Keith Rankin: Taxing Green Dollar Communities

Keith Rankin, 2 May 2001

National's revenue spokesperson Annabel Young has taken it upon herself to condemn 'green dollars', and to label 'green markets' as "black markets". She could be opening a Pandora's Box. It only requires enough people to take the bait. (Her press releases have been published on Scoop: 15 April, 16 April, 19 April.)

The general rule today is that we tax the market economy, but we do not tax the household economy and we do not tax the gift economy. Green dollar exchanges come somewhere between all three; they are examples of gift- exchange communities, the historical antecedents of the market economy.

Tax began as a form of protection money, but has evolved into something much more noble.

The first governments were mafiosa. The initial fiscal breakthrough came about when one group of organised criminals became strong enough to enforce a monopoly on theft. A social contract or sorts emerged. We (the subject people) paid taxes (mainly in the form of food) to the monopoly crims. In return, these authorised crims made and enforced laws that protected us from other wannabe criminals. If we refused to pay the monopoly crims, they would beat us up, or worse.

With the advent of the capitalist market economy, money become a commonplace medium of exchange. So the overlord (the kleptocratic law-making monopoly mafia) levied taxes to be paid in money. A large proportion of taxes were used for waging war.

With the advent of democracy, the subjects became the masters; peasants became principals. Taxes were now required to fund collective goods such as education, public hospitals, roads, social security.

Taxes are evolving into something more; into an economic return on property that's in the public domain. In that sense, with the emergence of public property rights as a central concept of 21st century political economy, they are reverting into something more like they used to be, a royalty. The difference is that, under democracy, the peasants who used to pay the taxes are now also the principals - the overlords - who receive the taxes. As under the old landlord system, there is no reason why tax recipients, like everyone else in the market economy, should not be income maximisers. On that basis, we can expect that rates of taxation will rise this century. The falling tax rates of the 1980s and 1990s are likely to be an historical aberration.

A gift-exchange economy is one where we make gifts under the expectation that gifts of equal value will be returned, later if not sooner. A green dollar exchange is such an economy. It is, in essence a market economy. The only thing that is missing is cash.

So green dollar exchanges should be taxed; but not in cash; they are not part of the cash-based market economy. We remind ourselves that, before the cash economy existed, all taxes were paid in food, services etc.

It is also not clear exactly which public body should collect the taxes: local or national (or international?) government.

Certainly green dollar communities free-ride by using for free the public goods supplied to the host communities. Christchurch green dollar participants use the roads, parks, police, refuse collection, libraries and indeed the air of Christchurch. Some of those are funded locally, some are funded nationally. Others, like the air, are a gift of nature. Like all 'capital' resources, the air is subject to depreciation. Christchurch, I understand, has (or once had) particularly bad air pollution.

In a sense it's academic how public goods and resources came to be. What matters is that we all use them in our lives as producers, and that the suppliers of such goods and owners of such resources have economic rights, much as private owners have the right to charge rent for the use of their resources.

It seems to me that, for the example city that I have chosen, the most appropriate taxing agency is the Christchurch City Council (CCC). But the CCC could not levy cash taxes on the Christchurch Green Dollar Exchange (CGDE). The CCC could only be paid in green dollars. Hence, the solution is for the CCC to join the exchange. (Obligations in cash, which the green dollar exchanges don't have any of, would just destroy the likes of the CGDE. Centuries ago, it was taxes levied in cash upon cashless peasants that destroyed the non- cash feudal economy.)

Alternatively, the national government of New Zealand could become a member of each of the regional green dollar exchanges.

Whoever the taxing agency is, the key point is that the taxing agency would have to spend its tax revenue by purchasing goods or services from other members of the exchange. Further, green dollar exchanges cannot really thrive unless some members create new green dollar credits to fund green dollar benefits. A local or national government, as a member of a green dollar exchange, is a likely candidate to ensure that the green dollar communities they belong to operate on inclusive principles and enable the less productive members to fully participate as consumers.

Green dollar exchanges are a very important way in which people who would otherwise be unemployed or underemployed can improve both their and their communities' standards of living. It would be economic nonsense to destroy them by expecting them to pay taxes with the one commodity that they do not have.

Of course, if there was a soundly managed national and international market economy, without unemployment or an unnecessarily high interest cost of creating and allocating credit, then green dollar exchanges would become redundant. Green dollars are a second-best solution that resourceful people adopt when deficient macroeconomic policies prevent the market economy from being a good servant of modern societies.

PS It's worth noting that, just as it's hard to draw the line between the market and gift-exchange economies, it is also hard to draw the line between gift and gift- exchange economies, and between household and gift-exchange economies. For example, how do you devise definitions that distinguish a gift of altruism from a gift made with some expectation of something in return. A wine-bottle brought by guests at a dinner party may or may not have implicit expectations of reciprocation.

If we tax green dollar gifts, then why not tax all gifts? Maybe the economists' answer is the most practical? The marginal social cost of such a tax (in cash or in green dollars) would exceed the marginal social benefit. End of story.

We should also be wary of arguments for taxing (or extracting royalties from) "swaps" or sharing. (The Napster case springs to mind.) If we go down that road, then the argument for taxing household production becomes compelling. If I simultaneously care for my neighbour's child and my own, should I pay taxes for one or for two lots of childcare services? Many feminists want housework to be included in the national accounts. But the national accounts are, in reality, a mechanism to facilitate taxation. Should I or my partner be taxed for doing the dishes, cooking dinner, or caring for our son?

Annabel Young talks of "major work projects". If I rebuild or restore my own house that's a major work project. It's very easy to present an economic argument - in the name of efficient resource allocation - that the activities of home handypersons' should be taxed. Such a tax would have to be in kind, and not in cash. For every 8 hours spent on restoring one's own house, one would spend 2 hours restoring a public edifice.

Somehow, I don't think Ms Young's political party will get many votes from a consistent policy of taxing all major work projects. Not unless, that is, she can persuade New Zealanders that most of them will gain more by receiving more taxes than they lose by paying more taxes.

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