Article/Jia Kang of China Economic 50 People Forum
Tax reduction is a common option of the United States and China, and both have accumulated rational knowledge and experience. However, the tax system structure of China and the United States is quite different. China should never "imitate others" or "learn to walk in Handan" in tax reduction.
Both the United States and China need to reduce taxes, but China must avoid "imitating others" Recently, the Trump administration of the United States announced a tax reduction plan. Some media said that this would set off a worldwide tax reduction trend. People are also concerned about the possible "competitive" impact and even "impact" of this measure on China. At the moment, there are different opinions. My basic opinions are as follows.
1、 Tax reduction is a common option of the United States and China, and both have accumulated rational knowledge and experience
As early as the 1980s, the United States had the practice of tax reduction guided by the so-called "Reagan Economics"; Since the beginning of reform and opening up, China has been pursuing the strategy of "reducing taxes and profits, invigorating enterprises" - all of which have accumulated relevant experience and achieved positive results.
At present, against the background that the negative impact of the world financial crisis needs to continue to be eliminated, the new President of the United States, Trump, needs to fulfill his campaign commitment to "return the United States to greatness" and "large-scale tax cuts". China needs to understand, adapt to and lead the "new normal", deepen supply side structural reform, further streamline administration, delegate power and reduce taxes, This is the common manifestation of the tax orientation of the two economies. As a common option, the underlying academic supporting factors are the same: tax cuts are needed to further reduce the actual burden of market players, and stimulate the potential and vitality of entrepreneurship and innovation on the supply side.
The "Laffer curve" uses the curve method of quantitative research to qualitatively indicate the existence of an optimal (macro) tax burden point, at least in principle. If it goes beyond this point, although the tax rate is designed higher, in fact, the government's income will tend to decline, and economic activity will obviously tend to decline. Therefore, policy makers in real life must wisely reduce the tax burden factors that may exceed this point in order to optimize economic operation. At the same time, in the medium and long term, this will also optimize government revenue.
At the level of government design, the United States has the experience of the tax reduction program under the supply school policy for reference, while China has the experience of "structural tax reduction" represented by "replacing business tax with value-added tax" in recent years based on tax reduction and profit concession and tax system reform for more than 30 years, and the arrangements for its continued implementation.
2、 It is a high probability event that the United States achieves certain results by reducing taxes
Trump's assumption of office was called the "Black Swan Event" to indicate that his election victory was quite unexpected. His tax reduction commitment and the implementation plan that was clearly announced a hundred days after taking office reflect his policy design orientation based on personal experience as an entrepreneur who has been in the forefront of market competition for a long time, and his clear attitude to respond to the demands of the majority of market subjects as the president.
It is estimated that in the process of implementing the current tax reduction plan in accordance with the decision-making procedures of the United States, it will also be subject to the constraints of Congress and other aspects. It is not ruled out that there will be some adjustments in the plan. However, it should be a high probability event that the tax reduction plan is passed after appropriate "polishing" and has achieved results after implementation.
However, as a "double-edged sword", tax cuts will also increase the pressure on the deficit and public sector debt of the United States. If coupled with the large-scale infrastructure upgrading and construction that Trump has clearly stated to promote, the pressure will be even more considerable. Objectively speaking, due to the fact that the principle of "three paradoxes" of finance (see Jia Kang and Su Jingchun's "three paradoxes" of financial distribution constraints and their mitigation path analysis, Fiscal Research, 2012, Issue 10) reveals the realistic constraints that "tax reduction, increasing public expenditure, and controlling government debt and deficit levels can only achieve two goals at most at the same time", The Trump government also needs to carefully consider and weigh, and grasp the critical point of its tax cuts, increased infrastructure spending, deficit control, and debt risk.
It is estimated that PPP (public-private partnership, which is now called "cooperation between the government and social capital" in China) will therefore attract more attention and be more vigorously implemented in the United States, so as to help it balance the shift of the critical point and strive to "spend less, do more and do well"; In addition, it should be pointed out that the unique "US dollar hegemony" in the world, that is, the dominance of the world currency, can also provide Trump with favorable conditions to relax the constraints of his own fiscal "triple paradox" on the matching of the above-mentioned "New Deal", because of the risk factors brought by the resulting higher deficit and debt levels, To a large extent, it can be dispersed to the dollar asset holders of all economies in the world (including China) to digest and bear jointly - of course, this sharing mechanism only expands the "tolerable" boundary, and cannot deny the ultimate restriction of the "ternary paradox".
