That obnoxious statistic always excludes payroll tax as well. Not to mention that the "Lucky duckies" is one of the most rightly ridiculed tropes in recent memory, arguing that poor people in the US have it too good:
44% in the US compared to 98% in China -- that's quite a difference!
compared to the US's IRS, China's tax collection agency seems, in effect, less capable because China's workers are so good at avoiding/evading these taxes.
not because Chinese worker are good at avoiding tax. it is because china is not a state with an adequate legal system.
It is a tradition that a lot of thing happen under the table.
What a weird and artificial statistic to bring up. I don't believe it has any actual meaning given that the individuals have met their legal obligations for income taxes.
Payroll taxes, sales taxes, property taxes, gas taxes, excise taxes on a mobile phone, there are lots of opportunities to pay taxes even for those who earn little enough income to not owe federal income tax.
Payroll taxes are income taxes in every way except the name.
True, but liberals are almost always in favor of maintaining that artificial distinction, to make people think of Social Security and Medicare as "getting back what they paid in" rather than welfare.
in china, a big part is house buying tax in disguise of bubbled land price.
well, if everyone pay tax as they should in theory, the housing bubble would not be that crazy. people ducked taxes believing they save the money and then give them back when buy house. who are the cleverest?
> ... workers skimp on taxes because they do not trust the government will spend their money wisely. Mr Liu cites the Belt and Road Initiative, a global infrastructure-building project, as an indefensible giveaway to poor countries ...
interesting. sounds kinda like what some US red-state voters think.
also: US media tend to portray the Belt and Road Initiative more like a plan to dominate the world than a giveaway to poor countries. quite a difference in perspective here.
Us media is from the strategic view. for the Chinese who are barely make a living. It is hard for them to be happy when their country are pouring money to other nations.
Thinking about the history of the world, brain washing people since they are born and having no opposition is much a safer approach than crushing occasional revolts.
That's interesting - because it begs the question, if income taxes are only contributing 8% to the coffer, where is the country's revenues mostly coming from?
Huge natural resources (if you want new earth magnets it’s your only option etc,), huge moderately to well trained labour force, a smart foreign policy in building very close ties to their sometimes previously hostile neighbours
That’s what springs to mind. I’m sure the government has found some way to effectively tax its citizens but isn’t calling it “income tax”
US had no income tax until 1913- that's what made the Golden Age of America possible, and created the foundation for its 20th century wealth. In a similar fashion, China is benefiting from the low tax burden, getting ahead of the rest of the world.
My impression is that income tax is less damaging to investment than than corporate taxes and capital gains taxes, while also being less regressive than a sales tax or VAT.
This term is meant in the opposite sense to what you seem to be implying in your prior comment. The clue is right there in the name: “gilded” does not mean golden, in the sense of being made of gold.
Exactly, for those who missed it, gilded means coated with a thin layer of gold over a much cheaper element beneath: extravagant wealth for a few at the top distracting from the poverty below.
That's not a golden age, that's a bad era of American history where industries were corrupt and dominated by monopolies, our best times were post WWII when our incomes taxes were the highest ever, that's what created the middle class and the American dream.
I'd say that the outcome of WWII which saw the US emerge as the prime world power, the availability of cheap and plentiful oil, the economic potential of a mostly unscathed country helping to rebuild a world ravaged by war and the spin-off effect from the cold war (which boosted technical development at a war-time speed in a peace-time economy) had more to do with the realisation of the American Dream than the high levels of taxation.
It took both, the above is why there were jobs; the taxation is why those jobs paid well rather than all that money going to just those at the top as it does today. High marginal taxes are a huge incentive to pay your workers better rather than just your executives.
Your argument fails to the same issue as the one you're responding to. There are countless countries with both extremely high and extremely low tax rates, but here seems to be little connection in general to economic/social development based on tax levels.
I think it all has to do with something very simple: opportunity + nationalism. Post WW2 US was basically a land of endless opportunity spurred on by great nationalism. The reason nationalism is important is because it helps align motivations beyond just profit. Now a days most large corporations wouldn't think twice about firing all their domestic workers if they could profitably replace them with cheaper workers in another country. This is ostensibly good for the corporation, but not so great for the country, and worst of all for the workers left behind. Aside from that social bond there is also a practical commercial one. When individuals in a nation strongly bias towards domestic products, this incentivizes domestic production. E.g. - 'Made in the USA' was a major selling point.
But most importantly, I think you'll find this pattern of opportunity + nationalism is something that maps pretty well to national success in general. The US in its boom times, China today, the rebuilding of South Korea, Japan, etc.. What triggers the eventual decline there though is something far more difficult to answer. E.g. the US and South Korea continue to grow, while Japan ended up facing (and continuing to face) decades of stagnation.
"There are countless countries with both extremely high and extremely low tax rates, but here seems to be little connection in general to economic/social development based on tax levels."
This is not true.
If you draw a map of low-tax v high-tax countries there's a strong correlation between high taxes and higher GDP.
A few countries have high taxes and low prosperity.
But the one's with low taxes and high prosperity are universally 'oil rich' or 'gambling rich'.
There are no countries with almost zero taxes that are very prosperous at all. Switzerland has lower taxes, but not that low. Same with Monaco, they have very high taxes outside of income.
As far as 'nationalism' - it was more the fact that American industry was intact, and everywhere else was burned to the ground. And yes - 'the spirit' of workers and managers was very important, I would say Nationalism was part of it, but it was not the foundation. Yes, everyone was a 'leave it to Beaver' believer until rock and roll and cynicism came along.
South Korea and Japan 'boomed' just like Europe did because they were recovering from a war where investment opportunities abound, and are obvious.
China in much the same way. If there are still zillions without homes, you can easily build more homes to create value. No highways? Build them. Easy, no brainer investments.
One could argue high taxes have little to do with it. As victor of the war you just enjoyed lot of spoils. Most other first world / developed countries were ravaged by war, entire cities and industrial areas flattened. So US companies & industry had no real competition until the other nations could rebuild. That was a massive advantage and a snowball effect.
And one would be wrong. The current economy proves without high taxes, gains go to those at the top rather than the middle. The war created the demand, the taxes ensured the workers got the gains.
Which you could say the same thing about China, there is a lot of corruption and the economies are dominated by large state owned enterprises or other near-monopolies.
Well, there was also post-slavery forms of indentured servitude, no labour laws (i.e. shoot strikers), no worker protections, no social security, barely such a thing as healthcare.
And no pesky female or non-landed male voters ...
So if you're in the capital class, it must have been a 'golden time', yes!
Disclosure: using a throwaway giving the sensitive nature of the topic
I've always found very curious to not hear more about taxes in China.
It is a mystery to probably no one who have spent a certain amount of time in China that a very few amount of people are actually paying taxes. There is a few regular patterns on how they achieve evasion, but in short it is a mix of large amount of cash/cash payments, and close to 0 actions on whatever personal bank transactions.
The later has always amazed me. While some countries will start tracking each transfer > $1,000, Chinese banks will probably not even bother contacting you for a transaction of $10,000 (in RMB, foreign currencies being quite regulated) or even probably more.
And yes, you can buy a car or a house with this money, in Cash. No question asked. There are also some easy ways to use some complex/criminal networks of money laundering in order to get the RMBs out of China through shell companies often in tax heavens.
We all know that China's CCP is gathering a very consequent amount of data about virtually everyone entering the territory (or more). But they seem to struggle at implementing actions.
This would explain the government's efforts to reduce the amount of cash circulating in the country, and encouraging (via strong investments) mobile payments (wechat/alipay).
This would also explain the very short upcoming of the "social credit score" and I've found astonishing that no one every mentioned taxes on that matter.
Now, open list of [somewhat naive and genuine] questions:
- Where does the government's money comes from? [it appears to me to be mostly inflation, on an underlying crazy monster bubble]
- Can a government subsist with a population not paying taxes? [apparently not, i.e social credit score]
- How will the people react when they will realize they have to give away XX% of their pay when they never gave any $$?
- [last but not least] Is that somewhat comparable to, say, the US [or other western countries] few generations earlier? If yes, are we paying the bill for these generations? If yes, should we start worrying? [Are taxes going to keep raising indefinitely along with debt?]
I'm sorry for a not so organized answer but I wanted to express a few comments about things I've seen myself. The [] answers of the questions are personal guesses/notes and I would love to hear more accurate answers from people with better knowledge on the topic.
If this is the case, why wouldn't the state be in favor of strict AML regulations? Aren't they very afraid of Uighur terrorism? I'm not sure about the real risk of funding separatism, but I'd be surprised about the perceived risk not being realized by the state.
>>If this is the case, why wouldn't the state be in favor of strict AML regulations?
Because their families might get caught in the billion dollars corruption schemes. And as others said, it may choke growth. USA wasn't always this strict with ML.
