Source: CNKI-Liaoning Normal University Original draft
In 2016, China's finance minister proposed that China need to reform its individual income tax system.
This is because the current system was formulated in the early days of reform and opening up, and there are some irrational aspects.
In the process of revising the tax system, China can also refer to the personal income tax system that has been developed in the United States for more than 100 years.
Through a relatively mature personal income tax system, the total tax revenue of the United States in 2023 will reach 2.18 trillion US dollars.
So, how much is China?
The personal income tax in the United States depends on the rich
I believe that many friends who watch American dramas often hear that the characters in the play will call themselves "taxpayers", which translates into Chinese as "taxpayers", and they think that they are the "behind-the-scenes" who support the operation of the US government.
From this, it can be inferred that a large part of the fiscal revenue of the United States should come from taxpayers. So, what exactly does it look like? This starts with the US individual income tax system.
First of all, the U.S. individual income tax system is based on the personal credit system, which links the personal income account with the credit account, and avoids tax evasion while showing the user his personal income.
Secondly, the individual income tax in the United States is collected according to the rule of the "excess progressive system". To put it simply, if an American citizen earns more money, he needs to pay more personal taxes.
For those low-income people, the U.S. government adopts the method of "paying taxes" first and then "rebate", so that they can maintain the cost of living.
In addition, it can be seen from the data released by the US Treasury Department that citizens with an annual salary of more than $100,000 are the main contributors to the country's fiscal revenue, accounting for more than 60% of the taxpayer population. It can be seen that the US tax revenue is mainly supported by the wealthy, not the ordinary wage earners.
So, what is the individual income tax rate levied in the United States?
From the beginning of the government's introduction of the individual income tax system, the tax rate to be paid was 1%-7%.
However, the excessively low tax rate could not bring too much revenue to the United States, so it was upgraded to 2%-15% after 3 years.
Since then, the United States has revised the amount of individual income tax several times, which is also related to the two world wars.
It was not until 1986 that the United States officially implemented a progressive individual income tax system.
If a family earns more than $160,000 a year, it faces a tax rate of more than 28%. Families below this rate are subject to a 15% tax rate.
In 1993, the U.S. Congress again raised the tax on the wealthy.
Later, during the Obama administration, the "middle-class tax cut" program was adopted, which meant that the middle-income group could be exempted from a portion of the tax.
At the same time, the Obama administration has further raised the personal income tax rate for high-income households.
From these reforms, it can be seen that the US government is determined to make the rich "contribute" to the finances.
China's individual income tax, groping for upgrading
So, what is the situation of China's individual income tax system?
Although Chinese civilization has continued from antiquity to the present day, China has encountered an unprecedented colonial crisis in modern times.
In 1949, after the founding of the People's Republic of China, the sons and daughters of China had a stable life again.
Because China needed to recover from the devastation of the post-war period, the pre-1980 government did not introduce a personal income tax policy. Moreover, in this stage, the state is making a big plan of the economy.
The relatively simple source of income also makes the IIT payment system somewhat unnecessary.
Later, Mr. Deng Xiaoping proposed reform and opening up, and vigorously developed China's economy. During this period, many foreigners came to China to set up companies and start businesses.
At this time, it is necessary to levy individual income tax.
Therefore, in 1980, the National People's Congress passed China's first individual income tax law, which divided personal income into seven tiers, and each tier was charged a different tax rate.
It should be mentioned here that China's maximum individual income tax rate at this time has reached 45%, which is much higher than that of the United States.
By 1993, China's tax law had also been amended to classify income into nine tiers.
These are all tax laws for individuals, which means that China has also enacted some tax laws for other targets, such as individual industrial and commercial households, who are required to pay "excess progressive income tax", with a maximum tax rate of 55%.
Although it seems that China's individual income tax is very high, there are very few people who can meet this standard.
Moreover, there is also a disadvantage of taxing according to different categories, that is, with the diversity of income sources of Chinese citizens, it will be difficult to assess the ability of citizens to pay taxes.
China's individual income tax system also creates a situation where people with many sources of income and high salaries pay less taxes, while those with a single source and lower salaries pay more taxes.
Such an unreasonable policy will cause anger among citizens and will also violate the principle of fairness of individual income tax.
Moreover, China does not have a complete personal credit system like the United States, which makes it difficult for the tax department to grasp the true financial situation of a person.
In this case, tax evasion is likely to occur.
The contrast between China and the United States is tragic
Therefore, China needs to refer to and learn from the U.S. individual income tax system, so as to carry out a more reasonable and fair individual income tax collection for citizens.
And this can also be seen from the comparison of China and the United States in the total amount of individual income tax in 2023.
The GDP of the United States in 2023 will be nearly $28 trillion, while China, the world's second-largest economy, will be nearly $18 trillion.
Although there is still a large gap in total GDP, the gap in individual income tax is even greater.
The U.S. tax is 2.18 trillion yuan in this year, but China's is only 200 billion U.S. dollars. In this personal income tax competition, China is at the bottom.
The fundamental reason for this gap lies in the imperfection of China's individual income tax system.
As mentioned above, China's individual income tax is based on a categorical tax system, which only emphasizes the collection of income from wage earners and labor remuneration, and is open to those who do not earn earned income.
Therefore, China's wealthy class can earn a huge amount of hidden income without paying taxes by investing in real estate and the stock market.
As a result, this will further widen the gap between rich and poor in China, and it will also chill the working class, who have to bear the vast majority of the country's taxes.
Even if China has been adjusting the individual income tax threshold so that low-income people do not have to pay so much tax, this is actually a "drop in the bucket".
After all, China's individual income tax revenue can only be increased if it truly has a well-structured individual income tax system.
Of course, China has also begun to work towards a more reasonable and fair personal income tax system.
Perhaps one day in the future, Chinese citizens will be able to benefit from the individual income tax system.
Reference: Comparison and Analysis of the Differences and Advantages of Individual Income Tax Systems in China and the United States - Chi Lihua and Lu Yanqin
https://kns.cnki.net/kcms2/article/abstract?v=Xhw-7KfLOFnyEjmd_buHv5kT_TitXItaFVBGIAStx_u8fg3hzgHLs_f8JX6GmcmwU4rdYvC8awB249l-nzt1JoFXAoJmn7sFdODLT-2tzOlDI125HfahKsEOG3nQ8ZdkFbnXNM35HqxZhzr-a4wvbw==&uniplatform=NZKPT&language=CHS