Thursday, December 13, 2018

Deficit adjusted GDP

This post describes a fairly simple economic concept that can be abused for political gains.  Ignorance of the concept can be leveraged to break democracy through economic illusion:  At a bear minimum, any increase in deficits, should normally have a direct immediate increase in GDP equal to the deficit increase, but I will argue here that a 2x effect on GDP should be considered "par" or possible.  The political abuse from deficit increases is (self) praising the deficit inflictors for the GDP increase, and using deficit increases for the intentional destruction of the country for benefit to the destructors.

Scenario:  Increase GDP 100% with $20T increase in defense prices paid.
If the prices paid for military equipment were raised 30x or 40x for just a single year, then the US government would spend an extra $20T, and this number is automatically added to GDP, producing a 100% GDP increase.  (A good year for US GDP growth is 3%-4%)

The result of such policy would be no job gains in the defense industry, since more product is not being sold.  Only profit increases to those companies.  Out of gratitude (not quid pro quo since that might be illegal), defense companies would buy much of the massive debt required to finance their gifts, and political contributions would likely increase substantially.  Defense contractors would also be empowered to purchase/take-over the largest non-defense public companies.

The only effect on employment in the broader economy of this policy would be political spending resulting from increased donations, and the very low spending increases that result from stock price increases gifted to the wealthy.  Stock price increases generally trickle down to housing price increases.

The following year, when the deficit is decreased by $20T as an end to the defense contractor giveaway, there is a 50% decrease in GDP, while a permanent $600B increase in annual deficits compared to pre-policy levels, if interest rates stay at 3%.  A higher permanent increase in deficits if interest rates rise, and an ever increasing one as interest compounds.  This permanent debt servicing increase has 0 economic benefits as banks and other rich debt holders generally roll over investment profits into new paper assets.

The extra $20T in asset values (perceived as wealth) would slowly wither away if it is not put to productive investment use, and instead stays parked unproductively in paper assets.  The $600B+ in extra annual debt service will either borne by asset holders, or diminish "ordinary people"'s capacity to acquire the assets reducing their value.

As bad as defense contractor giveaway is, tax cuts for the rich have even less GDP impact
Deficits that are increased as a result of a tax cut have no direct (accounting) immediate increase in GDP.  It is only through higher spending from people, and direct real business investment (buying stocks or other companies doesn't count), that GDP and employment increases.

Furthermore, when a tax cut is a tax rate cut to businesses, it directly reduces business investment as the after tax cost of investment is increased, as is the risk of investment.

The GOP tax reform plan has most of its deficit inducing effects as a result of corporate tax cuts, and rates on the top personal incomes.  But it also reduced rates on the lowest income levels, mainly through a higher basic (standard) deduction.  Political gratitude also motivated PR stunts of bonuses.  Tax cuts and bonuses for the poor/working class do have a positive GDP impact because the poor spend all of their money/income.  Because that market spending is not all pure profit to the sellers, it supports "multiplied spending" and additional employment, before eventually terminating on top of rich individuals' and large corporations' savings hoardes.


Modelling multiplier effects

  • The poor and the government spend all that they receive.
  • The working class has low savings rates as well.  Regardless of income, if your monthly bank balance ends at the same level, then your multiplier contribution is based on your paycheck frequency.
  • Companies who channel profits into real assets or generate losses or little profits are also pass-through economic entities.
  • Companies/industries that regularly go bankrupt eventually recycle their profits into the economy.  This can be on a 10 year scale, rather than a monthly scale of working class people.  Autos, industrials, airlines, consumer goods to some extent fall into this low profitability or prone to bankruptcy category.  Can also be labelled the 1.0 economy that creates intensive employment.
  • Debt is generally neutral to the multiplier.  Pulls spending forward, allows spending greater amounts, but interest profits go to hoarders.  Defaulted debt brings money from hoarders into the economy only by destroying it but taking advantage of previous spending without repaying hoarders.
  • Insurance profits are similar to debt.  Profits from premiums go to hoarders, while claims add fuel to the economy.
  • Middle class retirement funding and home equity when it results in a small estate that funds purchases by heirs is a 30-40 year withdrawal from the economy.
  • Generational wealth can create 100s of years of economic withdrawal, and income earned by this group has most of it not affect their spending, and instead adds more years of economic withdrawal.
  • Ultra profitable companies similarly siphon off money out of the economy, on a continual process.  Payments to investors are simply transfers among hoarders.
These comments have been more in the context of withdrawal of money/spending rather than the spending multiplier which is quantifiably tracked on a macro scale as GDP divided by money supply.