>>Aren't they very afraid of Uighur terrorism?
No doubt that they are under heavy scrutiny.
They are and they aren't. Everything is monitored and probably xx% of Uighurs rats on their neighbors. It has happened before in Communist /East European countries. Brother against brother, neighbor against neighbor, son against father...
1- and this is precisely my point. If they start enforcing it, it would kill the smaller businesses in the current situation - and probably put thousands (millions?) of people in the street.
China is an interesting case. Where they are not enforcing it in a strict sense, but at the same time they are not completely leaving the regulation on the book. So the end result is a system that selectively enforcing its own regulations. In short, everyone is violating the regulations in some sense, but if the government doesn't come to your door, you are probably fine. But they would start campaigns now and then to check upon on you, and once they do, and you are not prepared, you probably will end up in trouble.
I too wonder how well such system works, but I guess China is in high growth mode for many many years, and we all know that growth can cover up problems. Once it slows down, it might be the beginning where things start to get interesting.
This is also known as rule by law, where laws are selectively enforced to rule the people, vs rule of law, where the goal is to enforce laws uniformly to protect the people.
Based on your graph the income tax became significant in 1943, which was 75 years ago. It was significant in France 30 years before that and in Germany and the UK 100 years before that.
This is actually pretty old and much earlier in development than what China is at right now.
Important elaboration: kildeskat ("source tax") changed when and how the income tax was collected, from being something done privately and retrospectively for the previous year, to being something your employer takes care of before paying you, thus increasing collection efficiency. It also significantly simplified calculation.
It did not introduce the concept nor change the size of income tax, which some might interpret the comment as stating.
The Chinese government also has other sources of income:
1. Land sales. This is a major one especially in big cities
2. State-owned enterprises. These are immensely profitable because they are often oligopolies. Imagine the US government owning Goldman Sachs, Morgan Stanley, AIG, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Fidelity, AT&T, Verizon, Comcast, T-Mobile, Exxon Mobile, Chevron, ConocoPhillips, Philip Morris, etc etc
There is also a big distinction as regards to which tax goes to central government which goes to local(provincial) government. I believe the land sales mainly goes to the latter, while VAT is split between those two.
Not all SOEs are profitable, especially those typically owned by local governments. Some of them only survive through continuous loans. Anyways, SOEs that are profitable try to keep as much of their profits as they can through various games.
Looks like many people are interested in this. Combining some information from Chinese websites, the main sources of Chinese government includes the following:
- Tax income: The top categories of tax income are value-added tax and business tax.
- Operation income of state-owned companies.
- Income from state-owned properties. e.g. A chunk of income of local governments come from selling lands to real estate companies.
- Government debt.
These may not be super accurate, but just to give an idea.
I'm living in China at the moment. Feel free to ask any questions.
Here are some points that you might find interesting:
1. There is an income tax but there is no income tax return. If you pay too much you don't get anything back. You can pay a fine if you don't pay enough. This means you have to work with finance and do lots of paperwork to reduce your taxable income. Not always worth the effort.
2. You can choose to pay sales tax or not. It is optional. Generally, individuals don't pay sales tax while companies do. Companies have to prove that they spent money and they do this by collecting "tax receipts". Some companies give everyone a tax receipt. Some companies only give it on request. The machine that makes the tax receipt takes money from the company in real time and transfers it to the government. This cannot be faked BUT they can be traded ... sometimes. VAT/Sales tax is also different for different industries (I think food is about 5% while electronics is more)
Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.
Because the poster is presenting in perhaps a difficult way to understand. Listed prices are inclusive of VAT/sales tax, there's a single price listed. Companies can reclaim VAT/sales tax from the tax office on presentation of valid receipts. Depending on product, sales taxes vary from 4% to 1Xs%. Pretty similar to how reclaiming VAT works in the EU.
Individuals could, for example, request a discount from a restaurant for not requesting a tax receipt (discount being in the form of some free Sprites or other small token). Smaller places might accommodate this, larger ones would not.
Sales tax is charged on the sales price while VAT is charged on every step of the production process.
VAT is very hard to avoid. All of the inputs to your business have to have VAT charged on them - if your business didn't pay VAT on your business expenses in China, you can't deduct them as expenses, which increases the business tax you pay.
Several years ago, when I still had a business in China, you'd actually have to paste physical tax invoices into a paper book and submit it with your accounts to the relevant taxation authorities.
Chinese consumers pay very high taxes on consumption both because of the VAT system which is essentially invisible and hard to avoid and because of very high import taxes.
It was always interesting that they think they don't pay much tax but are also obsessed with buying things overseas where the prices are usually cheaper.
As other posters have noted, payroll taxes are an income tax. Places like the USA split payroll taxes 50-50 between the employer and the employee. In China, payroll taxes - called "social insurance" - are skewed towards the employer. It's been 5 or 6 years since I've employed people in Mainland China, but if I recall correctly, the company "contribution" to social insurance was on the order of 21% while employees only had around ~6% of their paycheck withheld to cover their portion of the tax.
From the business's perspective, all of these taxes are part of the employee's pay. If an employee asked to be paid 10000, she might only take home 8000 after social insurance and income tax withholding while she'd cost the company 12000. In reality she was being paid 12000 and the government was taking away 4000 of her money each month. (Rough numbers)
It was common earlier in the decade to have potential hires ask for a certain salary after tax and then expect the company to pick up the extra. This was because many businesses at the time would pay cash under the table to avoid these tax expenses.
If it is a business expenses then to get reimbursed from work you need a tax invoice. For personal sales you don't need one and generally don't bother getting one.
>individuals don't pay sales tax while companies do
This is the reverse of how VAT is supposed to work. End-users pay the VAT - companies can be end-users, but usually aren't, whereas individuals always are.
> 2. You can choose to pay sales tax or not. It is optional.
Is it optional by law? or is it just that many sellers opt to not collect sales tax if you don't ask for a receipt?
> Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.
From what I've seen (I have family over there), it's much less restrictive in most ways in terms of regulation and licensing. It is a very regulated society in some ways, but a wild west caveat emptor laisez faire anarchy in others. Also what regulation there is can often be circumvented by the right payments to the right people, which is a form of freedom if you squint at it right.
There's also little in the way of consumer rights. Of course if the anarchy gets too disruptive, in go the police and it gets bad for everybody. It's Big Stick regulation. The only stick they have is a big one, so they tend not to use it often, but when they do....
Take the baby powder doped with Melamine. There is no real enforcement of quality controls, but when the scandal went public and there was a huge scandal they tried and executed - actual shot in the head killed - some executives. A few months later it transpired that the confiscated baby milk powder had 'dissapeared' and was back on the market. By that time the public outcry had died down though.
I agree completely, but many over there don't have the same expectations. As a naive participant, how do you distinguish between freedom and toleration? As a practical matter large swathes of their economy are based on that implicit model. In fact selective application of the rules is one way they stack the deck against foreign competitors operating within the country.
It's just not a state approved freedom automatically given to everyone, but it's a freedom nonetheless. You get to do X which elsewhere it's impossible.
Optional by law. You often have to go out of your way to get the tax invoice. It is mainly for business rather than individuals.
As for freedom there are fewer regulations on individuals. It isn't really possible to understand until you experience it. Oppressed in some ways. More free in others.
> There is an income tax but there is no income tax return.
The "tax return" is the form you fill out that computes your taxes. The "tax refund" is the money you get back if you had overpayed. Do you really mean there's no tax return? If so, how is that calculated and how is the money taken? In the US something like 80% of tax returns could be calculated by the government on behalf of the tax payer, but for whatever reason that hasn't been implemented. Is it something like that?
> In the US something like 80% of tax returns could be calculated by the government on behalf of the tax payer, but for whatever reason that hasn't been implemented.
The reason is that the USG doesn't have a prior knowledge of material facts that may change your return, most notably deductions and charitable donations (especially small monetary donations, in-kind contributions, used goods such as clothing, etc). You're probably right that a vast majority of returns could be accurately calculated on January 1 because they don't have a 10K, Schedules A or C, but they don't know which returns fall into that category.
Simplification of the tax code could go a long way toward increasing that percentage but I'm not sure it could ever be enough to have the government simply tabulate a bill or refund for every citizen.
The reason is that the income tax prep industry has lobbied intensely to avoid a 'if you don't file, well just use your defaults on a 1040 that we would charge you with anyways' as your filing.
For most 40-hr/wk, full time employees with one job, they should net a '0' refund, and the return should be automatically completed based on their employers weekly/quarterly filing of payroll tax records.
> For most 40-hr/wk, full time employees with one job, they should net a '0' refund, and the return should be automatically completed based on their employers weekly/quarterly filing of payroll tax records.
