Chapter 32 Boost China's economy with tax cuts and rebates

According to Professor Chen Zhiwu's vision, if the Chinese government distributes a tax rebate of 1,000 yuan to each of the low- and middle-income earners whose monthly income is less than 5,000 yuan (minors are also included in the distribution), it will require a fiscal expenditure of 1.1 trillion yuan.However, this can stimulate the growth of private consumption, which in turn will drive GDP growth by at least 5 percentage points, which is also a major benefit to the long-standing weak Chinese stock market. ◎Reporter: What are the signs that China has reached the point where tax cuts and tax rebates are needed?What is the critical point for a country to reduce or rebate taxes?

Chen Zhiwu: There are several facts that cannot be ignored. First, after removing the inflation factor, the Chinese government’s fiscal and tax revenue has increased by 5.7 times over the past 12 years, with an average annual growth rate of 16.2%. In 2007 and 2008, the growth rate was even faster, with a growth rate of more than 30%.In contrast, the per capita disposable income of urban residents increased by 1.6 times over the same period, with an average annual increase of 8%; the net income of farmers increased by 1.2 times, with an average annual increase of 6%.Obviously, the benefits of economic growth are being concentrated in the hands of the government at an accelerated rate, and the share of ordinary people, especially farmers, is getting smaller and smaller.

Second, the government is spending more and more money on image projects and office buildings, and the waste is getting worse.From a simple and intuitive point of view, whenever you see the city government, county government, and township government vying to build a "White House" and comparing each other whose office building is better, it means that the government's taxation is too high, and it is time to rebate and reduce taxes.From a theoretical point of view, as long as the benefit brought by every dollar spent by the government is lower than the benefit brought by the civil society itself, it marks the critical point of tax cuts and tax rebates.

The problem is that there is no substantive legal framework in China to constrain the right to levy taxes, to judge when the tax rate is high, there are more types of taxes, and the critical point of tax reduction has reached.In this case, any tax collection and tax increase should be more cautious.The unfettered expansion of taxes and rates of the past is over. The tax money belongs to the common people, and the tax refund is not a charity by the government, but a part of the money that originally belonged to the people. Third, the global economy is slowing down and may be entering a recession. Resource and food inflation will not only bring challenges to China's economic growth, but also increase the pressure on people's lives.If the global economy continues to deteriorate in the future, the Chinese government should send money to low- and middle-income families through tax rebates to stimulate domestic economic growth and help them tide over the difficulties.

◎Reporter: Under the current circumstances, are tax rebates and tax cuts more effective in stimulating economic growth than increasing government investment? Chen Zhiwu: When the Chinese economy encountered challenges in the past, the usual method was to stimulate growth by increasing investment in infrastructure and industrial projects by the government. For example, this was the case during the Asian financial crisis in 1997-1998. That was the right thing to do when China needed rapid industrialization and urgently needed to build a transportation network.However, since this practice has been used all the time, the industrial production capacity has been severely oversupplied in recent years, and the international market that can be opened has basically been opened, and the international market has even been crowded with Chinese products. Boom, who will buy the newly produced things?

Therefore, from now on, the way to stimulate the economy and solve growth challenges must be shifted from investment to stimulating consumption.That is to say, return the money originally invested by the government to low- and middle-income families, so that the money that ordinary people can spend increases, and the ordinary people can consume it themselves.The same amount of money is spent by different subjects, and the effects vary greatly. If the government still spends on infrastructure and image projects today, the utilization efficiency of these infrastructure and image projects will not be high, and will not generate too many new jobs, and it will not be easy to activate a series of income growth effects through these investments.

Today, China has overcapacity, and the bottleneck of economic growth is the lack of consumption of residents. If the money is spent on the common people, the consumption of people's livelihood will immediately generate effective demand, and provide new opportunities for many industries, including the service industry of medical care and education, and the consumer goods industry. Income opportunities, which in turn lead to new employment and further income growth, thus producing a series of chain growth reactions.This is why macroeconomists believe that in the case of excess production, every 1 yuan of tax refunded to the common people can generate more than 1 yuan of new GDP.

In short, with the rapid economic development today, tax rebates and tax cuts must be the most important financial means for government regulation and economic stimulation. This is an inevitable trend. ◎Reporter: When you proposed the tax rebate plan, was it inspired by the relevant policies of the US Republican government or was it a conclusion drawn from the investigation of China's reality? Chen Zhiwu: There are two reasons. The tax rebate stimulates economic growth is also the basic principle of modern economics.The bottleneck of China's economic development is no longer the production capacity, but the lack of private consumption.Why is private consumption insufficient?Of course consumers have no money.In contrast, the government's fiscal surplus in the first half of 2008 was more than 1 trillion yuan, and there are still tens of trillions of state-owned assets and state-owned land that can be added in value.Seeing this, even people who have not been trained in economics and have not heard of the repeated tax refunds of governments such as the United States and Singapore can understand how to do it.On the one hand, the civil society is short of money to spend, and on the other hand, the government has a lot of money. You say, in order to stimulate consumption and drive economic growth, what should be done?