Since quantitative easing after the financial crisis of `08, the multiplier has dropped to record lows.  The dominant explanation is that Federal reserve's printed QE money went to hoarders.  Money/wealth does not trickle down.

Deficit policy that can hope to break even
Policy that spends social funds such that an amount greater or equal to those funds + interest is returned as social revenue (taxes) is great policy.  High tax rates, investment incentives, working class and poverty relief, employment creation are all essential aspects to policy that can hope to break even.  Natural tax policy and basic income can effectively accomplish that social payback.  Infrastructure has the added benefit of creating something socially useful and potentially lasting.

Policy that simply grows GDP (another measure of society's income even if it does not go to the social fund ) rewarding a few hoarders with revenue and profit, funded by other hoarders who will profit from the interest on the debt cannot be calculated as a social benefit.

A formula for break even deficit policy is provided at the end of this paper.

Framework for deficit adjusted GDP analysis
As discussed in the opening section it is the change in deficits that either provide a boosting (if deficits are increasing) or contracting factor on GDP.  There are 2 analysis factors that need consideration:
  1.  How long a time frame between government spending and a multiplied impact on GDP: An increase in government spending should have an immediate impact on GDP as it is spent by the government, but any recipient of that spending can take several quarters to respend their "government gift".  A tax cut for kleptocrat hoarders will take lifetimes to be respent, but tax cuts for the working class can take less than a quarter.  Given that kleptocracy pretends its policy moves will pay for themselves through investment, a fair PAR scoring is to allow for a 1 quarter (3 months) lag between the deficit increase (that should have an immediate 1x benefit on GDP:  the initial spending itself) and the multiplied respending.
  2. Measure deficits as the accounting report, or the increase/change in total debt over the period:  The accounting measure of deficits exclude the raising of cash, and transfers to social security and other government trust funds.  The raising of cash can be needed because the executive branch has high brinkmanship games over shutting down the government with congress, and so, can only blame itself if it must mitigate risks that it is creating.  While social security funding can be blamed on past government commitments, it is within government policy whim to liquidate the fund in favour of funding basic income and ending pension ponzi schemes.  Another source of discrepancy between accounting deficits and debt levels is intentional fudging of expenses/spending and deferring them into another period.  Some of the largest issuances of debt occur the day after quarter ends.  Some military spending has been conducted off budget.  Therefore, there should be a strong preference to measure deficit changes as changes in outstanding debt instead of the accounting numbers, as the debt reflects actual cash use, and the US's detailing of public debt further allows excluding the effect of trust funds on operations.
Another substantial effect on GDP that is disconnected from economic health can come from insurance payouts related to natural disasters.  Hurricanes and forest fires result in large auto and home insurance payouts that stimulate both  of those (home and auto) industries.  Natural disasters furthermore stimulate spending from savings even though some day to day expenses and revenues are disrupted.  The net contribution to GDP is substantial, and both 2017 and 2018 have incurred significant contributions from the insurance sector.  1% of GDP in these years being attributable to public and private insurance/relief aid payouts surrounding natural disasters.

Tariffs in early/mid 2018, created a lot of economic activity as they were announced 60 days ahead of time, with a long threatened period, and so significant economic activity was pulled forward in order to trade ahead of tariff dates.

Stock and other financial asset performance does not count in GDP, but the $30T value of US stocks (close to $20T in gains over last 10 years), and the $40T bond market is a growing pool of money that could easily be used to open restaurants or machine shops if those opportunities were seen as attractive.  Properly taxing those investment gains and other policies could put the unproductive hoarde to use.  The supply side klepto-oligarch lie is proven by how little economic effect the massive store (and growth) of wealth creates.

PAR performance of deficit increases
Par is a golf term referring to a score expectation on any hole.  If you score par, you did ok.

A deficit increase that just grows GDP by that same deficit increase is a 1x multiplier.  The first section's example of simply increasing hoarding defense company profits achieves a 1x increase in GDP.  To use another golf term, surely this is a BOGEY underperformance of policy.

If a deficit increase is spent in such a way that there is a 50% respending rate of revenue (suppliers, employees, reinvestment, and taxes), with each of the respending recipients also respending at a 50% rate, then this creates a 2x multiplier (the infinite series 1 + 1/2+1/4+1/8.... = 2).  This is a good candidate for a PAR definition as boring historically professional policy can easily achieve this.  The other 50% that is not respent is kept as financial paper/cash or paid as dividends and share buybacks, or invested out of the country.    2x multiplied deficit increase is an easy candiate for PAR.

