The Perfect Tesla Raffle

[brucet999]

First, putting a price on carbon absolutely could be done with a tax. But there are political problems with a tax. After decades of people feeling like government is ripping off their money (and, sadly, so many cases of genuine waste, of money redirected from the purpose voters approved to purposes closer to particular politicians' hearts, etc.), taxes are hard for people to sign up for. Even if the tax is small, or the overall burden is less than 40 years ago, or, or, or. In MA in particular, the Republican governor, Charlie Baker, doesn't want to be involved with a new tax.

That said, there is a legal and real difference between a tax and a fee. Although in the public mind they may all be conflated as "tax". So in MA, S.1747 proposes a fee rather than a tax. The fee is paid by the importers of fossil fuels into Massachusetts.

Now, what to do with this money? The cynical among us -- including even me -- would argue that the pot of money is too tempting. We'll start off with a discussion of all the good things we could do with this money and wind up allocating money to feel-good make-work projects. While I'm actually a person who believes that unions serve a useful purpose for their members and society, I'm not enthusiastic about diverting money to the traditional labor agenda, which appears to me to always involve dubious infrastructure projects that are required to hire union-only staff. So Climate XChange advocates -- and S.1747 implements -- a rebate program that returns all of the carbon fee revenue to the individuals and businesses of Massachusetts. OK, all except an administrative program overhead, which we expect to be very small (e.g., around 1% or less).

When we looked at changing the income tax rate downwards, we found that the overall impact on people was very small. It's hard to move the income tax rate downwards in a significant way when the money we're talking about here is small relative to the overall economic pie in MA. I'm making these numbers up but let's say for example that today's income tax rate in MA is 5.95%; maybe we could move it down to 5.90%. That's hardly emotionally or even financially appealing.

So that means that in MA we are pairing a carbon fee with a rebate. Checks will get cut to the residents and to the businesses.

I hope this answer helps.

Also... thanks for your kind words! And thank you for supporting Climate-XChange and our Carbon Pricing Awareness Raffle!

Alan

I don't get how the bill does any good at all. What am I missing here?

As near as i can tell, it would put a tax on imported fuels (calling it a fee is dishonest, since there is no benefit derived from paying that "fee"), thus making them more expensive and then rebate the revenues to state residents, less administrative costs. Businesses don't pay taxes, their customers do, so there would be no reduction in profits leaving the state.

If rebates are allocated per capita, then those who must burn more fuel to earn a living (tractor operators, truck drivers, hot-tar roofers, tradesmen, etc.) and poor people whose older cars burn more gasoline to get to work, will pay more than they get back.
If it is on usage basis, then the compliance burden to get rebates (saving receipts, filling out forms, etc.) will be huge and again the poor who can't afford accountants to help, will get back less than they should. Poor people can't afford electric cars or even hybrids, so to the extent that the carbon tax encourages more efficient vehicles, only the well off will benefit. Poor people also aren't in a position to afford changes in their home heating systems, so once again they would lose.

Whatever the rebate rules, the overhead losses will be much more than 1%. Government just isn't that efficient in the first place and fraudulent rebate claims will eat up a sizable part of the money.

 

[ModelS1079]

I don't get how the bill does any good at all. What am I missing here?

As near as i can tell, it would put a tax on imported fuels (calling it a fee is dishonest, since there is no benefit derived from paying that "fee")...

The fee is revenue neutral, hence a fee not a tax. One person gains, one pays. Good news: the guy with the Tesla gains.
I got my ticket. Crazy good raffle!

 

[brucet999]

The fee is revenue neutral, hence a fee not a tax. One person gains, one pays. Good news: the guy with the Tesla gains.
I got my ticket. Crazy good raffle!

Revenue neutral does not a fee make. Lots of taxes have been passed as revenue neutral. All of welfare is based on "one person gains, one pays" but the payers pay in taxes. This "fee" confers no benefit on the payer, so it is a tax.

 

[Tedkidd]

For folks curious about Revenue Neutral Fee and Dividend and how to get involved, the first step is information. The second step is signing up for periodic updates. The third step is spreading the word. This is very grassroots. Here are some great resources:

Dr. Hayhoe June Conference Keynote - YouTube

Carbon Fee and Dividend - Citizens Climate Lobby

Create an Account | CCL Community

This is non-partisan. There are actually a number of Republicans who support this. Bob Inglis is one of my personal favorites, he's a brilliant orator.

We need to remove the ability to belch and burn for free, without cost, that's the one that causes market distortion...

My college major was Economics, I really like the free market nature, and the idea of beginning to charge a fee on unpriced externalities caused by using the air and atmosphere as a free garbage dump.

This is a cool way to begin to recover and properly price damage to the commons created by polluting industries in a fair, gradual, and non-disruptive way.

 

[Dr. Pete]

I'm not a CPA, but as I understand it, the $36,370 to pay the taxes is itself taxable. Thus the winner who receives a $100,000 car plus $36,370 for taxes must declare an additional taxable income of $136,370. CPAs, please weigh in on this.

