Editor’s note: We were sent this analytical piece by an astute concerned reader. Always eager to provide an opposing view, we agreed to run it. You are now informed. Go and do likewise.

If there’s one thing that is in perpetuity it is the changes to the Karlsfield, VT town motto.

On the surface, paying $11,450 to generate $2,000 in tax revenues seems preposterous. Adding $17,500 in bumper sticker costs does not make the decision any more favorable, for $28,950 in costs today to save $2,000 is typically considered a poor investment.

However, there is not only today, but also tomorrow. And the day after that, and the one after that, and so the years pass by. Suddenly, when one thinks about the overall savings that could accrue in Karlsfield’s existence, the decision to conduct the audit may not seem so ludicrous. Indeed, using the present value formula for a perpetuity (or an annuity), which is what the $2,000 in tax revenues essentially is, will show precisely this result.

The formula represents the present value of the tax revenue flows if they were to continue forever. C is the amount of tax revenue flows per year and r is the interest rate. We know that the amount of tax revenue flows is $2,000, and let’s assume that the interest rate is 0.015. If this were to be true, and who in Karlsfield today can remember a time when Karlsfield didn’t exist, then the present value of the tax flows is $133,333.33. Who wouldn’t spend $28,950 today to gain $133,333 in the future?

Now, suppose something happened, not to Karlsfield itself of course but the world gets hit by an asteroid or some such poppycock, and Karlsfield lasts for only 100 more years. The new formula is which is slightly more daunting but still manageable. C and r are the same as before, and n is the number of years in our example. The term k … well, trust me on that and the Greek sign. The present value in this example, where only 100 years are left, is still $103,249.40! A bargain at the cost of $28,950!!! Indeed, my analysis shows that Karlsfield will break even in the 17^th year. Once again, who does not make this deal? If only all politicians were as fiscally sound as those in Karlsfield!

All of my analysis should be considered with a caveat, for things can change. For instance, if the interest rate rose to 5% (and the Fed has shown rates can rise), then the payoff to the audit and bumper sticker campaign is not as large. However, tax rates could also rise, and politicians the world over have shown that to be true, which could mean that the $2,000 in tax revenue may rise, making the $28,950 seem like loose change.

Of course, the most likely change is that homeless do without haircuts, meaning there are no tax revenues, the politicians just blew $28,950 that was spent on the audit and bumper stickers, and long haired homeless folks roaming Karlsfield Square.

Signed: A 3-handed economist

Countersigned: Pierre Andre