3x or more multiplier is fairly easy to achieve when deficit increases are spent on people in need who spend all of their income, or at least all of the benefit, and then subsequent recipients respend at a 50% rate.  Much higher multipliers are possible through universal basic income programs because they reduce the need for savings (ie. future UBI payments count as savings to citizens, and enable the support of safe low interest loans to people, and allows for the liquidation of retirement trust funds and public pensions).

US debt growth highlights
The US treasury publishes daily debt to the penny accounting: https://www.treasurydirect.gov/govt/reports/pd/debttothepenny.htm

From Sept 8/17 to Nov 30/18, US debt grew by over $2T, while GDP grew 1.3$T from June `17 to Oct `18.  Only $314B in intergovernmental (trust funds) debt growth since december 2016.  The rest ($1.7T) will show up as on-budget deficits soon enough.

Interest costs to the US has risen $65B in fiscal year `18 (ends in October) over `17 to $523B/year.  Average interest outstanding has risen 30 basis points to 2.52%.  Well below current market (reissuance) rates.  The near $22T in debt reissued at 2.8% will cost $616B.  3% of GDP, and 20% of government revenue.

Reasons for the high debt additions (deficits) include the tax reform bill effective for all of 2018.  The single largest debt increase ($500B) was in September 17, and was likely related to preperation for a $700B defense appropriation which passed later that year.  Hurricane relief may also have played a significant part in 4Q 2017 deficits which totalled $687B.

March and April 2018 saw $625B total deficits.  This coincides with a $1.3T spending bill with customs/ICE increases as its highlight.

Since August 2018, monthly debt increases have averaged $140B without significant spending news, other than accounting deficits remain on track to be over $1T for fiscal 2019, most likely the result of general revenue loss from tax reform.

US Deficit adjusted GDP growth

Methodology

  • date and debt:  total debt retrieved for first day of month from debt to the penny site.  In billions.
  • deficit:  the increase in total debt over previous month.  Suplus negative deficit numbers are preceded with _ .
  • 3mdef:  3 month rolling deficit for current month and 2 previous.  This is used as the basis for deficit increases as it is smoother than single month changes.
  • incr:  increase/change in 3 month rolling deficit.  This is the basis for adjusting GDP as if it would be without a deficit increase.
  • GDP:  Monthly GDP interpolated from quarterly federal reserve data.  The 12 month rolling GDP at the end of the month.  In billions.  Q4 2018 GDP is assumed to be equal to Q3 GDP.  This would be reported as a 3.7% (12 month) GDP increase, and this is higher than most current professional estimates.
  • gdpinc:  The month over month increase in GDP.  Interpolation results in 3 equal increments pe quarter.
  • adjgdp:  Adjusted GDP monthly increase.  Adjusted by the deficit increase (incr column).  A 3 month rolling deficit that increases by $20B adjusts the "potential/core"/private sector GDP down by $20B.  This uses the 1x BOGEY effect on GDP.
  • cumAgdp:  Cumulative adjusted monthly increase.  Total adjusted GDP increases relative to december 2016.
  • 2xstim:  If the deficit stimulus resulted in a 2x impact on economy.  The number for each month is calculated by adding the deficit from 2 months ago into the 3 month rolling deficit (thereby double counting the 2 month prior deficit).  The 2 month prior number was chosen because it may have the most impact on monthly GDP.  A government that budgets its spending may for safety reasons issue debt 2 months ahead of spending needs. 
  • 2xgdp:  GDP adjusted by a deficit/surplus multiplied by the 2x factor in previous column.
  • cum2xgdp:  Cumulative 2x deficit adjusted GDP relative to december 2016.



Notes and conclusions:
(generously projected) Nominal GDP rose $1.7T since 2016 at the end of 2018.  $1.1T since September 2017 which is the start of the recent $2T debt ramp up.  If deficit spending were as effective as providing cronies with profits on infrastructure projects (a 1x multiplier), then the deficit adjusted GDP for the 12 months at the end of Q3 2018 is $697B and flat to 4th quarter instead of $1.1T. This would be a bit over 3% growth.

If we assume government policy is competent in directing growth, then the real/core economy would have contracted by $395B over 2016 levels by the end of 2018, and by $1T since Sept 2017, without the policy injections.  If instead we assume that the Republican government has been incompetent, then the extra growth achieved by an additional 1x multiplier (whatever effect existing policy had) would be  $1.7T (1.33T - _395B).

A basic economic point, and simpler analysis, is that with $1T/year in deficits, eliminating such an annual debt increase, with a 2x multiplier would result in a $2T drop in GDP.  About a 10% contraction.  The act of changing deficits from $500B to $1T creates a $1T economic adjustment. 5% change in GDP.

