A Tax Credit that Generates Net Positive Tax Revenue

If we can design self-funding tax credits, then we can achieve any societal goal.

Here’s one way …

We install a solar power system, monetize the investment tax credit and use those funds to acquire newly issued shares in an equity REIT.

Equity REIT debt ratio = 33.4%.

Two models of money creation as a function of borrowing:

One model is the  Money Multiplier Effect as a function of the Reserve Ratio:

The money multiplier, m, is the inverse of the reserve requirement, RR: 

REIT borrows when it makes an acquisition. So, every dollar invested in a new share issuance of REIT generates an increase in the M1 money supply of up to $3.57

$1.00 = $3.57 of new loans

Another model: The Bank Makes Loans and then Looks for Deposits

Because an equity REIT has a debt equity ration of 33.4%, every dollar invested in a new share issuance of a REIT generates an increase in the M1 money supply of $2.00 if the REIT makes a leveraged acquisition.

Federal tax revenue is approximately 18.1% of GNP.

Due to the velocity of money, which is 5.741 for M1, each dollar increase in M1 generates $5.74 of GNP.

In the reserves first case we get $3.57. In the loans first case, we get $2.00.

Let’s look at expected tax revenues in the case of a $2.00 increase in M1.

$5.74 x 2 = $11.48.

$11.48 x .18.1% equals $2.07 of new tax revenue.

So, the investment tax credit, which costs $1.00 in tax revenue, generates net positive tax revenue of $1.07.