet over into your property, uses that property, say for a garden, pays taxes on the portion they have taken for a given number of years and then files an application for a deed on the appropriated property? If he does all according to law he will send you a registered letter with quit-claim deed enclosed and you will be compelled to sign it!!

You may think I’m a marxist/leninist/fasict/communist/god hating/pro-union/anti-property liberal (and come to think of it, compared to the nightmare that is running this country now, that may be preferrable) but the fact is that nothing I’ve said above is in any way inaccurate.

Posted by: charles ross at July 29, 2007 4:14 PM
Comment #227758

Jack said: “Using incentives and costs is harder to manage, but works better in the long run because it encourages people to use their intelligence and imagination to create better solutions.”

Not if the incentives and costs aren’t constantly adjusted to compensate for trends gone too far. This is where governments tend to screw up in the use of incentives and costs. They set them, and forget them, until the incentives have incented too far, and the hoped for results become a new liability, and the costs of the incentives outweigh the benefits turned liabilities.

Posted by: David R. Remer at July 29, 2007 4:32 PM
Comment #227759

Charles

In our democracy, governments change. Those governments that do not protect property rights create poverty often follows by death and destruction.

Governments have a right to restrict property use. But it needs to be done with great care. We all recognize that the Kelo case was decided according to the law, for example, but most people want to change that law.

It is also usually better to offer incentives than to coerce. In the case of a open land owner, you would be coercing this person, who is already doing mostly the right things in order to give advantage to those who are not.

If we want to get address the problem of carbon, it is a good idea to set up a system that is simple, gives incentive for people to use their imaginations and intelligence, and makes it difficult or undesirable to cheat. Your coercion method will create almost the opposite set of incentives. People will start using their intelligence and imaginations to figure out ways to game the system and they will succeed.

BTW - nothing you said is inaccurate. We do not disagree re most of the technical details, but we do disagree about the best way to do things. You CAN employ coercion. It just will not produce the results you want in the long run.

Posted by: Jack at July 29, 2007 4:33 PM
Comment #227762

I guess I would not regard government’s implementation of land use ordinances as “coercion”. I find that to be a pejorative and inaccurate word as applied to real estate ownership. It would be more accurate if people did indeed own the real property they have purchased; but in fact they do not. They own rights. These rights are provided by government and are accompanied by certain obligations. Government has the right to modify over time both the rights and the obligations.
I have to say that all this, for the property owner, should come under the heading of “this is the way it is”. You say that you want to build a medical waste disposal facility on your land? That this is the “highest and best use” of the property? That the government (probably county, probably all levels) won’t let you? How unfair!!! What right could they possibly have to tell you what to do with YOUR land! Of course, you may have a different opinion of that restriction if it was your neighbor who was seeking to conduct such a business.
Question: do you think that all the modifications in land use enacted by government over just about any given period of time, one year or two hundred years, have, in sum, been accretive to real estate values or dilutive? When you have the answer to that question you should realize that the whole argument over government “coercing” land owners is just plain silly.

Posted by: charles ross at July 29, 2007 5:00 PM
Comment #227776

Charles

I percieve a real difference in our points of view. In the practical sense, we both agree that governments have the right to regulate land use. But you seem to believe that the government is the ultimate owner of property and it just lets people use it. I believe that government exist to benefit the people and that they are the ultimate owners of the government. Property is an important human right, w/o it individuals have no independent way to resist government extending its fiat over life, liberty and the pursuit of happiness.

The other thing we disagree about is coercion. I use the term specifically. When you unilaterally change the terms of an agreement w/o compensation, you are employing coercion.

What I want from government is protection of my rights and reasonable ability to predict changes in rules. As a free human being, that is a right the government is in business to protect.

I propose persuasion and incentives. People figure out ways to get out from under coercion. I have lived in places where propery rights were denied or not protected with much enthusiasm. They uniformly have horrible land use patterns, because the incentive is to cheat and exploit as much as possible.