Its hard to link a debt increase to a month of economic activity.  From the data, GDP grows at around $60B/month when there are no debt increases, and the large spikes in new debt do coincide with GDP spikes.  But those spikes are well below the debt spikes.  In the 4 months leading to the end of Q2 2018, debt increased by $589B while GDP increased by $370B, but $180B+ of that GDP increase would have occurred anyway, and so $589B was spent to grow GDP only $190B.  A 0.33x multiplier, well below what (1x multiplier) can be achieved with deficit increases spent on corrupt cronyism.  Corrupt cronyism would be 3 times more stimulative than current US government policy.

The 2017 GOP tax plan
I've called that bill the destruction of America plan before.  Tax cuts for hoarders has no multiplier bonus, and therefore no benefit, to economic activity.  The $1.5T budgeted cost of the tax plan over 10 years is significantly underestimated because the deficit impact is wrongly assumed to behave like growth expanding infrastructure spending, with a delusion that the rich and profitable corporations will invest the extra profits in something productive instead of financial paper. Stimulative policy for the future is compromised by starting with an extra $4T in debt in 2020.  At 3% interest, that debt will cost $120B/year until the debt is abolished through default, and where the time frame for collapsing default is accelerated without immediate or lasting benefits.

The context of universal basic income
UBI is a refundable tax credit (equal for all) that can be structured/funded such that 90% of resident citizens receive a net tax cut, with a much larger net cash benefit to those with little income than those with more income. Unconditional Loan Income (ULI) can be a citizen-only program where a lifetime allowable loan balance can be withdrawn in annual/monthly chunks, and repayments are royalty-based portions of income like current distressed student loan arrangements, but where repayments extend future withdrawal balances, and unlike student loans, the cash from the loans can be used as pleased.  ULI is a version of UBI that is individually accountable.  Your own future success funds your past basic income.  Public-private partnerships can fund any deficit (unrepaid loans less interest earned) in the program, and they can be structured such that the central bank can hold them.

Because UBI and ULI are progressive tax cuts with largest benefits to the poorest, they can be funded with regressive-ish taxes such as a carbon taxes, flat income taxes, sales taxes (not my preference), elimination of standard deduction.  On the business side, an income tax equal to the flat personal income tax.  On the investor side (they benefit from UBI too), surtaxes on investment income while making dividends paid by businesses tax deductible to those businesses.  Replacement of payroll taxes with equivalent income taxes (but uncapped).

In the context of multiplier effects, UBI (and universal healthcare) reduces hoarding.  Individuals need to worry less about saving for their children's education, their spouse can always contribute financially to the relationship.  This encourages families and less needs to be put aside for emergencies.  The rich still exist, and hoarders will be encouraged by the spending power of people around them to invest and hire in projects designed to take those people's money.  Everyone who wants a job, or who will listen politely to generous offers requesting their help, can get a job, or pursue the same opportunities as hoarders have on their own projects, including partnering with others who all have the freedom to fail if their spent time/energy is ultimately unproductive.  All of this energy is expended freely through fair markets, that even if competitive can be more rewarding than harsh power imbalanced markets.

High tax rates and redistribution creates high multipliers on the economy (taking from hoarders to give to spenders) and encourage investment by hoarders to take money back from spenders.  Tax cuts for hoarders encourage harvesting and cost cutting, and in addition to no initial impact on GDP of the created deficits, reduce the multiplier further by accelerating collapse through more hoarding to prepare for the collapse.

Formula for break even deficit policy
Borrowing to spend may create a benefit in addition to a cost:  A bridge has commerce-building and personal time value.  It may have property appreciating value.  The value  may be monetized through user fees or property tax increases (or privatization).   Costs need to include interest on the borrowing.  Breakeven must be measured relative to social treasury, effectively meaning that an extra debt level is temporary.  Socializing cost to reward a few is a political theft.

Formula elements within context of suggested natural taxation principles and rates
  • Tax rate on productive income: 33% Personal and business tax rates equal.  Improved deductibility of business losses to encourage investment.  There are no personal deductions with basic income.  Productive income is defined as income that is (re)spent.
  • Tax rate on income that is (or likely enough) horded:  5% personal surtax on incomes over threshold ($100k, but arguably as little as $50k threhold), and 10% on investment profits.
  • Change that policy can have on the hoarding vs spending rates, and specific type proportions benefiting from policy:  Natural taxation encourages investment, basic income encourages entrepreneurship, and reduces need for savings.  Republican kleptocracy encourages hoarding and cost cutting.
  • Additional cumulative growth in dollars created by project/policy.  Can be very hard to predict.  Kleptocratic policy is certain to feign advocacy claiming high growth.  
  • Normalization to present or future value/cost.   Can depend on long term interest rates, or assume a fair safe foregoing of immediate consumption return of 5%.  Still policy can also affect interest rates.
  • Normalization for real vs nominal costs.  Inflation adjustment that affect interest rates. 