Only with eliminating the distinction between the standard and itemized deductions, and only for employees who work no overtime and earn no bonus. Who also don't have any post-tax activities that affect their tax liability (IRA contributions outside of an employer-sponsored 401(k), charitable contributions, 529 plan contributions). Who also don't have any out-of-pocket healthcare expenses beyond that threshold.
Most 40-hr/wk full time employees don't make overtime.
And bonuses are usually/always taxed.
And with the recent change in things, the threshold at which itemization becomes worth while has become significant.
Most. Not all. None of your exceptions changes things.
The IRS should assume a net-0 based on tax records, and if the person wants to do something else, they're free to file a return.
Many countries don’t require foreigners to fill out tax returns. China doesn’t have a tax return per say, but there is a complicated self reporting income process that you just do yearly. How extra income would be reported I have no idea, it was all in Chinese and I filled it out via work given PowerPoint instructions.
One reason for sloppy tracking and sloppy enforcement is usually that the powers that be use those very same routes to get their own money out of the country. It's pretty rare for a corrupt official to keep their own money in a bank account in their own name in their own country. So it makes good sense that such routes exist.
Actually, the gov is taking actions and it's quite strict. One example is, my friend's bank account was AUTOMATICALLY withdrawn a couple hundred RMB from last month, to pay the tax AUTOMATICALLY.
Lived in the US for a couple of years, I can't imagine IRS doing that to my bank account
Also, to the @awsedr58479 's question:
Chinese consumption tax is crazily high. Most people don't know they are paying it since it's structured into the price tag. Also the companies are paying quite a lot of taxes
As seen in other comments, middle classes are the one who will likely pay the most. Lots of "legit" companies/workers are paying income taxes; they represent the 2%.
The left often argue that VAT is a regressive tax, with "poor" (by which they mean low income, not low wealth) people paying more as a percentage of their income than "rich" people.
I'm not entirely sure why, given the number of basic items that don't attract vat (rent, train fares, food).
> my friend's bank account was AUTOMATICALLY withdrawn a couple hundred RMB from last month, to pay the tax AUTOMATICALLY.
That's just the primary way to pay income tax in China. People usually don't file tax returns on their own. Their employers calculate the tax they should pay and deduct from their salary automatically
The government withdrawing money from someone's bank account is something entirely different and more invasive than the employer deducting it before sending it to the bank account.
Consumption tax is not high, actually quite low with 16%. (Not counting the USA, a country so allergic to tax they rather go back to gravel roads before maintaining their highways.)
consumption tax is 17% in China, and yes, the tax not listed on price tag, actually print consumption tax on price tag is not allowed in a certain degree...
Many people in China don't know this consumption tax, and some may say "I don't pay any tax to gov" and of cause it's not true.
16% VAT is lower than the EU: "Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary". [1] The minimum rate in the EU is 15%, but of the 'primary goods' (e.g. food) the minimum rate is 5%. [2]
I agree, except hot food.
Also children's clothes and toiletry type stuff.
I seem to recall there was a thing about sanitary towels that needed a law change in Brussels, in order for us to zero rate them.
Edit:
From the GPs reference
"requires a minimum standard rate of 15% and one or two reduced rates not to be below 5%. Some EU members have a 0% VAT rate on certain supplies; these states would have agreed this as part of their EU Accession Treaty"
So its possible the GPs country doesn't allow zero rated VAT.
Legacy exemption because it existed before EU entry. No additional products can be zero-rated now. (Which is why the UK tabloid press is upset about "EU's sexist tampon tax"...)
When living in London I had the council re-open a direct debit on my bank account and effectively withdraw a few hundred pounds towards a council tax bill. I was in a dispute with the council as I didn't believe I was liable any longer and cancelled the direct debit which had been paying the tax each month. They disagreed and re-opened it without my knowledge or consent. I looked into it and there are a number of institutions that they allow to open a direct debit without proper permission from the account holder, particularly if there has previously been a direct debut on the account. Councils are one, but also large energy companies, phone companies etc.
Out of interest, did you keep a note of where there was information claiming certain entities have the right to continue pulling money after the Direct Debit was cancelled?
As far as I'm aware, no organisation has the right to reinstate a Direct Debit on your account without your permission when it has been closed [1]. If you gave notice to your bank that it should be cancelled, and payment was still collected without your subsequent authorisation, you should have been able to request a refund directly from your bank [2].
2% pay the income tax is because the income is really low, that is why the jobs are moving to China. The US is losing jobs only because US labors are paid too high.
In my opinion, it is just due to economical stage and structure. China's salary is rising, so a lot of jobs are moving to other countries, like Vietnam.
In the future, China government would more rely on income tax like US. But it would take another 15-20 years in my opinion.
In my little country in Western Europe starting in World War 2 all those with income from labor have paid wage taxes. The first income tax was introduced in 1915. Before that in the 16th century: the first value added tax. Most revenue up until 1915 came from value added taxes and levies. That goes to show that (comparatively) low taxes is not a function of low income.
I bought a German made car last year, its drive away price is about $60k USD in the US, I paid $120k for that in Shanghai - 25% tariff, 17% VAT, 25% sales tax, 10% vehicle tax, that is 77% combined. Trump choose to focus on the 25% tariff part and complains that it is difficult to sale American cars in China. What Trump didn't want to tell is the other 52% that apply to all cars including domestic brands.
On top of those taxes, to get the new car registered you need a number plate right? the number plate is auctioned monthly, every month you have about 5% chance to secure the number plate even if you are willing to pay the current market price of $16k. They don't call it a tax, but it is obviously a tax collected on every car owner in Shanghai. statistically, you can keep bidding every month for 2 years and still couldn't get your car registered. and no there is no way to buy such number plate at $16K USD from other owners/the black market, the only alternative option is to pay $60K USD to the gov to get a motobike number plate and convert that to a regular car number plate. Again, it is a tax.
Once you have everything above sorted out, congratulations! time to pay tax for petrol! For every $1 you spent on petrol, around 50% of that goes into taxes. Time to hit the roads right? Time to pay the toll roads then. In some provinces, we are talking about toll stations every few kilometers. Too expensive to even use the new car? Fine, just park it somewhere - $200k USD for a car park in my building, as expected, don't forget the $50k taxes/levies/agent fees/stamp duty on top of that as well.
Life in China is like playing video games in Expert mode and those numerous taxes is by far the most significant reason.
While the numbers sound outrageous, they seem to be at least roughly the same as reported elsewhere.
"The average price for a Shanghai plate soared to 75,000 yuan ($12,000) at the city’s license plate auction over the weekend, roughly equal to the retail price of a brand new, fully loaded Geely MK-II sedan." [0]
"Over at a new 1,700-household community in Xuhui district ostentatiously named East Manhattan, its 500 parking spaces cost 1 million yuan each." [1]
Back when I worked in China, avoiding taxes was super common. I even received SMS spam advertising consultancy to companies about how to avoid them. The company I worked in wired my salary in multiples bank transfers from different accounts. The after taxes salary ended up only 1-2% less than the one before taxes because the declared&taxed income was just around 1000$. The bank never asked questions.
In China, companies are in charge of paying the income taxes for you but they usually have the means to dodge it, and the workers are complacent since they benefit from it too.
If China starts cracking down on it, lots of Chinese with high leveraged mortgages (up to 70% of their income sometimes) will be in trouble.
The threshold at which tax becomes payable was raised from 3,500 yuan ($503) to 5,000 yuan a month on October 1st. The finance ministry says the number of people liable for income tax should fall to 64m as a result.
Is the article correct that only 64M out of 1.1B people will pay income tax or did they miss an order of magnitude? Just trying to calibrate since only 64M people making ~>$750/month seems like a low number for China.
Guys, you have a huge misunderstanding there. While income tax may be paid by few, China, just like many ex-bloc countries, collects significant social security and pension contributions that are often bigger than ones income tax. This is a de-facto because Chinese never see the benefit of their social security and pension contributions.
Summary: Large portions of people are involved in small mom & pop shops. Most of these shops do business in cash. Most even don't register with tax department. They use bribes to avoid getting fines.
"Salaried professionals in big cities have long complained that they bear an unreasonable share of the tax burden. That is because firms are legally required to withhold a portion of salaries in taxes. The rich, whose income usually does not come in the form of a pay cheque, and those in the informal economy."
Economists and politicians justify tax setups in terms of efficiency or fairness. Ultimately though, practicalities are the main authors. ... whatever yields the highest tax in a given economy.
The reason tarrifs & trade taxes were such a big deal is that ports are centralized & taxable. Way back in the day, rivers, roads and bridges made good tax collection points. Land taxes were also practical.
In advanced economies, income taxes have been practical because enough income is earned as salary at firms large enough to be regulated. Firms are structured around avoiding corporate tax, not income tax.
China is at the point now where it's practical to tax income.
The west is now at a point where the ultra-rich are an attractive tax target. But, trying to apply the income tax system to them is not practical for the same reason it is practical in China.