 

[Tedkidd]

I'm not a CPA, but as I understand it, the $36,370 to pay the taxes is itself taxable. Thus the winner who receives a $100,000 car plus $36,370 for taxes must declare an additional taxable income of $136,370. CPAs, please weigh in on this.

Don't need a CPA - it's covered under "tell me more about the raffle?". There is an extra $9k for that.

Federal Taxes:[SUP][1]
[/SUP]Climate XChange will pay the Internal Revenue Service, on behalf of the Grand Prize Winner, an amount equal to 33.33% of the total value of the prize. For non-cash prizes, the Winner must normally pay the raffle sponsoring organization 25% of the fair market value (FMV) of the prize minus the amount of the wager (i.e. the price of the ticket). The raffle sponsor in turn forwards that money to the IRS. However, in this situation, where CXC, as part of the prize, pays the taxes required to be withheld, it must pay tax not only on the fair market value of the prize less the wager, but also on the taxes it pays on behalf of the Winner. This results in a grossed up prize requiring the use of an algebraic formula. Under this formula, the organization must pay withholding tax of 33.33% of the prize’s fair market value.

 

[wdolson]

I'm not a CPA, but as I understand it, the $36,370 to pay the taxes is itself taxable. Thus the winner who receives a $100,000 car plus $36,370 for taxes must declare an additional taxable income of $136,370. CPAs, please weigh in on this.

The IRS has a separate rate if someone pays the taxes on a prize which is higher than the normal rate on winnings. The rate on prizes is 25% and if the awarder of the prize pays the taxes, it's 33%, but it really comes out of the math. If you get a prize worth $100,000, you would normally owe $25,000 taxes, but if the awarder gives you the $25K, you owe 25% on the extra $25K which is $6250, if they include that, you owe 25% on the $6250, and so on until you're down below pennies for each increment. If you add it all up, I believe it comes to 33% of the original prize amount. I haven't done the math, but I've done these sort of calculations and eyeballing it I would guess the total would be around 33%.

 

[Dr. Pete]

Thanks for answering my tax question

Having never won a raffle, I could not figure out how the winner could avoid federal tax on the amount he or she received to pay that tax. Thanks to Tedkidd and wdolson, the answer seems to be that the IRS uses some fancy footwork (via an algebraic formula) to charge the raffle 33.3% of the FMV of the prize, rather than 25% that would otherwise be due, letting the winner off the hook while giving the IRS more than it would receive if the winner paid the tax. In this case the IRS gets more than its "pound of flesh."

Don't need a CPA - it's covered under "tell me more about the raffle?". There is an extra $9k for that.



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[wdolson]

Having never won a raffle, I could not figure out how the winner could avoid federal tax on the amount he or she received to pay that tax. Thanks to Tedkidd and wdolson, the answer seems to be that the IRS uses some fancy footwork (via an algebraic formula) to charge the raffle 33.3% of the FMV of the prize, rather than 25% that would otherwise be due, letting the winner off the hook while giving the IRS more than it would receive if the winner paid the tax. In this case the IRS gets more than its "pound of flesh."



t

If you win, you're off the hook as far as having to come up with the money, but the prize will show up on your taxes as prize income. I think you have to deal with an extra form and you'll receive a 1099G from ClimateXChange. You also would have a tax rebate coming for getting an plug in car which is $7500 on the federal level and some states have additional rebates. The downside of the rebates is if your tax bill is less than $7500, it will zero out your income tax liability for the year, but you can't carry over anything left over.

In any case, you may owe your accountant or tax preparer a bit more money for a more complex tax return, but you will be getting money from the government.

 

[ItsNotAboutTheMoney]

The IRS has a separate rate if someone pays the taxes on a prize which is higher than the normal rate on winnings. The rate on prizes is 25% and if the awarder of the prize pays the taxes, it's 33%, but it really comes out of the math. If you get a prize worth $100,000, you would normally owe $25,000 taxes, but if the awarder gives you the $25K, you owe 25% on the extra $25K which is $6250, if they include that, you owe 25% on the $6250, and so on until you're down below pennies for each increment. If you add it all up, I believe it comes to 33% of the original prize amount. I haven't done the math, but I've done these sort of calculations and eyeballing it I would guess the total would be around 33%.

It's an example of an infinite geometric series:
a + ar + ar^2 + ar^3 ...
a is initial value and r is a multiplier between terms.
Here a is the prize value, and r is the tax rate. As you note, they give you the prize (a) also give you the tax on the value (ar), so then they have to give you the tax on the tax on the value (ar^2), ad infinitum.

The sum of an infinite geometric series with initial amount a and multiplier r, where -1 < r < 1, is a/(1-r).
For each $1 you win (a = 1) and 25% tax (r = 0.25), so it's 1/(1-0.25) = 1/0.75 = 1 1/3. Deducting the base prize value of $1, the rest is the prize amount you're given to cover your tax, giving you an effective tax of 1/3, or 33 1/3 %.