To untangle the US's tax code into productive and hoarding tax rates is difficult but can be approximated by the tax rate on GDP, capital gains tax revenues as percentage of major asset increases, and through income concentration/inequality.  Some broad notes on US finances include 6% of GDP is collected from payroll taxes, 8% from income taxes, 1% from corporate taxes, with 16% of GDP in total collected.  Corporate tax revenue is down 33% from previous year while other categories are unchanged.  While the kleptocrats frequently publicize that the top 1% pay a significant share of the income tax revenue, payroll taxes are paid only on wages and only the first 128k in wages.  A decent approximation of productive vs hoarding shares of GDP is that the 15% of payroll taxes on low and medium wages providing 6% of GDP in revenue, means that 40% of GDP goes to the productive while 60% goes to hoarders.

Under natural taxation, the long term productive tax rate is 33% of consumer and government sales, and hording tax rates of 5% surtax on wages and bonuses above $100k, and 10% on investment profits.  Consumer, government and residential construction are 85% of GDP.  Investment gains from stocks/bonds are not included in GDP.  With 2012 statistics, 56% of GDP is wages and bonuses, 27% business profits, and 17% is rents.  About 6% of 2014 households earned over $200k and 25% of all income.  Using an arbitrary guess as to the proportion of high earner's income being wages, 20% would mean that 51% of GDP is productive wages -33% tax rate, 5% is high wages (subject to 5% surtax -38% tax rate ), and 44% hoarder destined income subject to 10% surtax - 43% tax rate

In a $20T GDP economy, natural taxation raises $6.6T as base + $50B from high income surtaxes + $880B hoarding surtaxes = $7.53T.  $4.2T more than current revenue.  Enough to pay a basic income to 300M adult Americans of $14k/year.  A household with 2 earners of $100k each would pay a 19% effective tax rate (including $14k refund) including payroll taxes, and so effectively 12% income tax with current payroll taxes.  They would further be entitled to a 7% pay raise as their employer would no longer be penalized by having to match their payroll taxes, and so even with a 38% tax clawback on that $7k raise, and extra 4.34k after tax raise, and a 7.66% income tax rate apples-to-apples compared to current tax rates.  Furthermore, hoarders would pay $3.78T of the taxes.  All of the UBI funded by them and high earners, and not yet considering government program cuts.  The $4.2T in UBI funded by hoarders means $4.2T in higher spending (if all UBI spent) and GDP which could be split 50/50 in productive vs hoarder benefits.  At an average 38% tax rate, it means $1.6T in tax revenue, $1.6T in productive earnings and potential consumption, and $1.2T in additional after tax hoarding profits.  $3.2T of that $4.2T is a further increase in GDP and potential UBI and spending and additional profits to hoarders.  A 37% increased in GDP with just the rounds so far, and since all of it gets spent until it lands into a hoarder account, $7.4T in additional profits gained for $4.2T hoading taxes paid.  A very substantial benefit of UBI even to hoarders, and the calculation excludes the profits from asset/stock holdings that appreciate much more than the current earned profits.  In addition, lower crime lets hoarders park their lambo in any neighbourhood, UBI lets their kids fund their own education and projects, and their spouses fund their own divorce, and so lets other hoarders spend more of their hoarde which further enhances your personal hoarding.  Its this fact that makes the only objection to UBI the necessity of misery and a harsh environment that forces desperate submission on people because of the belief that the only way you can earn profits is from their exploitation.


Actual Formulas
The effect on GDP of a social project  where all collected tax revenue (directly related to project expenses + multiplied growth) is spent again and where the project's initial distribution between the productive and hoarders is the same as the proportion shared in broader economic spending is simply Project cost / (hoarding rate * (1 - hoarding profit taxation rate)).  For example a project costing $1 with a 40% economic hoarding rate and a 20% tax rate on hoarders will generate $3.12 in GDP (not necessarily all in one year) as long as all tax proceeds are respent.  It will also generate $3.12 in total hoarded wealth.  The lower the hoarding rate and the greater the tax on hoarding profits, the higher the multiplied benefit of a project.  When a project involves giving cronies high tax free profit margins then the project cost element in formula is replaced by proportion of project cost going to non hoarders.

