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.

 

 

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