Not OP, but i imagine it would face political pressure in the US. Farms take up more land than penthouse apartments, but likely have less ability to pay. You could pass the costs on to customers, but then you're advantaging food imports, which has national security implications.
Actually, in a previous article in the Economist on taxes, they claimed taxing land and real estate is a very good non-distorting way to levy tax, and urged western governments to do it more.
My country (the Netherlands) has an estate tax of sorts and at least one problem with it is that the legal system is getting clogged by hordes of people challenging the government over the valuation of their property (you pay a percentage of the property value).
Good point. Iirc correctly, they suggest taxing land value, excluding the buildings on it. So, a parking lot is taxed like the skyscraper beside it.
This is "non-distorting" and efficient in an economst-ey sort of way. It will however, strongly affect land use and make certain uses immediately unviable. Golf courses, amusement parks...
The efficiency of moving to such a system is premised on encouraging underdeveloped land to be immediately developed. Say a skyscraper is 80% building, 20% land. That's tax efficient in that world.
Not sure why a golf course or amusement park would be unviable. Alton Towers' 910 acres is worth at most 3.8 times that of this 240 acre £2.2m farm [1], or £8.4m.
Total UK land is worth £5394b [2], and total budget revenue is £800b, requiring a 15% land value tax to cover total spending.
At 15% LVT, Alton Towers would attract taxation of £1.2m a year, spread over 2 million visitors, or about 64p on the ticket price.
Currently tickets are in the £30-60 range, so already attract £5-10 of vat.
A land value tax will actually mean that Alton Towers tickets would be cheaper, and as they wouldn't be paying things like national insurance contributions, overheads would be cheaper.
Land taxes are politically unfeasible: it would increase taxes on americas favorite setup: the single family home.
Economically speaking, Land Taxes are a consented tax by economic left and right: the consensus has been in for decades. LVT is a great tax.
In my opinion, this is San Franciscos best chance to get out of its spiral it got into: remove sales tax and put LVT. It would change the face of the city in 10 years.
But go vote that: the SF city spends 2,600U$S per household in the city. If they removed all kinds of taxes and put it on land, a single family home would have to pay that just intaxes every month. And single family homes are the politically most represented.
"When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines"
But there are diminishing returns which is not exactly motivating. The way to think about it is, imagine you would work 20% harder, but instead of 20% extra take home money you only get 10%. And it gets more skewed progressively which discourages trying hard at some point. People just stop trying as they don't see the reward as good enough for working harder.
Evidence doesn't seem to suggest that higher earners "stop trying", but above a surprisingly low threshold it's cheaper to pay someone to organise your tax affairs for you and move your money through various loopholes to (legally) avoid paying taxes.
Any government plans to "tax the rich" end up hitting the people just below this threshold the hardest (usually small business owners) while multimillionaire corporate CEOs with various offshore holding companies continue to not pay their fair share.
Ok but that kind of proves my point. They are avoiding taxes and using loopholes and tax havens precisely because it is unfair that their tax rate is increasing the more they earn. At least they feel it’s unfair to them. Why not solve the problem by having a simple flat tax? Everybody pays the same amount, let’s say 20%. Then it becomes much easier to come after tax dodgers on moral grounds. They no longer have an excuse of them being unfairly treated as their tax is identical to everybody else.
and yet you have people like Buffett and Gates who say the exact opposite that they should be taxed more. So who is right the other rich people complaining about taxes or Buffett/Gates saying they want more taxes?
We want to fund things that benefit everyone but whose benefits would not be practical to capture directly, in a way that feels fair or at least fair-ish. What would you suggest?
Governments create money when they spend and then tax it back. It is the point at which taxes are imposed that enable spending. Tax collection is the end of the transaction.
So the constraint on government spending is aggregate spending, not total tax receipts last year.
Armed with this information you can deduce that the government can purchase any output not consumed by the private sector at a fixed minimum price, so long as it doesn't compete with the private sector for the same resources, the most obvious being labour:
Once you have this understanding of how government finance works you can see that the government isn't desperately trying to "raise revenue to fund itself" but rather, needs to ensure it creates sufficient space in the economy to spend without inflation risk.
Most social programs deal with the fringes of the private sector and thus carry no inflation risk, and so long as they're counter cyclical do not need to be "funded" as such.
For everything else, taxing assets, wealth and resource usage will suffice!
Many here are wondering how the chinese government can finance itself when so few people pay income tax. There are many ways for a government to raise funds besides the income tax. People forget that we didn't have income tax in the US for much of our history and a few states still have no income tax.
We've become indoctrinated into thinking income tax is the norm. Nobody questions it but for much of US history, people viewed taxing work as an evil. And income taxes was a temporary tax instituted to fund wars ( civil war ). For most of american history, we didn't pay income tax.
Black Americans whose ancestors paid 100% income tax dispute your notion that USA was built without work tax or that it was regarded as evil by most people in power.
Technically, they did pay tax as the owners of the slaves would have been obliged in some states to pay certain fees based on outputs. (And a lot of times even on the inputs.)
No one ever evades taxes. As horrible as this may sound, that kind of included blacks.
An episode of Planet Money[0] mentioned that some economists believe income tax is not ideal. Their thinking was that taxation usually discourages the action that is being taxed. Work shouldn't be discouraged. The proposed solution in the episode was to replace the income tax with a carbon tax. Encouraging people to cut down on their carbon footprint with taxes that wouldn't be more than their current income tax.
A carbon tax on people? How would that work without massively invading people's privacy, it seems like it would require tracking everything people do and consume?
(I don't have time right now to listen to the episode unfortunately).
Car taxes here in Norway are already sky high for polluting cars, often more than 100% of the non-taxed car value. Fuel prices are around $7.5 USD per gallon.
Yet, car taxes amounts to only 44 billion NOK in income for the state per year (it was 70 billion NOK in 2007, before electric cars became popular here) [1]. The income/fortune tax on the other hand amounts to 248 billion NOK in income to the state per year [2].
Car taxes are nowhere near sufficient, and will never be. If taxes were increased to even more per polluting car, it would just drive even faster adoption to electric cars and a even more rapid car tax income decline. Replacing the income tax with a personal car carbon tax can't work.
> If taxes were increased to even more per polluting car, it would just drive even faster adoption to electric cars and a even more rapid car tax income decline.
However, I read the transcript of the podcast now, and it turns out it doesn't actually talk about replacing the income tax with a carbon tax, but rather reducing the income tax and offsetting the reduction with an increase of carbon taxes.
That on the other hand is a great idea, it's much like we're doing in Norway already.
One aspect of a carbon tax (or the tax discussed in the podcast) is a steady tax increase. I guess the intended function is to have the tax revenue stay the same even with declining carbon use. Hopefully carbon tax revenue would go to zero, but I'm sure there would be other things to tax when that happens.
Initially when the parent comment mentioned the income tax, I didn't remember that it would be used to offset a carbon tax. Their point about discouraging work made sense and was the thing I remembered.
Gas, road and car taxes are regressive as well. They disproportionately impact poor people. People who need a car in order to live in cheaper suburbs outside of town. Now maybe a luxury car tax is ok..
You charge a carbon tax at production of the raw feedstocks that contain the carbon (coal, oil and gas), not by tracking individual usage. Everyone pays the carbon tax because the price increase necessarily feeds through the whole economy of products that are made from those feedstocks.
But high income earners still benefit from a lower effective rate from the change.
If low income earners pay a higher effective rate than they would under income taxation, which is to be neutralised by credits, and higher income earners pay a lower effective rate, who makes up the deficit?
Yes, it's a consumption tax on something you want to reduce the consumption of, not across the board on all products. Most proposals include an offset (e.g., basic income guarantee or negative income tax rate) for low income earners.
It turns out if just one country tries do do that, it's pretty much impossible to correctly tax items that go in or out of the country border though. An error in either direction (too much or too little tax) will severely harm local businesses and the environment.
Just to be clear here though, the Chinese do pay income tax. They just don't call it income tax.
The government concocted a scheme that is a bit involved, and complicated, and clever. There are actually a lot of different sorts of taxes VAT, sales, etc etc etc. Some optional, some not.
In terms we'd be familiar with, the "income tax" over there is charged on the business side. Imagine that you didn't have to pay income tax, but your employer cut your salary 30% because he had to pay a "social harmonization insurance fee" or some such nonsense for each of his employees. The employees, of course, would never see that, but it still, to my mind anyway, is effectively an "income tax".
It really is rare to find a developed nation where people get away from income taxes. Even when you do appear to find such a nation, if you examine the system closely enough, you can usually find how they're paying it.
If payroll taxes were 100% the responsibility of the employer, and included the employee's income tax obligation. So in the US the taxes are effectively split between the employer and the employee, but in China they're basically all on the employer with a trivial amount charged to the employee.