Posted by: Jack at July 29, 2007 7:33 PM
Comment #227780

So if you believe that government should compensate land holders when they make an adverse-to-the-landholder change in zoning, do you also believe that landholders should compensate government (read: taxpayers) when a change in zoning acts to increase property value?
I have no way of knowing but I would guess that for every dollar that an adverse change has cost a landholder probably, in sum, they have gained a thousand dollars from changes that increase the value.
There is no contract between government and property owners regarding a static set of land use rules. These rules change as needs change.
Interesting post about an interesting topic.

Posted by: charles ross at July 29, 2007 7:57 PM
Comment #227788

This is a great idea? Since Republicans are more likely to own land (just as they are more likely to own a hybrid vehicle) will the Republicans win or lose on this deal?

Let the government not try to micromanage my life. Everyone should pay the same taxes and should be treated equally. Stop all the tax credits for this and the tax penalties for that. To make life simple and equal, make the taxes simple and equal.

Here’s a no-brainer for you… every person living in the U.S.A. on December 31, 2007 (illegals, too) should have a “life tax” of $1,000. Fair. Equal. Simple. (But watch for all the belly-aching.)

Posted by: Don at July 29, 2007 8:21 PM
Comment #227801

Don

You are mistaking equal in person with equal in behvavior. Incentives and penalties apply to behavior. Some behaviors create higher costs. I would generally let the market sort that out. Some things, however, are external to the market. If I pollute the air or water that we jointly use, I inflict a cost on you and others that we cannot easily capture. A tax can account for this.

Posted by: Jack at July 29, 2007 9:10 PM
Comment #227822

Jack -
“You are mistaking equal in person with equal in behvavior (sic). Incentives and penalties apply to behavior.”

But to prove the behavior means more government intrusion into my life and yours.

Jack, you have been pushing various market-based taxes for a while now. I’m not buying the idea primarily because I see that this idea could essentially create a whole new taxing market for BIG GOVERNMENT along with a plethora of new rules, regulations, reporting requirements, government agencies, multiple new confusing forms, and therefore multiple ways for politicians to hide the very things you say they cannot hide with these “simple” programs.

Do you really want the government to know MORE about you, your lifestyle, how you drive, how far you drive, how big of a carbon footprint you have, etc. etc. etc… and then tax you based upon YOUR behavior. What if we find out that Hispanics or blacks are the worst polluters? (Do you trust the government to really tax Hispanics or blacks more than whites in today’s politics?)

Point is, the government CANNOT BE TRUSTED with this information. Politicians will not use it to be “fair”, but to play politics. Just a month ago the government politicians were willing to be unfair with legal aliens just to score points with the illegal ones. Just because it sounds like a equitable way to handle the problems you detail doesn’t mean it ever would be equitable in practice. Therefore, I’m for less government intrusion because that means fewer politically expedient opportunities at OUR (the taxpayers’) expense.

Would it be a wise way to deal with ecology? If we weren’t talking about politics, it could be. But in the REAL WORLD, it is a horrible mistake.

Posted by: Don at July 30, 2007 12:12 AM
Comment #227833

Don

I also fear the growth of government. My tax proposals are a means of avoiding some of the worst effects of that. A carbon tax, for example, is easily assessed and once in place requires no additional government management. It will effectively address carbon w/o creating an extensive & ineffective government bureaucracy and rule network - which liberals will give us if we leave the problem to them.

The tax credit for land use is similarly elegant. You can determine it easily and w/o extensive new rule making.

In neither of these cases does the government learn more about you than it knows now. The carbon tax is on carbon. You use it or not and nobody knows how much you use. If you use 20 gallons of gas, you would pay x carbon tax. The government knows somebody used 20 gallons of gas and paid a carbon tax. They do not know it was you.

The land credit also uses information the government already has.

I understand that government might just pocket the proceeds of the carbon tax. That is one reason I want to defray that with the tax credit on land use.

Climate change is a popular issue. We need to address it. The environment generally is an externality. We need to address that too. My proposals would be effective AND would help to preempt more silly regualtions and rules.

If you read the responses to my proposals re carbon taxes, you find liberals often do not support them. I think it is because some of them prefer the problem to a solution that retains most of the aspects of the free market.

Two kinds of people should embrace the carbon tax idea: those who want a clean environment and those who want clean the environment in an effective way that limits government interference.

Posted by: Jack at July 30, 2007 8:21 AM
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