Article/China Economic 50 People Forum Jia Kang originally published in China Daily
In the face of the "Trump tax cut impact", China can and should "turn pressure into power" to better meet the people's demand for a better life with supply side reform.
Is tax pressure or power for us The tax reduction plan promised by President Trump during his election campaign has recently passed its legislative framework in the House of Representatives and the Senate of the United States. Once the final version of the two versions is reached through mutual consultation, it will come into force through voting and the President's signature. This matter has once again aroused global attention and heated discussion among all parties.
As the No. 1 power, the "spillover" of this tax cut and the external impact on China are self-evident. However, in the context of global international cooperation and competition, China can "turn pressure into power", more actively "do its own thing", and promote the win-win and multi win development of "a community with a shared future for mankind" in the interaction with major trade partners such as the United States, Japan, and Europe. Specific analysis should point out the following basic understanding:
1、 Tax reduction is a common option of China and the United States, and both have accumulated rational knowledge and experience
The United States had the practice of tax reduction under the guidance of "Reagan Economics" in the 1980s, and China has also striven to implement the strategy of "tax reduction and profit sharing, invigorating enterprises" since then, which has achieved positive results. At present, in the context of further eliminating the negative impact of the world financial crisis, the United States should promote its "re strengthening" with tax cuts, and China should lead the "new normal" with tax cuts to deepen supply side structural reform. This is the common orientation of the two economies, and the underlying theories agree with the logic of "tax cuts - incentives - optimizing economic operation" revealed by the "Laffer curve". In this general direction, there is no difference between the two economies.
2、 The tax system structure and tax reform progress of China and the United States are different, and the strategies for optimizing the tax system must have different priorities
Trump's tax cuts are mainly to significantly reduce the burden of corporate income tax and simplify and cut personal income tax. Correspondingly, compared with the situation in China, the standard tax rate of corporate income tax has been reduced to 25% many years ago, and has always been preferential to 15% for high-tech enterprises. In recent years, it has been clearly stipulated that the effective tax rate for small and medium-sized enterprises will be reduced to 12.5% by half, as well as the "three exemptions and two reductions" and other preferential policies of the local government, all of which are ahead of the United States.
As for individual income tax, after the previous round of individual income tax reform raised the "threshold", the income of this tax has been reduced to about 6% of the total tax revenue, which means that it has been significantly marginalized, which is totally different from the pattern of the U.S. individual income tax accounting for about 47% of the total federal government income.
For the further tax reduction under the concept of "regular tax" in China, the possible space for enterprise income tax is not large, while for individual income tax, it is necessary to consider the tax system reform towards the new framework of "combining synthesis with classification". In addition, China's tax system structure is dominated by indirect tax, which is quite different from the direct tax in the United States. After the introduction of the indirect tax reduction reform of "replacing business tax with value-added tax" in an all-round way, in order to optimize the tax system, China cannot but consider gradually increasing the proportion of direct tax in the tax reform to modernize its tax system and economic life.
Therefore, the strategies for optimizing the tax system of China and the United States must have different priorities, and China cannot "follow the example" of the United States' tax reform.
3、 China needs to reduce the burden of enterprises under the concept of "panorama" while reducing taxes and tax reform
The actual feature of China is that the non tax burdens beyond the "normal tax" of enterprises have a wide range of categories and categories, and there is considerable room for reduction. However, a series of reform problems involving "overcoming difficulties" have been involved. After years of efforts, the total level of these non tax burdens is still significantly higher than the general situation of other economies in the world. Under the pressure of market participants choosing the direction of "factor flow" and "voting with their feet", the positive effect of Trump's tax reduction impact on China is that it can just urge China to seek to substantially reduce the non tax burden of domestic enterprises by promoting reform within the perspective of the "panorama" of enterprise burden.
Specifically, it includes: 1. The reform of the social security system has contributed to the reduction of the "five insurances and one fund" of enterprises; 2. Reduce the hundreds of administrative fees and burden reduction standards that are still numerous through the reform of the administrative system; 3. The hidden burden formed by the supporting reform of rectifying the administration of officials and reducing the "management" of enterprise relations and the actual loss burden caused by the delay of "doing nothing for officials" in the approval process.
4、 China should also do well in two major reform issues in its own affairs
The previous investigation and analysis have shown that if China wants to follow the American tax reduction plan and implement it in its own country, it will learn to walk in Handan and imitate others. China should also actively focus on the following two major reform events in accordance with its own actual situation and "problem oriented" "doing its own thing":
First, the government streamlined its institutions to reduce administrative costs. This is a "tough" move involving "large-scale" and "flat" government agencies to "reduce swelling and lose weight". If we can turn pressure into motivation to do this well, it will bring about further rationalization of government functions and substantial improvement of government operation performance. The operation of finance can reduce both revenue and expenditure, and hedge the deficit pressure.
The second is to vigorously promote PPP innovation, and use financing cooperation to make the government "spend less, do more and do good things". PPP mechanism innovation is being actively promoted in China in recent years. If pressure can be turned into power to make this matter more standardized, more professional and more vivid, China will better guide private capital and enterprise capital outside the government to engage in public works, infrastructure construction and even the construction and operation of industrial new cities in the way of cooperation with the government while reducing taxes, It can not only significantly alleviate the contradiction between government revenue and expenditure, but also better meet the social goals of improving people's livelihood and serving the public with the investment performance upgrading mechanism brought by PPP.
In short, in the face of the "Trump tax cut impact", China can and should "turn pressure into power" to better meet the people's demand for a better life with supply side reform.
(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.)