One of the gotchas if you plan on operating a business in China at all.
This would be such a pain in the ass when it came to filling out a USA foreign tax credit form. Thankfully, Chinese income taxes I paid were high enough to negate my US tax obligation.
And yes, VAT is super high on many things, shopping in China is pretty expensive.
That is not an income tax, it’s an employer tax.
I thought that pretty much everywhere you have the distinction between employer’s taxes and employee’s taxes, is not that the case in US?
All sovereign governments which have their own fiat currency finance themselves by simply spending money into existence, including the USA. The purpose of taxes isn't to finance directly but to provide a demand for the money (I need dollars because I have to pay taxes) but also discourage/encourage certain behaviors. This idea that taxes are directly used to pay for things is completely wrong (except for the case where the government doesn't have it's own money, like in the EU).
This is going to be a bit of a challenging point for many, so if you are one of those feeble minded types that gets offended not only on your own, about all the things in the world you have been trained to be offended by, but also project your offense on others ... this is not a discussion you will be prepared for and I ask you to kindly not read on, since it will upset feeble sensibilities.
In America, people have an inalienable, God given right to free speech. I understand that is not the case anywhere else on the planet, but consider stopping the abuse cycle by not perpetuating the interests of those who deny you the freedom of speech.
--------- Please stop reading here if you are too weak for free speech ----------
Even beyond the fact that the involuntary income tax that is used to fund the lives and lifestyle of others is slavery, people don't realize just how few people also actually pay net income taxes of any significant portion in the USA.
Even most of those who pay any income taxes whatsoever, which makes up about 112 million, don't realize that what they pay doesn't even cover what they consume, like if you contributed $10 to a garden party that cost $100 per head in costs, because you forced those high expenditures. Unfortunately, those types ... you know them ... feel justified and rationalize their entitlement because they "paid their taxes".
Unfortunately for all of us, things simply don't add up and unless you are willing to freely engage in this type of thing to support others at your expense, you are being enslaved on a bell curve on an income scale. Peak tax slavery is probably somewhere around the $60-70k level where you are most heavily burdened by the crush of taxes and get the least benefits. By estimate, at that level you are probably roughly 20% slave as an American.
It's a bit difficult to peg down exactly without thorough investigation, but if you remove all the government employees, who are not only not net contributors, but negative "contributors", aka, cost centers, to income tax receipts; and you then control for those who contribute some significant number higher than the cost of what they consume, you are left with very similar numbers as in China ... if those numbers can even be believed, which they far more likely than not can not.
Only around 3% of all income tax payers in the USA, or less than 1% of all residents of the USA actually make net positive contributions to the tax burden. I know this is not going to be well received because it's contradictory to the indoctrination and I say it as someone that is no fan of the elite and wealthy in general, but it's fact that somewhere around 99% of American society is living off or freeloading on 1% of the population.
People don't really know that, and are not told that, and it's also clearly obviously hidden from them, but it is more or less reality. Even if the rate were as high as 2% of the population, which is simply in no way possible, that still would not change the ramifications. Would 2 people supporting 98 freeloaders make any significant difference?
It's quite stunning actually and some people simply cannot and do not want to accept it for varying reasons.
It's really really not a good situation regardless of how you look at it; whether by the number of people who are not contributing members of society, or the fact that the government has enslaved the middle and lower upper class people to support both the unproductive members of society and use them to further enrich and empower the elite by taking their slaves' money from them against their will and giving in to the non-contributing masses in order to essentially buy their authoritarian power through democracy. It' essentially what is going on right now with the immigration debate, millions of low wage foreign people are going to enrich and empower the elite against the middle class that is being gutted and democracy fracked through immigration.
> People forget that we didn't have income tax in the US for much of our history and a few states still have no income tax.
Do you mean federal or state income tax?
I am in one of the states with no tax paid to the state (Texas) but rest assured we still pay federal income tax as well as higher property and sales tax to make up for it.
He almost certainly meant a few states do not collect state income tax.
I'm in a state with no state income tax as well (Washington). I've lived in states with income tax before. As a single individual with high income that rents their primary residency I greatly benefit from living in places without income tax compared to places with even modest income taxes.
we should go back to that, the federal government is essentially cancer and money is the glucose that feeds it's constant growth.
The initial idea of small federal government with states rights was brilliant because people could vote with their feet. If you're a progressive who supports the right to abortion, legal weed, and government health care you could move to a state that supports those things and gladly pay that states higher income taxes to fund it.
In my mind that system is far superior to having the federal government shove laws down the states throats and prevents the divide between our citizens becoming so massive as we've seen over health care and taxes at the federal level.
It’s always interesting when people think the initial idea of a strong state government and weak federal government was such a great idea, without acknowledging that the US existed under that regime for some time, realized it didn’t work well, and moved on. Those who don’t study history and all that.
Also take into account the state spent 5% of GDP in the 1800's. That would barely pay for medicare today.
Income taxes are, however, pretty progressive, relatively easy to levvy and practical. They are not particularly bad taxes. Sales taxes, or VAT are worse in my opinion.
Modern Monetary Theory argues that income tax (and alll other direct taxes) are unnecessary because the government can riase fund via fist money and its indirect taxation via inflation.
This is effectively a tax on the entire economy and challenges every sector or segment to grow price (including labor wages!) or lose value.
The idea is that (for sovereign governments with its own currency) the government is the issuer of money and logically doesn't need to get money from the population or to borrow it in any market.
Taxes have three possible purposes: create demand for the currency in the population, discourage some kind of spending or managing inflation.
MMT stress that almost the only limit for government spending is inflation and that the concept of 'public debt' is irrelevant. What makes a country rich or poor it's not how much money have but what resources (natural resources, population, knowledge, infrastructure..) it has. The obvious corollary is that the way of improving the life of the future generations is not 'saving' or reducing the 'public debt' but investing in the country now.
For example, related to the subject at hand, if the Chinese government wanted to start a big infrastructure project, being the issuer of the currency, it doesn't need any kind of external financing or taxes. What could happen is that if the new project represent a big drag in the total economy, inflation would appear. A possible way of controlling this inflation is by retiring money from the economy by taxation.
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[ 4.1 ms ] story [ 296 ms ] threadshould be able to see it now!!
[1] https://nypost.com/2017/04/18/almost-half-of-americans-wont-...
https://web.archive.org/web/20030626024327/http://www.tnr.co...
compared to the US's IRS, China's tax collection agency seems, in effect, less capable because China's workers are so good at avoiding/evading these taxes.
[1] https://www.taxpolicycenter.org/taxvox/closer-look-those-who...
True, but liberals are almost always in favor of maintaining that artificial distinction, to make people think of Social Security and Medicare as "getting back what they paid in" rather than welfare.
well, if everyone pay tax as they should in theory, the housing bubble would not be that crazy. people ducked taxes believing they save the money and then give them back when buy house. who are the cleverest?
interesting. sounds kinda like what some US red-state voters think.
also: US media tend to portray the Belt and Road Initiative more like a plan to dominate the world than a giveaway to poor countries. quite a difference in perspective here.
In the US income taxes are almost half of budget revenues.
It does. It is 8%.
The party owns like 15% of every company
https://en.wikipedia.org/wiki/List_of_largest_companies_by_r...
(and most of the biggest companies in China as well)
That’s what springs to mind. I’m sure the government has found some way to effectively tax its citizens but isn’t calling it “income tax”
I mean, it’s obviously much more complicated, but that’s the gist of it.
for example, in china, when you sell stock, there is no tax on profit gain. however, there is a stamp tax.
Majority of policies in China, especially economic policies, China learns from either HK or Taiwan, then they are learning from either US or UK.
Like the stamp tax you mentioned, you know what it is if you trade stocks in HK or UK.
My impression is that income tax is less damaging to investment than than corporate taxes and capital gains taxes, while also being less regressive than a sales tax or VAT.
I think it all has to do with something very simple: opportunity + nationalism. Post WW2 US was basically a land of endless opportunity spurred on by great nationalism. The reason nationalism is important is because it helps align motivations beyond just profit. Now a days most large corporations wouldn't think twice about firing all their domestic workers if they could profitably replace them with cheaper workers in another country. This is ostensibly good for the corporation, but not so great for the country, and worst of all for the workers left behind. Aside from that social bond there is also a practical commercial one. When individuals in a nation strongly bias towards domestic products, this incentivizes domestic production. E.g. - 'Made in the USA' was a major selling point.
But most importantly, I think you'll find this pattern of opportunity + nationalism is something that maps pretty well to national success in general. The US in its boom times, China today, the rebuilding of South Korea, Japan, etc.. What triggers the eventual decline there though is something far more difficult to answer. E.g. the US and South Korea continue to grow, while Japan ended up facing (and continuing to face) decades of stagnation.
