SolarMethod Calls for a 70% Clean Energy Tax Credit (and explains how it is self-funding net tax revenue positive)
Currently the atmospheric concentration of CO2 (the leading greenhouse gas) is approximately 398.55 parts per million (ppm). According to the National Oceanic and Atmospheric Administration (NOAA), the federal scientific agency tasked with monitoring the health of our oceans and atmosphere, the current average annual rate of increase of 1.92 ppm means we could reach the point of no return by 2042. Scientific American.
https://www.scientificamerican.com/article/have-we-passed-the-point-of-no-return-on-climate-change/
Consumers spend their money. This is called the marginal propensity to consume.
Tax credit that give people money to spend = multiplier.
The tax credit is spread over 25 yrs.
It pays back the tax credit by year 5. Net positive $1.05.
Vendors agree to tax payment upfront. Foreign or otherwise.
After year 5, the tax credit continues on. Equaling tax revenue paid. For 25 yrs.
Participants agree to tax payments as a percentage of revenue, upfront.
And so, capitalism is reimagined as the dimensions of profit and taxation become one dimension.
Total tax credit is 80%. Completely self-funding. So earth is saved from us.
If a project is $100,000 and labor costs are $50,000, then the marginal propensity to consume takes that $50,000 then the output multiplier is 1 /(1-.6) = 1/(.4) = 2.5
Output multiplier = 1/(1 -.6) = 1/.4 = 2.5
Change in output = 2.5 x $50,000 = $125,000
Output multiplier including taxes = 1/ ((1-.6(1 – .20)) = 1/ (.4) = 1.66
Change in output with taxes paid = 1.66 x $50,000 = $83,000
Tax revenue generated = $42,000
Tax credit = $30,000
Net positive tax revenue = $12,000
42% tax cut.
annual tax pmt, income stmt, charitable gifting
What follows is from Econoweb
How and Why the Multiplier Works
Consumption is based primarily on disposable income. When Aggregate Demand rises, output and hence income rise. The rise in income allows people to consume more goods and services. This is called “income-induced” consumption and it raises Aggregate Demand even more.
| TABLE 1 | |||
|---|---|---|---|
| Round | Initial Change in Investment |
Change in Output |
Change in Consumption |
| 1 | $100 | $100.00 | $80.00 |
| 2 | 0 | $80.00 | $64.00 |
| 3 | 0 | $64.00 | $51.20 |
| 4 | 0 | $51.20 | $40.96 |
| 5 | 0 | $40.96 | $32.77 |
| 6 | 0 | $32.77 | $26.21 |
| 7 | 0 | $26.21 | $20.97 |
| 8 | 0 | $20.97 | $16.78 |
| 9 | 0 | $16.78 | $13.42 |
| 10 to inf. | 0 | $67.11 | $53.69 |
| Totals | $100 | $500 | $400.00 |
Let’s work through an example of the multiplier process. Suppose the MPC is 0.80. A University decides to build a new residence hall worth $100 million. Construction workers earn $100 million in income, and they spend 80 percent–or $80 million–dining out, going to the movies, shopping, and buying new cars. The increased spending of $80 million becomes income to the owners and employees of the restaurants, movie theatres, shopping malls, and car dealers. In turn, these people spend 80 percent of the new $80 million, or $64 million, on other goods and services. The $64 million becomes income to others in the community, and the process continues. Table 1 shows the impact of the multiplier through various rounds. When all the effects are totaled up, output will increase by $500 million because the value of the output multiplier is equal to 1/(1-0.8) = 5. Remember that the initial increase in Aggregate Demand for the new residence hall was just $100 million.
The Output Multiplier with Proportional Taxes
One by one, we will relax the assumptions we made in calculating the simple output multiplier. Let us start by introducing proportional taxes. A proportional tax is a tax that varies with the level of income. An example is the income tax. If income is taxed at a 20 percent rate, then t = 0.20, where t is the tax rate. Tax revenue (T) is the total revenue collected from the tax. It is computed by the formula:
- T = t × Y.
The formula for the output multiplier when proportional taxes are present, is:
| If MPC = 0.80, and t = 0.25, then the output multiplier is
1/(1-0.80(1-0.25)) = 1/(1-0.6) = 1/0.4 = 2.5. |
| TABLE 2 | |||
|---|---|---|---|
| Round | Initial Change in Investment |
Change in Output |
Change in Consumption |
| 1 | $100 | $100.00 | $60.00 |
| 2 | 0 | $60.00 | $36.00 |
| 3 | 0 | $36.00 | $21.60 |
| 4 | 0 | $21.60 | $12.96 |
| 5 | 0 | $12.96 | $7.78 |
| 6 | 0 | $7.78 | $4.67 |
| 7 | 0 | $4.67 | $2.80 |
| 8 | 0 | $2.80 | $1.68 |
| 9 | 0 | $1.68 | $1.01 |
| 10 to inf. | 0 | $2.52 | $1.51 |
| Totals | $100 | $250 | $150 |
Proportional taxes reduce the size of the multiplier because when there is, say, $100 of new Aggregate Demand, an MPC of 0.8, and a 25 percent tax rate, output increases in the first round by $100 but disposable income only goes up by DI = Y – T = $100 – (.25 × 100) = $75. Consumers will spend 80 percent of that $75, or $60 in the first round. Taxes diminish induced consumption, which in turn diminishes the impact on output in the next round. Total output now changes by only $250, not $500. Table 2 illustrates the impact of the tax rate on the multiplier effect of the $100 million investment in the residence hall.
attribution: http://www.econweb.com/MacroWelcome/multiplier/notes.html
What we see that there is $250 in tax revenue generated by the investment of $100.