The financial markets calculate the present value of future government revenues in order to determine creditworthiness.
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The present value of future federal revenues is exquisitely sensitive to the rate of economic growth.
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At a 3.0% GDP growth rate, the present value of future federal revenues equals infinity.
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But there are well established appraisal methods to measure the present value of future benefits through capitalized income streams.
Accordingly, to pay for itself, a tax cut must increase the present value of future GDP by increasing real economic growth.
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The entitlement numbers are calculated as the present value of future promises less future taxes (at present rates) to cover them.
One guide might be the net present value of future tax payments, minus the net costs of public services disbursed there.
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As long as the present value of future federal revenues was increasing faster than the federal debt, everything would work out.
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The Woodhill Curve shows the combinations of tax take and real GDP growth rate that produce the same present value of future Federal revenues.
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Crucially, it states that the present value of future liabilities must be calculated by using the yield on long gilts as a discount rate.
The root issue I have with gold is that its price is based not on the present value of future cash flows but supply and demand.
At average annual real economic growth rates above the real interest rate on federal debt (about 3%), the present value of future federal revenues is infinity, regardless of tax rates.
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Tax reform proposals should be assessed based upon the present value of future federal revenues, and not on the revenues that they are expected to bring in during the current fiscal year.
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In both cases what really makes the entity valuable and successful is the very special way the intangibles and tangible assets come together to generate a present value of future net income.
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Moroney argues that with low interest rates and low inflation, the present value of future profits goes up and so do the multiples investors are willing to pay for companies with higher profit growth.
Just as the price of a share should equal the discounted present value of future profits, so the price of a house should reflect the future benefits of ownership either rental income or the implicit rent saved by an owner-occupier.
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Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier.
The lower the interest rate, the higher the present value of those future payments.
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Today, that makes the present value of your future social security benefits a very valuable asset.
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With higher interest rates, the discounting reduces the present value of those future income (or psychic benefit) streams.
The theoretical value of a company is the present value of all future cash flows that will accrue to shareholders.
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It states that the value of any investment is the present value of all future cash flows discounted by a risk factor.
The present value of those future payments is now very high.
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The classic way to value businesses, which has kept many a professor sketching formulas on the blackboard, is to compute the discounted present value of their future cash payouts.
Measuring economic costs weighs the expense of both vaccination and illness against the net present value of the future earnings of someone who would otherwise die from the disease.
The financial markets would value Laffer Shares in the same way that they value all other equity shares, which is based upon the present value of expected future cash flows.
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They have discussed using some of the money raised for a one-off payment to the state, representing the bank's estimate of the present value of its future profits up to 2014, when the special dividend is due to be scrapped.
The popular idea that a company is no more than the net present value of its future cash flow depends on guessing first what that cash flow is going to be, and then what future interest rates are going to be.
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Just as the value of a company's shares should equal the discounted present value of its future profits, so the price of a house should reflect the future benefits of ownership, either as rental income or in the rent saved by an owner-occupier.
Based on the assumption that all future generations will have to pay the bills that today's generation has left behind, Mr Kotlikoff tries to measure the present value of net future taxes (that is, taxes to be paid minus benefits, such as pensions, to be received) for individuals of different ages over their remaining lifetimes and, collectively, for future generations.
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