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
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.