# New Wealth Multiplier

Apply the R&D tax credit to solar power.

What happens when new wealth is created: For each added \$1 in value…

The money supply can increase in the amount equal to the new wealth created without inflation.

A solar power system has a value of \$700,000.

Value of new electricity generation is \$60,000 per annum @ \$.08 per KwH.

Consumption of wealth creates taxable income.

Solar wealth is a tax generating consumable which is renewable.

So, a tax credit that produces new wealth will produce new tax revenue.

If consumption of a new dollar of asset value equals  80%, then the marginal propensity to consume is .8.

An MPC of .8 implies an after tax multiplier of 2.5 x.

Assuming a tax rate of 18.1%, of each new dollar of wealth, new tax revenue generated = \$.45.

A \$700,000 system which is 60% financed generates an increase in the money supply of \$420,000.

The multiplier of 2.5x can be applied to calculate new tax revenue generated from the increase in the money supply of \$420,000.  2.5 x \$420,000 = \$1,050,000 in spending. At a tax rate of 18.1%, tax revenue generated = \$190,050.

It is depreciated but that’s referring to the asset. Not the increase in the money supply.

The value of new electricity generation is \$42,000 per annum.

Income generated from the system is 5% of the financed portion = \$21,000 per annum.

An 8% ROI on the \$280,000 of invested capital = \$22,400 per annum.

Annual tax revenue from asset = \$43,400.

5 years tax revenue = \$217,000.

Sell bond at 4% interest to cover the tax revenue deficit:

Year one                Interest Cost          Offsetting tax revenue

\$210,000                    \$8,400                    \$43,400

\$166,600                      \$6,664                 \$43,400

\$123,200                       \$4,928                  \$43,400

\$79,800                        \$3,192                     \$43,400

\$36,400                       \$1,456                    \$43,400

Total                           \$  24,640                  \$217,000

Deficit                         \$17,640

\$705                    \$43,400

Net positive  in year 7  =  \$25,055

Total tax revenue = \$233,450.

A \$700,000 system currently has a tax credit of 30% = \$210,000.

The tax credit generates net positive tax revenue.

Invest the monetized tax credit in additional infrastructure spending that generates income.

Because that income will generate tax revenue.

A solar project funded with the monetized tax credit will generate additional wealth:

A \$210,000 tax credit will fund a \$350,000 solar power project, assuming 60% financing,  that generates an ROI of 8%.

An 8% ROI generates an income of \$28,000. Assuming a MPC of 2.5 and a tax rate of 18.1%, additional tax revenue generated = \$12,670 per annum.

Total tax revenue generated in year one = \$202,720.

There’s another tax credit of  \$105,000. Funds a system worth \$262,500.

The increase in the money supply = \$157,500.

The multiplier of 2.5x can be applied to calculate new tax revenue generated from the increase in the money supply of \$236,250.  2.5 x \$236,250 = \$590,625 in spending. At a tax rate of 18.1%, tax revenue generated = \$106,903.

The 8% ROI generates an income of \$31,500. Assuming a MPC of 2.5 and a tax rate of 18.1%, additional tax revenue generated = \$14,253 per annum.

Total tax revenue = \$121,156

An apartment building will generate an NOI which is 5% of a property’s value.

With financing of 60% loan to value, the tax credit of \$210,000 can be used to acquire a property with a value of \$525,000.

The NOI of \$26,000 per annum generates tax revenue of \$11,812, assuming a MPC of 2.5 and a tax rate of 18%.

Total tax revenue = \$200,812.