This is not true.
If you draw a map of low-tax v high-tax countries there's a strong correlation between high taxes and higher GDP.
A few countries have high taxes and low prosperity.
But the one's with low taxes and high prosperity are universally 'oil rich' or 'gambling rich'.
There are no countries with almost zero taxes that are very prosperous at all. Switzerland has lower taxes, but not that low. Same with Monaco, they have very high taxes outside of income.
As far as 'nationalism' - it was more the fact that American industry was intact, and everywhere else was burned to the ground. And yes - 'the spirit' of workers and managers was very important, I would say Nationalism was part of it, but it was not the foundation. Yes, everyone was a 'leave it to Beaver' believer until rock and roll and cynicism came along.
South Korea and Japan 'boomed' just like Europe did because they were recovering from a war where investment opportunities abound, and are obvious.
China in much the same way. If there are still zillions without homes, you can easily build more homes to create value. No highways? Build them. Easy, no brainer investments.
And it's right there in the second sentence in your link. The name was pejorative, not positive.
And no pesky female or non-landed male voters ...
So if you're in the capital class, it must have been a 'golden time', yes!
I've always found very curious to not hear more about taxes in China.
It is a mystery to probably no one who have spent a certain amount of time in China that a very few amount of people are actually paying taxes. There is a few regular patterns on how they achieve evasion, but in short it is a mix of large amount of cash/cash payments, and close to 0 actions on whatever personal bank transactions. The later has always amazed me. While some countries will start tracking each transfer > $1,000, Chinese banks will probably not even bother contacting you for a transaction of $10,000 (in RMB, foreign currencies being quite regulated) or even probably more. And yes, you can buy a car or a house with this money, in Cash. No question asked. There are also some easy ways to use some complex/criminal networks of money laundering in order to get the RMBs out of China through shell companies often in tax heavens.
We all know that China's CCP is gathering a very consequent amount of data about virtually everyone entering the territory (or more). But they seem to struggle at implementing actions.
This would explain the government's efforts to reduce the amount of cash circulating in the country, and encouraging (via strong investments) mobile payments (wechat/alipay). This would also explain the very short upcoming of the "social credit score" and I've found astonishing that no one every mentioned taxes on that matter.
Now, open list of [somewhat naive and genuine] questions: - Where does the government's money comes from? [it appears to me to be mostly inflation, on an underlying crazy monster bubble] - Can a government subsist with a population not paying taxes? [apparently not, i.e social credit score] - How will the people react when they will realize they have to give away XX% of their pay when they never gave any $$? - [last but not least] Is that somewhat comparable to, say, the US [or other western countries] few generations earlier? If yes, are we paying the bill for these generations? If yes, should we start worrying? [Are taxes going to keep raising indefinitely along with debt?]
I'm sorry for a not so organized answer but I wanted to express a few comments about things I've seen myself. The [] answers of the questions are personal guesses/notes and I would love to hear more accurate answers from people with better knowledge on the topic.
Other guesses like it's being setup, they're trying to avoid mass reactions from people, etc.
Just as a note, I'm quite sure Uyghurs have their bank account heavily tracked and wouldn't go away with transactions the same way Han Chinese would.
>>Aren't they very afraid of Uighur terrorism? No doubt that they are under heavy scrutiny.
Aren't they very afraid of Uighur terrorism?
1. Chinese enterprises have really high taxes.
2. China has VAT, which is 16%, quite significant.
3. Chinese consumption tax directly factored into the end product price, everyone is paying taxes everyday, they just don't feel it.
I too wonder how well such system works, but I guess China is in high growth mode for many many years, and we all know that growth can cover up problems. Once it slows down, it might be the beginning where things start to get interesting.
People forget that high levels of income tax in the western world is actually a fairly new thing.
Denmark for example introduces income tax withheld by the employer in 1970 (kildeskat).
Before that the situation looked much more like China today. And the size of the Danish public sector was much smaller.
The income tax history is really short. Even in US, the income tax was not significant until recent 50-70years. https://en.wikipedia.org/wiki/File:Federal,_State,_and_Local...
The China economy is behind US probably 20-30 years. Its GDP is large because its population is huge.
Why the Economist publishes this kind of low-level article?
This is actually pretty old and much earlier in development than what China is at right now.
It did not introduce the concept nor change the size of income tax, which some might interpret the comment as stating.
1. Land sales. This is a major one especially in big cities
2. State-owned enterprises. These are immensely profitable because they are often oligopolies. Imagine the US government owning Goldman Sachs, Morgan Stanley, AIG, Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Fidelity, AT&T, Verizon, Comcast, T-Mobile, Exxon Mobile, Chevron, ConocoPhillips, Philip Morris, etc etc
Looks like many people are interested in this. Combining some information from Chinese websites, the main sources of Chinese government includes the following:
- Tax income: The top categories of tax income are value-added tax and business tax.
- Operation income of state-owned companies.
- Income from state-owned properties. e.g. A chunk of income of local governments come from selling lands to real estate companies.
- Government debt.
These may not be super accurate, but just to give an idea.
Here are some points that you might find interesting:
1. There is an income tax but there is no income tax return. If you pay too much you don't get anything back. You can pay a fine if you don't pay enough. This means you have to work with finance and do lots of paperwork to reduce your taxable income. Not always worth the effort.
2. You can choose to pay sales tax or not. It is optional. Generally, individuals don't pay sales tax while companies do. Companies have to prove that they spent money and they do this by collecting "tax receipts". Some companies give everyone a tax receipt. Some companies only give it on request. The machine that makes the tax receipt takes money from the company in real time and transfers it to the government. This cannot be faked BUT they can be traded ... sometimes. VAT/Sales tax is also different for different industries (I think food is about 5% while electronics is more)
Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.
I went to a restaurant and they offered us a drink at the end of the meal in exchange for no asking of receipts
Individuals could, for example, request a discount from a restaurant for not requesting a tax receipt (discount being in the form of some free Sprites or other small token). Smaller places might accommodate this, larger ones would not.
Sales tax is charged on the sales price while VAT is charged on every step of the production process.
VAT is very hard to avoid. All of the inputs to your business have to have VAT charged on them - if your business didn't pay VAT on your business expenses in China, you can't deduct them as expenses, which increases the business tax you pay.
Several years ago, when I still had a business in China, you'd actually have to paste physical tax invoices into a paper book and submit it with your accounts to the relevant taxation authorities.
Chinese consumers pay very high taxes on consumption both because of the VAT system which is essentially invisible and hard to avoid and because of very high import taxes.
It was always interesting that they think they don't pay much tax but are also obsessed with buying things overseas where the prices are usually cheaper.
As other posters have noted, payroll taxes are an income tax. Places like the USA split payroll taxes 50-50 between the employer and the employee. In China, payroll taxes - called "social insurance" - are skewed towards the employer. It's been 5 or 6 years since I've employed people in Mainland China, but if I recall correctly, the company "contribution" to social insurance was on the order of 21% while employees only had around ~6% of their paycheck withheld to cover their portion of the tax.
From the business's perspective, all of these taxes are part of the employee's pay. If an employee asked to be paid 10000, she might only take home 8000 after social insurance and income tax withholding while she'd cost the company 12000. In reality she was being paid 12000 and the government was taking away 4000 of her money each month. (Rough numbers)
It was common earlier in the decade to have potential hires ask for a certain salary after tax and then expect the company to pick up the extra. This was because many businesses at the time would pay cash under the table to avoid these tax expenses.
If you're interested in learning more about tax invoices in China, you can check out a post I wrote about them ~10 years ago: https://www.larrysalibra.com/10-things-you-didnt-know-about-...
This is the reverse of how VAT is supposed to work. End-users pay the VAT - companies can be end-users, but usually aren't, whereas individuals always are.
Also it doesn't apply to small companies only large companies.
Is it optional by law? or is it just that many sellers opt to not collect sales tax if you don't ask for a receipt?
> Basically, individuals have more freedom than many western countries BUT companies have a lot more restrictions. It is a very clever system that "mostly" works.
More freedom how?
From what I've seen (I have family over there), it's much less restrictive in most ways in terms of regulation and licensing. It is a very regulated society in some ways, but a wild west caveat emptor laisez faire anarchy in others. Also what regulation there is can often be circumvented by the right payments to the right people, which is a form of freedom if you squint at it right.
There's also little in the way of consumer rights. Of course if the anarchy gets too disruptive, in go the police and it gets bad for everybody. It's Big Stick regulation. The only stick they have is a big one, so they tend not to use it often, but when they do....
Take the baby powder doped with Melamine. There is no real enforcement of quality controls, but when the scandal went public and there was a huge scandal they tried and executed - actual shot in the head killed - some executives. A few months later it transpired that the confiscated baby milk powder had 'dissapeared' and was back on the market. By that time the public outcry had died down though.