 

[ModelX]

I would be very happy to win and deal with this!

 

[Pollux]

OK, I'm blown away to come back to this thread this evening and find this discussion about the tax rate! Wow, great going, guys! Between the research on the web site, the opinions, and @ItsNotAboutTheMoney's series summation, the answers given have been more effective and detailed than I could have given. I particularly have to confess that I've never done the series analysis, although the IRS' phrase of using "an algebraic formula" has always annoyed me as being vague and even a bit condescending.

Anyway, thank you, @TedKidd, @wdolson and @ItsNotAboutTheMoney.

@DrPete - just want to be sure you understand that, at the end of the day, none of this is a legal guarantee of anything about your own tax situation. If you want advice like that, you'll need to consult your own tax attorney or accountant. And given how widely tax situations can vary, Climate XChange can't make a guarantee as to how this will all net out at the end of the day. That said, and as has been observed, I do expect that with the additional benefits of the federal EV tax credit @ $7500 and possibly a state tax credit, the winner should wind up sitting in a good place: owing a relatively small number of dollars to the US and/or State, owing nothing, or even winding up net positive. I just can't put that as a guarantee. Oh, and the IRS even has instructions on what number you write in for the value of the prize, and where you write it into; I'm afraid I don't have that information handy at the moment, though.

@ModelX - if you win, I'd be very happy to have to fly out to Utah to personally give you advice about how to configure the car.... while we are skiing....

 

[bhuwan]

If you are looking for a companion on the trip to Utah call me

 

[wdolson]

OK, I'm blown away to come back to this thread this evening and find this discussion about the tax rate! Wow, great going, guys! Between the research on the web site, the opinions, and @ItsNotAboutTheMoney's series summation, the answers given have been more effective and detailed than I could have given. I particularly have to confess that I've never done the series analysis, although the IRS' phrase of using "an algebraic formula" has always annoyed me as being vague and even a bit condescending.

Anyway, thank you, @TedKidd, @wdolson and @ItsNotAboutTheMoney.

@DrPete - just want to be sure you understand that, at the end of the day, none of this is a legal guarantee of anything about your own tax situation. If you want advice like that, you'll need to consult your own tax attorney or accountant. And given how widely tax situations can vary, Climate XChange can't make a guarantee as to how this will all net out at the end of the day. That said, and as has been observed, I do expect that with the additional benefits of the federal EV tax credit @ $7500 and possibly a state tax credit, the winner should wind up sitting in a good place: owing a relatively small number of dollars to the US and/or State, owing nothing, or even winding up net positive. I just can't put that as a guarantee. Oh, and the IRS even has instructions on what number you write in for the value of the prize, and where you write it into; I'm afraid I don't have that information handy at the moment, though.

@ModelX - if you win, I'd be very happy to have to fly out to Utah to personally give you advice about how to configure the car.... while we are skiing....

If I'm lucky enough to win, you can ski Mt Hood while you're here. It boasts the only ski area in North America open 12 months a year (though it had to close for a couple of months this year because of the drought). It's a little over an hour from here.

Tesla just built a supercharger in Sandy, OR so people can top up before the 6000 ft climb to Timberline Lodge.

 

[ModelX]

We have great skiing and I would be open to advice, or tesla talk time!

 

[McHoffa]

I was an early buyer on this one. Purchased a single ticket on 9/29.

I don't plan on buying a Tesla until either next fall or when the M3 arrives (depending on how I feel after seeing the M3). Winning this would be a great late Christmas/birthday present

 

[Pollux]

Yes! Timing was quite deliberate.... late Christmas/Hanukkah/Kwanzaa gift, New Year's... and also birthdays! Especially yours!

I was an early buyer on this one. Purchased a single ticket on 9/29.

I don't plan on buying a Tesla until either next fall or when the M3 arrives (depending on how I feel after seeing the M3). Winning this would be a great late Christmas/birthday present

 

[HeWhoRoams]

Hey Pollux, are you able to tell us how many tickets have been sold thus far? I'm guessing since the page is still up, there are still some available?

 

[palmer_md]

Does anyone know how many tickets sold so far?

Hi, @brucet999,

Obviously, I have that data but at this point am choosing not to disclose it. I may put it out there much later, e.g., in late November or early December. No promises, though.

Also, if/when I do publish that information, I'll do it on the raffle website itself, so that everybody can see it at the same time. It doesn't seem fair to me to disclose that kind of information in only one forum, and there are too many places now where people are discussing this thing for me to keep track.

Ask me a different question... hopefully you can see from this thread that I'm happy to engage/respond.

Thanks,
Alan

Hey Pollux, are you able to tell us how many tickets have been sold thus far? I'm guessing since the page is still up, there are still some available?

See the earlier response....

 

[HeWhoRoams]

Thanks, I haven't been able to digest all 14 pages