When, instead tax revenue from any multiplied spending should go to repaying the deficit caused by the project then the government joins the hoarders as the drain  on the system.  2 formulas are needed.  First the multiplied GDP impact =  (after tax cost of project - hoarded portion of project) / (1 - (spending rate * (1 - tax rate on spenders)) where the after tax cost of project includes any immediate tax clawbacks on the hoarders and spenders directly benefiting from the project.  For example, if a $1.20 project will generate $0.20 in tax revenue then the after tax cost of project (and deficit increase) is $1.  If the project has no direct initial benefit to hoarders, then 1 is the numerator.  If the project offers a 50% profit margin to political cronies, then the numerator decreases to $0.50.  Multiplied GDP impact is increased with higher spending rates, lower (the inverse) hoarding rates (both initial and economy wide), and the lower the tax rate on spenders.  Increasing the tax rate on hoarding, and encouraging investment tax deductibility (both decreasing hoarding rates) is the easiest way to optimize these parameters.  Under natural taxation, there is a high business tax rate, but also 0 expected taxes paid by businesses.  They can bring tax liability to 0 by paying all profits to shareholders as dividends, or by reinvesting in growth.  They can go back past years to collect refunds on taxes paid for kept surpluses, if they dip into that surplus to pay dividends or investment.  The hoarders receiving dividends if yields are 6%-8% instead of today's typical 3%, are more likely to view dividend payments as "beer money" and increase their own spending rate.

The 2nd formula is Multiplied Tax collection =  multipied GDP impact * ((spending rate * spender tax rate) + (hoarding rate * hoarding tax rate)).  This is the tax collection from a single round of spending times the multiplied GDP impact.  The multiplied GDP impact includes any initial project spending (but would not include it if the project is a tax cut rather than a spending increase).  Maximizing tax collection is most easily done by raising the hoarding tax rate which simulatenously (and by other potential means) lowering the hoarding rate.  Some spender tax rate is also needed but raising this also lowers the multiplied GDP impact which is also a major factor (higher is better) for tax collection.

As a base example, a 60/40 split for spending/hoarding, with 15% effective tax rate on both generates  for a $1 project, a 2.04 (MGI) multiplied GDP impact with 15% initial round collection and so a 30.6% MTI (multiplied tax impact)  $0.306 of the project is recouped in eventual taxes.  The breakeven MTI excluding interest costs is $1.  The current economy spending/hoarding split is closer to 50/50 (worse), and that generates a 1.74 MGI and 26% MTI.

If a 60%-90% business tax rate, and investment incentives were applied such that the hoarding rate could be dropped to 10%, and a 43% tax rate on dividends and other hoarding income (hoarding tax rate), then with a 33% tax rate on spending (STR), $0.856 MTI is recouped.  A 15% STR, recoups 75.7% MTI.  Bringing the hoarding rate down to 20% might be the maximum possible, as most rich/persistently high income people will always have more money than they know how to spend. 20% hoarding rate, 33% STR and still 43% HTR, created recouped MTI of 75.4%.

The maximum possible MTI approaches 1 as tax rates approach 100%.  Only the HTR needs to approach 100% to come close to 100% MTI, because all money/spending flows up to hoarders, and the HTR mainly determines how hoarding income gets split between hoarders and government/society.  The implication is that there is no financial only considered full breakeven from multipliers.

In the last example, if natural taxation can accomplish a 20% hoarding rate, then a 75%+ MTI is achieved.  2.15 MGI split as 0.43 higher hoarder pretax income and $1.72 higher spender pretax income.  After tax, hoarders get $0.24 and spenders get $1.15, and so broad economic improvements are achieved even without treasury break even occurring.

Previously, I considered the theoretical (joke) possibility that a government spending project could have some intrinsic value.  With a 75% MTI, the value brought by a project need only be 25% of the cost.  Current taxation policy of 26%-30% MTI, means that perceived value must be 70%+ of the cost.  For instance a bridge or airport may have the additional 25% cost funded by property taxes and justify residents appreciation the value of personal enjoyment, time savings and freedom provided by the infrastructure project, and then any increased commerce/tourism/jobs enabled by the infrastructure is tax and personal revenue above and beyond the break even level.  When the value hurdle is 70% of the cost, much fewer projects pass the rational appreciation mark.