Laws are often strict but loosely enforced unless it is a priority.
As for freedom there are fewer regulations on individuals. It isn't really possible to understand until you experience it. Oppressed in some ways. More free in others.
The "tax return" is the form you fill out that computes your taxes. The "tax refund" is the money you get back if you had overpayed. Do you really mean there's no tax return? If so, how is that calculated and how is the money taken? In the US something like 80% of tax returns could be calculated by the government on behalf of the tax payer, but for whatever reason that hasn't been implemented. Is it something like that?
The reason is that the USG doesn't have a prior knowledge of material facts that may change your return, most notably deductions and charitable donations (especially small monetary donations, in-kind contributions, used goods such as clothing, etc). You're probably right that a vast majority of returns could be accurately calculated on January 1 because they don't have a 10K, Schedules A or C, but they don't know which returns fall into that category.
Simplification of the tax code could go a long way toward increasing that percentage but I'm not sure it could ever be enough to have the government simply tabulate a bill or refund for every citizen.
For most 40-hr/wk, full time employees with one job, they should net a '0' refund, and the return should be automatically completed based on their employers weekly/quarterly filing of payroll tax records.
Only with eliminating the distinction between the standard and itemized deductions, and only for employees who work no overtime and earn no bonus. Who also don't have any post-tax activities that affect their tax liability (IRA contributions outside of an employer-sponsored 401(k), charitable contributions, 529 plan contributions). Who also don't have any out-of-pocket healthcare expenses beyond that threshold.
Most. Not all. None of your exceptions changes things. The IRS should assume a net-0 based on tax records, and if the person wants to do something else, they're free to file a return.
The birth of a Chinese Republican party...
Lived in the US for a couple of years, I can't imagine IRS doing that to my bank account
Also, to the @awsedr58479 's question: Chinese consumption tax is crazily high. Most people don't know they are paying it since it's structured into the price tag. Also the companies are paying quite a lot of taxes
As seen in other comments, middle classes are the one who will likely pay the most. Lots of "legit" companies/workers are paying income taxes; they represent the 2%.
I'm not entirely sure why, given the number of basic items that don't attract vat (rent, train fares, food).
Buy a new car though and you're paying tons.
Many high-earners aren't 'spending' their money, they're investing it to make more money
Whereas low-earners are spending their pay cheque before the next one arrives.
That's just the primary way to pay income tax in China. People usually don't file tax returns on their own. Their employers calculate the tax they should pay and deduct from their salary automatically
Many people in China don't know this consumption tax, and some may say "I don't pay any tax to gov" and of cause it's not true.
[1] https://en.wikipedia.org/wiki/European_Union_value_added_tax...
[2] https://en.wikipedia.org/wiki/Value-added_tax#Around_the_wor...
Food is zero rated in the UK.
I seem to recall there was a thing about sanitary towels that needed a law change in Brussels, in order for us to zero rate them.
Edit: From the GPs reference "requires a minimum standard rate of 15% and one or two reduced rates not to be below 5%. Some EU members have a 0% VAT rate on certain supplies; these states would have agreed this as part of their EU Accession Treaty"
So its possible the GPs country doesn't allow zero rated VAT.
As far as I'm aware, no organisation has the right to reinstate a Direct Debit on your account without your permission when it has been closed [1]. If you gave notice to your bank that it should be cancelled, and payment was still collected without your subsequent authorisation, you should have been able to request a refund directly from your bank [2].
[1] https://www.directdebit.co.uk/DirectDebitExplained/Pages/Can...
[2] https://www.directdebit.co.uk/DirectDebitExplained/Pages/Can...
A lot of differences between US and China.
2% pay the income tax is because the income is really low, that is why the jobs are moving to China. The US is losing jobs only because US labors are paid too high.
In my opinion, it is just due to economical stage and structure. China's salary is rising, so a lot of jobs are moving to other countries, like Vietnam. In the future, China government would more rely on income tax like US. But it would take another 15-20 years in my opinion.
Very naive on economics.
On top of those taxes, to get the new car registered you need a number plate right? the number plate is auctioned monthly, every month you have about 5% chance to secure the number plate even if you are willing to pay the current market price of $16k. They don't call it a tax, but it is obviously a tax collected on every car owner in Shanghai. statistically, you can keep bidding every month for 2 years and still couldn't get your car registered. and no there is no way to buy such number plate at $16K USD from other owners/the black market, the only alternative option is to pay $60K USD to the gov to get a motobike number plate and convert that to a regular car number plate. Again, it is a tax.
Once you have everything above sorted out, congratulations! time to pay tax for petrol! For every $1 you spent on petrol, around 50% of that goes into taxes. Time to hit the roads right? Time to pay the toll roads then. In some provinces, we are talking about toll stations every few kilometers. Too expensive to even use the new car? Fine, just park it somewhere - $200k USD for a car park in my building, as expected, don't forget the $50k taxes/levies/agent fees/stamp duty on top of that as well.
Life in China is like playing video games in Expert mode and those numerous taxes is by far the most significant reason.
"The average price for a Shanghai plate soared to 75,000 yuan ($12,000) at the city’s license plate auction over the weekend, roughly equal to the retail price of a brand new, fully loaded Geely MK-II sedan." [0]
"Over at a new 1,700-household community in Xuhui district ostentatiously named East Manhattan, its 500 parking spaces cost 1 million yuan each." [1]
[0] http://www.theurbancountry.com/2013/02/shanghai-license-plat...
[1] http://www.globaltimes.cn/content/963391.shtml
In China, companies are in charge of paying the income taxes for you but they usually have the means to dodge it, and the workers are complacent since they benefit from it too.
If China starts cracking down on it, lots of Chinese with high leveraged mortgages (up to 70% of their income sometimes) will be in trouble.
The threshold at which tax becomes payable was raised from 3,500 yuan ($503) to 5,000 yuan a month on October 1st. The finance ministry says the number of people liable for income tax should fall to 64m as a result.
Is the article correct that only 64M out of 1.1B people will pay income tax or did they miss an order of magnitude? Just trying to calibrate since only 64M people making ~>$750/month seems like a low number for China.
I read it as 64M people making enough to pay ~>$750/month in taxes
Summary: Large portions of people are involved in small mom & pop shops. Most of these shops do business in cash. Most even don't register with tax department. They use bribes to avoid getting fines.
Yup. That's where corruption actually starts in India.
"Salaried professionals in big cities have long complained that they bear an unreasonable share of the tax burden. That is because firms are legally required to withhold a portion of salaries in taxes. The rich, whose income usually does not come in the form of a pay cheque, and those in the informal economy."
Economists and politicians justify tax setups in terms of efficiency or fairness. Ultimately though, practicalities are the main authors. ... whatever yields the highest tax in a given economy.
The reason tarrifs & trade taxes were such a big deal is that ports are centralized & taxable. Way back in the day, rivers, roads and bridges made good tax collection points. Land taxes were also practical.
In advanced economies, income taxes have been practical because enough income is earned as salary at firms large enough to be regulated. Firms are structured around avoiding corporate tax, not income tax.
China is at the point now where it's practical to tax income.
The west is now at a point where the ultra-rich are an attractive tax target. But, trying to apply the income tax system to them is not practical for the same reason it is practical in China.
Why aren't they now?
My country (the Netherlands) has an estate tax of sorts and at least one problem with it is that the legal system is getting clogged by hordes of people challenging the government over the valuation of their property (you pay a percentage of the property value).
This is "non-distorting" and efficient in an economst-ey sort of way. It will however, strongly affect land use and make certain uses immediately unviable. Golf courses, amusement parks...
The efficiency of moving to such a system is premised on encouraging underdeveloped land to be immediately developed. Say a skyscraper is 80% building, 20% land. That's tax efficient in that world.
It'd be a hard transition.
Total UK land is worth £5394b [2], and total budget revenue is £800b, requiring a 15% land value tax to cover total spending.
At 15% LVT, Alton Towers would attract taxation of £1.2m a year, spread over 2 million visitors, or about 64p on the ticket price.
Currently tickets are in the £30-60 range, so already attract £5-10 of vat.
A land value tax will actually mean that Alton Towers tickets would be cheaper, and as they wouldn't be paying things like national insurance contributions, overheads would be cheaper.
[1] https://www.rightmove.co.uk/commercial-property-for-sale/pro... [2] https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
The income tax system (supplemented by all the other taxes) is the most tax generating tax system in history.
Economically speaking, Land Taxes are a consented tax by economic left and right: the consensus has been in for decades. LVT is a great tax.
In my opinion, this is San Franciscos best chance to get out of its spiral it got into: remove sales tax and put LVT. It would change the face of the city in 10 years.
But go vote that: the SF city spends 2,600U$S per household in the city. If they removed all kinds of taxes and put it on land, a single family home would have to pay that just intaxes every month. And single family homes are the politically most represented.