◎Reporter: In your plan, only those whose monthly income is less than 5,000 yuan can get tax rebates. How is this basis determined?Why can the government boost economic growth by at least 5 percentage points when the government withdraws 1.1 trillion yuan in fiscal expenditures? Chen Zhiwu: A very important consideration here is to try to convert the tax refunded to the society into consumption as soon as possible, so as to immediately stimulate the economy and start the growth chain.Therefore, the more tax rebates are concentrated on the low- and middle-income groups in society, the better the effect of stimulating the economy will be.I can get 5,000 yuan per month, which is the high end of the middle-income group in mainland China, so I chose this figure.My idea is that for people with higher incomes, even if we give them a tax rebate of 1,000 yuan, it may not have any impact on their lives and will not stimulate their consumption.People with a monthly income of more than 5,000 yuan are not eligible for tax rebates, out of consideration for social justice, and the most important thing is to be able to achieve the purpose of stimulating the consumption desire of most people.

The experience of the United States is that for every US$1 in tax rebates to low- and middle-income families, about half will be consumed quickly.However, due to the income chain reaction brought about by such consumption, generally speaking, every dollar of tax rebate will eventually increase GDP by 1.3 dollars.In China, since food and basic living consumption are still the main consumption items of most families, tax rebates for the bottom of the society can stimulate consumption more than in the United States.In a conservative calculation, every 1 yuan of tax rebate may bring about 1.4 yuan of GDP increment.In other words, if the overall tax rebate is 1.1 trillion yuan, the total increase to GDP will be around 1.5 trillion yuan, which is equivalent to about 5% of this year's GDP.

◎Reporter: In terms of enterprises and individuals, which tax rates in China should be lowered the most? Chen Zhiwu: In terms of enterprises, value-added tax and business tax should be abolished and replaced by a unified corporate income tax.In terms of individuals, the starting point for personal income tax collection should be raised, for example, to 5,000 yuan to help low-income families; interest tax should be reduced or eliminated, and asset and securities value-added tax should not be introduced, so as to encourage more personal venture capital. .However, tobacco and alcohol taxes, gasoline taxes, car taxes, and high-end luxury goods taxes can continue to be introduced. ◎Reporter: What is the root cause of the sharp increase in tax revenue when China's economy may face contraction? Chen Zhiwu: Part of the reason is that the efficiency of tax collection has improved, which has expanded the tax base.But the most important reason is that the right to levy taxes and increase taxes is not restricted. Taxes can be increased without public hearings and discussions by the legislature. The negotiating rights of both parties are asymmetrical, and it is difficult for tax revenues to rise sharply. ◎Reporter: You once said that the power of government departments to increase taxes and tax rates is not subject to substantial constraints. It should be reformed so that only the National People’s Congress has the power to introduce new taxes and raise tax rates. .However, the economic and social conditions of different parts of China are very different. Is there a contradiction between the unified taxation power and the reform direction of the decentralization of local and central fiscal powers in the reform of the administrative system? Chen Zhiwu: The reason why I proposed that the taxation power should be transferred to the National People’s Congress is mainly because the heads of governments above the township level are mainly responsible to their superiors. Under such circumstances, if the taxation power is delegated to the provincial and county levels , government leaders will increase taxes more freely and expand tax categories.The reason is simple: on the one hand, the higher-level government, which holds the power to appoint local officials, is not a victim of the loss of local tax collection power, and they don’t care about the tax pain index; on the other hand, local enterprises and taxpayers who are deeply disturbed by the loss of tax collection power People, with limited power to restrain local officials.In the case of local taxpayers lacking direct supervision power, they would rather collect tax power. ◎Reporter: Scholars have been talking about tax rebates for a long time, but there is no substantial progress. What do you think is the problem? Chen Zhiwu: The problem is that no government department has really taken the lead in promoting it.Of course, the Ministry of Finance will not be motivated. Are you willing to return the tax money you have received?Other departments are interested, however, the purview is not with them.At this time, the Standing Committee of the National People's Congress, especially its Finance and Economics Committee, should take up this responsibility, put forward tax refund and tax reduction motions, and organize public hearings, request the Ministry of Finance, the Development and Reform Commission and other relevant administrative departments to implement them, and require them to report on the progress on a regular basis and execute it last. ◎Reporter: How likely is your tax refund plan to get government support? Chen Zhiwu: The support is very high.Some provincial and municipal governments really want to give tax rebates and subsidies to local low- and middle-income families, but they dare not take political risks for fear of "shooting the top bird".They are also in a hurry.Dongguan, Guangdong has already done this, and this is a good start. I hope the central government can see the advantages of the policy of "tax rebates to stimulate consumption and thus economic growth".I am very optimistic about this, because many economic experts inside and outside the Chinese system have also seen these truths and made appeals.