Policy implications
  • Sales/VAT taxes are a terrible idea because they lower the spending rate.  Encourage more hoarding.  Better to raise income tax rates.  Andrew Yang is the best 2020 presidential candidate for championing UBI, but a VAT revenue approach is flawed in comparison to natural taxation.  Black market activity is best addressed through legalization of the products involved.  It brings substances/services into the taxable market.  Black market transactions are equivalent to hoarding.
  • Business and hoarding tax rate cuts are the worst possible policy direction.  The lower the business tax rate, the more incentive to cut costs and workers, and the greater incentive to avoid expansion investments and instead harvest profits (high tax rates mean high tax deductions for spending and investment).  It further lowers the value of troubled companies with accumulated losses, hastening their total shut down.  Unlike spending increases, deficits created by tax cuts do not have a direct GDP impact (no initial 1x multiplier that is added upon by further MGI).
  • A negative VAT/sales tax can be considered for goods that should be encouraged.  For example, education and renewable energy products.  If a 5% subsidy/cash back can increase private sector consumption of those goods by 10%, then with a 75% MTI, the cost of the program on original sales volume is 1.25%, but the benefit on the extra 10% is (7.5%*0.95 = 7.13%).  With just 2% higher sales from private sector a breakeven is surpassed.  MTI increases tax revenue the same for spontaneous private sector spending and investment as it does for deficit financed government spending with the added bonus of not requiring socialized costs to recoup.
  • Wealth taxes are a bad idea because they encourage leaving and decrease the money supply when emigration of wealth occurs.  There is no reason to leave if you make $1M+ where you live regardless of the tax rate.  Another feature of natural taxation is offering businesses tax refunds for local production and not taxing their export sales (negative local profit), but taxing imports at their full sales value (not allowing offshore production costs to reduce taxable profit).
  • Financial transaction taxes are a bad idea.  Even if asset speculation is entirely a hoarder activity with minimal economic value, that minimal economic value is assisting the maintenance of liquid and stable markets.  Those who make 1000 transactions per day help more than those who make 1 per day.  A very good revenue enhancement idea, in addition to the normal hoarding surtax rates part of natural taxation that encourage asset speculators to apply their talents to a "real job" instead, is an additional profit surtax on financial businesses/institutions.  5% is suggested.  These taxes have no interference in trading frequency, and there is no fairness for being taxed for selling for $1 what you bought for $1.
  • To the extent that climate catastrophe is 10+ years away, the benefits of immediate climate action are potentially enjoyed by future generations, and so inflicting an accompanying debt burden on future generations can be a fair offset to the benefit provided to the future.  A carbon tax and dividend is a revenue neutral, and best possible, and only genuinely effective, climate policy.  Due to dividend, a higher carbon tax can be politically supported.  A downside in the policy is that the dividend decreases as the private sector rapidly exterminates the fossil fuel sector, and cause less carbon taxes get collected.   One/best way to eliminate this downside is to offer a fixed dividend, essentially a part of UBI amount, that remains regardless of how much carbon tax revenue falls as a result of fossil fuel extermination.  The incurred budget deficits are justified by the current economic spending stimulated and future benefit of rapid decarbonization.  Decarbonization as rapidly as possible is a planetary benefit, and temperature targets of 1.5C or 2C are in of themselves meaningless, as are promises/commitments in the far enough future (30+years) for total decarbonization.  Atmospheric carbon is permanent. Hurricanes and forest fires are already bad enough, and current temperatures are enough to cause summer arctic soil and sea bed emissions, and to steadily melt land ice.
  • QE (money printing buy buying bonds from the rich) as has been recently practiced by central banks of US, Europe and Japan are horrible policy except for the maintenance of the financial sector and overall support for asset prices.  The beneficiaries of the increased money supply are 99%+ hoarders, as it is only the very rich who play in government bond markets due to their capital preservation features.  They don't invest their fortunes in lottery tickets.  QE provides a surefire way for the rich to get richer.  Using central bank policy to fund a portion of UBI or ULI (unconditional loan income), instead, provides similar benefits to hoarders and the financial system without directly giving the latter ownership of the increased money supply.  The banks and rich get the funds indirectly/eventually, but after it benefits spenders.  The benefits are created without socialized debt.
  • To expand on the negative VAT for education, primary and secondary education costs an average of $12k/pupil/year.  A $10k UBI per pupil and a 20% cashback/subsidy on education spending would be budget neutral for the treasury and education departments with status quo behaviour and operations.  But education can be vastly improved and personalized, and making the students/parents agents in the purchase of education.  The gifted (possibly the greatest potential for future economic contributions) and challenged can benefit from more personalized curriculums than one targeted for the average age-capabilities.  Some education success is attributable to financial stability in the home and nutrition, and a higher UBI may increase educational outcomes even if most of it is spent on non-direct-education needs.  Computers may be worth more than classrooms.  In the DC area, the average taxpayer cost per pupil is $30k/year.  Either there is a very large administration system for the school board, or outrageously high security expenditures are made.  If it is the latter, then we are paying to force students who don't want to be in school to attend, in a way to forces poor outcomes on all of the students.  Another source of education efficiencies is smaller administrative boards.  Giving parents agency lets them choose a particular education philosophy.  Lower school board expenses can directly translate into smaller class sizes for the same budget, or larger football stadiums if that is what the parents/students value.
  • A 75% MTI means that programs such as UBI (funded with surplus tax collections) cost only 1/4 of the amount distributed.  Reductions in crime and healthcare, lower hoarding rates, increased wages, stability to form families and attempt entrepreneurship all contribute to making the MTI that high or higher, but furthermore support program cuts and reallocation of government labour to a private sector demanding large increases in workers.  All of which are great quality of life improvements that make a jurisdiction a fantastic place to live in, raising property values and that taxation base.  Fulfilling conservative desires to reduce the size of government.  Multiplied surpluses can increase UBI further and reduce public debt and interest costs instead of reducing tax rates which are set to maximize MTI
  • Public healthcare is more justifiable than public education.  Giving the consumer agency in healthcare is not helpful if all of the information is provided by the healthcare provider.  The transactional layer adds a level of confusion cost time and decision that may not be of value.  At the margins, a private healthcare sector that offers supplemental options to a public base healthcare sector can provide value.  Universal healthcare has the same core justificiations as UBI.  Your lifetime anxiety levels are significantly improved if your healthcare expenses are covered, and unconditional fixed insurance payments do not count as anxiety reducing.  But, almost as important as stress reduction benefits, are cost cutting/control opportunities/benefits.  The US healthcare industry has a very high hoarding rate protected by lobbying.
Comparison to Keynes work
The Keynes multiplier formula is identical to the first formula in my formula section with the exception that hoarder/spender tax rates are distinguished, and I ignore the propensity to import.  There is no famous equation for MTI = returned tax revenue as a result of the multiplication of fiscal policy.