3、 The Chinese side should "follow the trend" to further reduce taxes, but the most important thing is to reduce the burden under the concept of "panorama"
In the era of globalization, the interaction between international cooperation and competition is objective and inevitable. Trump's tax reduction will also attract market entities including China to choose the direction of "factor flow" to adjust the expected institutional competition pressure, so that the relevant departments in China will pay more attention to the actual, good and sufficient tax reduction. It seems that it is not impossible to call this interaction "tax reduction competition".
However, China should not be afraid of this "tax competition" in international cooperation and competition, because China does proceed from its own development strategy, and also has the need to further reduce taxes and corresponding certain flexibility. In particular, the "factor flow" competition between China and the United States will not be determined by only one tax factor, which also widely involves the "high standard legal business environment" Many other factors under the concept, and other "comparative advantage" factors objectively determined by the development stage of national conditions.
The reduction of tax burden in the United States will objectively form an external promoting factor for China's tax reduction, but more importantly, the relationship between "tax reduction" and "burden reduction" in China is much more complicated than that in the United States, and a "panoramic view" must be established.
In terms of China's "positive tax" burden (in the narrow sense of macro tax burden), China is now less than 20% of GDP, not higher than the United States, but when it comes to the "non tax burden" of government administrative charges, social security "five insurance and one fund" payment and other burdens (combined with the broad sense of macro tax burden), China is close to 35%, not low, In particular, the actual burden of these numerous extra tax burdens on market entities also involves and includes the hidden costs and comprehensive costs, such as the time cost that is not counted, the energy consumption in bargaining "dealing with relationships", and "managing expenses" - which are obviously incomparable weaknesses of both sides in China.
China should make up its mind to reduce the burden by deepening the supporting reform - I think it must be pointed out that "tax reduction" in China does not represent the whole problem of reducing the burden of enterprises, or even the most important problem of reducing the burden of enterprises. The key is how to "bite the bullet" under China's "panorama" to reduce the burden of enterprises beyond the normal tax and do a good job.
4、 The tax system structure of China and the United States is quite different, and we must not imitate others or learn to walk in Handan
Trump's tax cuts are mainly to cut corporate income tax and personal income tax. China can't learn from "painting the tiger like a cat" because the standard tax rate of corporate income tax in China has already been reduced to 25% for large enterprises, the general "halved collection" for small enterprises, and the "three exemptions and five reductions" widely provided by local governments, Where is the space for the United States to adjust from 35% to 15% (initially determined, may not be reached)?
As for China's personal income tax, it is totally different from the United States. The United States accounts for about 47% of the federal government's tax revenue (and also contributes about 10% to the state and local governments). In China, it has already been marginalized and only accounts for about 6% of the total tax revenue. How much room is there for reducing this tax?
China's tax system structure is a framework with indirect taxes (value-added tax, consumption tax, etc.) as the main body. We need to learn from the U.S. tax cuts. In this field, we don't need to emphasize "learning" anymore. We have fully covered the "replacing business tax with value-added tax" we should do. The real task of learning is how to learn from the experience of the United States (also the common experience of general market economies), To truly implement the tax system reform task of "gradually increasing the proportion of direct taxes" specified at the Third Plenary Session of the 18th Central Committee of the Central Committee of the Communist Party of China - although it is extremely difficult and needs to "break through the barriers of interest fixation", if China wants to move towards a modern society and build a modern tax system, this is the path of no choice.
If we can truly build and cultivate a direct tax system with the functions of "automatic stabilizer" and "fat pumping and thin compensation" to optimize the redistribution of the whole society, China will also have the "cost" and possibility to further consider reducing the burden of indirect taxes. In this way, when it comes to the lessons that China should learn from the US tax cuts and tax system, where can only be summed up by the word "tax cuts"? In China, it is actually a supporting reform task of tax reduction, burden reduction (extra tax burden) and appropriate tax increase (direct tax increase).
There are allusions to "imitating others" and "learning to walk in Handan" in Chinese idioms, which means that the ancestors have already summed up the lesson of "drawing a tiger is like a dog", and emphasized that a reasonable and correct learning plan should be formulated based on their own actual situation, "comparative advantage" and possible space. The "learning" reaction of China that Trump's tax reduction measures should bring should be such a view!
(The author of this article introduces: member of the National Committee of the Chinese People's Political Consultative Conference and researcher of the Chinese Academy of Financial Sciences.)