"When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines"
[1] https://www.cbo.gov/publication/52472
Otherwise, it's just trivially true for any taxation regime: a flat 1% tax means your after-tax income rises less than your pre-tax income.
Any government plans to "tax the rich" end up hitting the people just below this threshold the hardest (usually small business owners) while multimillionaire corporate CEOs with various offshore holding companies continue to not pay their fair share.
and yet you have people like Buffett and Gates who say the exact opposite that they should be taxed more. So who is right the other rich people complaining about taxes or Buffett/Gates saying they want more taxes?
You're verbally describing the Laffer curve. Do you think they're on the right hand side?
https://www.youtube.com/watch?v=XnSaBGthkio
Governments create money when they spend and then tax it back. It is the point at which taxes are imposed that enable spending. Tax collection is the end of the transaction.
So the constraint on government spending is aggregate spending, not total tax receipts last year.
Armed with this information you can deduce that the government can purchase any output not consumed by the private sector at a fixed minimum price, so long as it doesn't compete with the private sector for the same resources, the most obvious being labour:
http://www.jobguarantee.org/
Once you have this understanding of how government finance works you can see that the government isn't desperately trying to "raise revenue to fund itself" but rather, needs to ensure it creates sufficient space in the economy to spend without inflation risk.
Most social programs deal with the fringes of the private sector and thus carry no inflation risk, and so long as they're counter cyclical do not need to be "funded" as such.
For everything else, taxing assets, wealth and resource usage will suffice!
https://www.nakedcapitalism.com/2014/06/randy-wray-tax-bads-...
We've become indoctrinated into thinking income tax is the norm. Nobody questions it but for much of US history, people viewed taxing work as an evil. And income taxes was a temporary tax instituted to fund wars ( civil war ). For most of american history, we didn't pay income tax.
No one ever evades taxes. As horrible as this may sound, that kind of included blacks.
[0] https://www.npr.org/sections/money/2018/07/18/630267782/epis...
(I don't have time right now to listen to the episode unfortunately).
Yet, car taxes amounts to only 44 billion NOK in income for the state per year (it was 70 billion NOK in 2007, before electric cars became popular here) [1]. The income/fortune tax on the other hand amounts to 248 billion NOK in income to the state per year [2].
Car taxes are nowhere near sufficient, and will never be. If taxes were increased to even more per polluting car, it would just drive even faster adoption to electric cars and a even more rapid car tax income decline. Replacing the income tax with a personal car carbon tax can't work.
[1] https://www.aftenposten.no/okonomi/i/Vy9xV/Bilavgiftene-har-...
[2] https://www.regjeringen.no/contentassets/62bcdd722d344cd0ac6...
Sounds like a good way to lose tax revenue.
However, I read the transcript of the podcast now, and it turns out it doesn't actually talk about replacing the income tax with a carbon tax, but rather reducing the income tax and offsetting the reduction with an increase of carbon taxes.
That on the other hand is a great idea, it's much like we're doing in Norway already.
Initially when the parent comment mentioned the income tax, I didn't remember that it would be used to offset a carbon tax. Their point about discouraging work made sense and was the thing I remembered.
If low income earners pay a higher effective rate than they would under income taxation, which is to be neutralised by credits, and higher income earners pay a lower effective rate, who makes up the deficit?
It turns out if just one country tries do do that, it's pretty much impossible to correctly tax items that go in or out of the country border though. An error in either direction (too much or too little tax) will severely harm local businesses and the environment.
The government concocted a scheme that is a bit involved, and complicated, and clever. There are actually a lot of different sorts of taxes VAT, sales, etc etc etc. Some optional, some not.
In terms we'd be familiar with, the "income tax" over there is charged on the business side. Imagine that you didn't have to pay income tax, but your employer cut your salary 30% because he had to pay a "social harmonization insurance fee" or some such nonsense for each of his employees. The employees, of course, would never see that, but it still, to my mind anyway, is effectively an "income tax".
It really is rare to find a developed nation where people get away from income taxes. Even when you do appear to find such a nation, if you examine the system closely enough, you can usually find how they're paying it.
You mean payroll taxes?
One of the gotchas if you plan on operating a business in China at all.
You actually get a refund on some of it (retirement) when you leave China.
And yes, VAT is super high on many things, shopping in China is pretty expensive.
In America, people have an inalienable, God given right to free speech. I understand that is not the case anywhere else on the planet, but consider stopping the abuse cycle by not perpetuating the interests of those who deny you the freedom of speech.
--------- Please stop reading here if you are too weak for free speech ----------
Even beyond the fact that the involuntary income tax that is used to fund the lives and lifestyle of others is slavery, people don't realize just how few people also actually pay net income taxes of any significant portion in the USA.
Even most of those who pay any income taxes whatsoever, which makes up about 112 million, don't realize that what they pay doesn't even cover what they consume, like if you contributed $10 to a garden party that cost $100 per head in costs, because you forced those high expenditures. Unfortunately, those types ... you know them ... feel justified and rationalize their entitlement because they "paid their taxes".
Unfortunately for all of us, things simply don't add up and unless you are willing to freely engage in this type of thing to support others at your expense, you are being enslaved on a bell curve on an income scale. Peak tax slavery is probably somewhere around the $60-70k level where you are most heavily burdened by the crush of taxes and get the least benefits. By estimate, at that level you are probably roughly 20% slave as an American.
It's a bit difficult to peg down exactly without thorough investigation, but if you remove all the government employees, who are not only not net contributors, but negative "contributors", aka, cost centers, to income tax receipts; and you then control for those who contribute some significant number higher than the cost of what they consume, you are left with very similar numbers as in China ... if those numbers can even be believed, which they far more likely than not can not.
Only around 3% of all income tax payers in the USA, or less than 1% of all residents of the USA actually make net positive contributions to the tax burden. I know this is not going to be well received because it's contradictory to the indoctrination and I say it as someone that is no fan of the elite and wealthy in general, but it's fact that somewhere around 99% of American society is living off or freeloading on 1% of the population.
People don't really know that, and are not told that, and it's also clearly obviously hidden from them, but it is more or less reality. Even if the rate were as high as 2% of the population, which is simply in no way possible, that still would not change the ramifications. Would 2 people supporting 98 freeloaders make any significant difference?
It's quite stunning actually and some people simply cannot and do not want to accept it for varying reasons.
It's really really not a good situation regardless of how you look at it; whether by the number of people who are not contributing members of society, or the fact that the government has enslaved the middle and lower upper class people to support both the unproductive members of society and use them to further enrich and empower the elite by taking their slaves' money from them against their will and giving in to the non-contributing masses in order to essentially buy their authoritarian power through democracy. It' essentially what is going on right now with the immigration debate, millions of low wage foreign people are going to enrich and empower the elite against the middle class that is being gutted and democracy fracked through immigration.
Ironically, it's n...
Do you mean federal or state income tax? I am in one of the states with no tax paid to the state (Texas) but rest assured we still pay federal income tax as well as higher property and sales tax to make up for it.
I'm in a state with no state income tax as well (Washington). I've lived in states with income tax before. As a single individual with high income that rents their primary residency I greatly benefit from living in places without income tax compared to places with even modest income taxes.
The initial idea of small federal government with states rights was brilliant because people could vote with their feet. If you're a progressive who supports the right to abortion, legal weed, and government health care you could move to a state that supports those things and gladly pay that states higher income taxes to fund it.
In my mind that system is far superior to having the federal government shove laws down the states throats and prevents the divide between our citizens becoming so massive as we've seen over health care and taxes at the federal level.
Income taxes are, however, pretty progressive, relatively easy to levvy and practical. They are not particularly bad taxes. Sales taxes, or VAT are worse in my opinion.
This is effectively a tax on the entire economy and challenges every sector or segment to grow price (including labor wages!) or lose value.
The idea is that (for sovereign governments with its own currency) the government is the issuer of money and logically doesn't need to get money from the population or to borrow it in any market.
Taxes have three possible purposes: create demand for the currency in the population, discourage some kind of spending or managing inflation.
MMT stress that almost the only limit for government spending is inflation and that the concept of 'public debt' is irrelevant. What makes a country rich or poor it's not how much money have but what resources (natural resources, population, knowledge, infrastructure..) it has. The obvious corollary is that the way of improving the life of the future generations is not 'saving' or reducing the 'public debt' but investing in the country now.
See a short overview here: https://theconversation.com/explainer-what-is-modern-monetar...
For example, related to the subject at hand, if the Chinese government wanted to start a big infrastructure project, being the issuer of the currency, it doesn't need any kind of external financing or taxes. What could happen is that if the new project represent a big drag in the total economy, inflation would appear. A possible way of controlling this inflation is by retiring money from the economy by taxation.