Tuesday, 11 August 2009

Flat tax and the Chevy Volt

Over on Liberal Conspiracy Tim Worstall is duking it out with the progressives in the comments, pimping the idea of a Flat Tax system.

Rather than having several tax rates depending on income, there's just one flat tax rate, and a sizable untaxed allowance.

Some of the lefties are saying its not a progressive tax, and Tim's defending that it is. I guess the problem is that its not progressive enough to satisfy. Its that untaxed allowance that makes it so great and progressive - the poor pay less.

Here's a graph showing the rate of tax for various income levels under three different tax regimes (the current tax system, a flat tax of 30% with an allowance £12,000 and my own flat tax plan 45% tax rate with an allowance equal to the median income of £25,000)

I reckon there are merits to having a really high allowance and a really steep rate, it kind of encourages the folk who decide pay levels to pay the underlings more, rather than raising their own salaries, that thought at the back of the mind that if the underlings get the money, then the government will get less money through tax than if the more highly paid people got the money. But that's just my philosophy. The underlings will undoubtly spend the money rather than save it and eventually it ends up in the treasury's coffures.

For future governments, if they find they need more or less money, they have the two options of changing the tax rate, which will lead to rich people leaving the country or coming here depending on the change, or they can change the allowance which will lead to more or less middle class people voting for them depending on the new allowance.

There's a problem in conveying the merits of each tax scheme in a single number, if you say the latter flat tax rate is 45% then the middle classes shudder, but if you say its 20% then the lefties moan that it doesn't tax the rich enough. And if you have a system with lots of different different tax bands and tax reliefs and all that then its horrendously expensive to implement, this is what we have at the moment.

Elsewhere on the internet the Chevy Volt is trending because the American EPA are giving it a 230 miles per gallon rating, the first vehicle to achieve a triple digit mpg.

My first thought was "hang on, the Chevy Volt is an electric vehicle, it doesn't use gallons of any fluid fuel". My mistake, its a hybrid, it's electric batteries give it a range of 40 miles before the gasoline engine kicks in. The gasoline engine gives it efficiency of about 50mpg.

This is the same graph as the flat tax, the initial all-electric range is the tax free allowance, and after that the gasoline engine mpg is the taxable income, and its nothing special. I get 60mpg in my Smart car, sometimes 70mpg if I'm on the motorway.

This 230mpg figure comes from including the electric only range, if you drive 55 miles, only the last 15 miles uses gas, and thats where 230mpg comes from. If the drives does 300 miles fuel efficiency is only 62mpg.

So aye, I reckon claiming 230 miles per gallon is misleading, and pretty dishonest.

That sort of thing is just going to lead to car companies developing greater battery capacity to increase the electric-only range, when in the great scheme of things, improving fuel efficiency would mean making the electric motor more efficient. They ought to be pimping some measure of miles per watt hour for the electric drive chain and also the miles per gallon for the gasoline engine, rather than pimping just the single misleading number.

Another thing to consider is when the future finally arrives and we're all driving electric cars, how will the state charge fuel duty on electricity?

1 comment:

  1. ON the leccy car; yup that's dishonest. Presumably if you never went far from home, your mileage would be infinite.

    The answer is simple - rate it on grammes of Co2 emissions per mile, calculating the amount of CO2 created in making the electricity. Then you can turn the g/CO2/mile back into an equivalent fuel consumption.

    No doubt by the time all electric cars are commonplace, road pricing will be everywhere and can replace fuel duty.