The case for ignoring the propensity to import:

  1. In a global economy there are no imports.
  2. A rich nation with high imports raises the standard of living in exporting which accomplishes:
  • Creates export markets for food energy and commodities (at least) and potential demand for domestic finished goods and software.
  • Gives poor people in those nations employment opportunity which prevents resentful sentiments if they were to immigrate to your heaven.
  • If your importer nation is a hedonistic heaven and the exporter nation a shithole, then the hoarder class from the shithole may want property and education services in your heaven.  There exists a massive private infrastructure opportunity to develop empty land so as to provide housing for all who want to come to your heaven, and an even better opportunity when they are rich hoarders.
These points guide appropriate housing policy that is a great departure from current terrible policy.  First, the socially optimal housing policy is one that maximizes total land value.  The simcity game formula.  A contrary force to this policy is that hoarder land owners want to maximize their/average developed property values, and doing so means opposing all other development so that those who want to move here are forced to outbid each other for the land owner's property.  Policy that is utterly devoted to hoarders who vote, while doing stupid things to appease the poor's (who vote less) misinformed concerns is what is pursued.

Gentrification, the rise in existing property values, of a neighbourhood is always a good thing for society.  One way to fight/counteract gentrification is to increase the number of stabbings, muggings, burglaries, shootouts, vermin and zombie-themed cannibalism.  These are bad things, but will decrease property values.  Affordable housing through subsidies is an expensive program that always creates a lottery where a few lucky winners who would use market housing instead are given subsidized housing, and often housing mismatched to their needs.  If they luckily get cheap housing larger than they need, this wastes the total subsidized housing stock.

The right housing policy in expensive markets is to let the private sector build to the most profitable high end demand, while the public sector overbuilds market affordable housing that is affordable because it is small and dense, with potentially shared ammenities, rather than zombie infested.  UBI is a massive enabler to expanding total property values. There is no obligation for public sector construction/activities to use "overpaid" union labour and oversight processes with heavy reporting layers.  Public sector construction could double as apprenticeship/training services that provide experience to enter private sector construction.

The point is that construction is a massive economic opportunity for expanding population, and transitioning to a renewable energy economy.

Going back to Keynes, times have changed since his work for kings and the genesis of the new deal.  There are political forces that embrace every deficit project as though it is a massive employment program in a high unemployment economy for its Keynesian effect, and use this as cover for kleptocracy.





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