Great China Leap (5), Tax is the Path

To a great degree, year 2006 marks the time that China solved the puzzle for wealth creation.

There are 2 major tasks going forward, looking inside, wealth distribution for inside and a balanced cohabitation with other countries for outside.

All great nations have been standing on each other's shoulder. As of social structure, western countries have done a lot of experiments about all kinds of civil, legal, welfare and other systems within the general capitalistic structure

There are too many reasons to borrow from other nations efforts, instead of trying to figuring out every policy in the dark, and suffering the consequence of "trial and error" social engineering, and Chinese gov't seems doing more and more of just that,

It's been my prediction that the general civil structure of China will be very similar to that of US within 5 or 10 years. As such I coined a word Chinarica, China going Americana

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During my earlier trip in May, I had a chance to talk with my brother in law, who
works for the taxing department in China. I was fascinated by his mentioned of some of the progress in Chinese tax system, both the policies and the collecting process.

He cited one example how, in a county level, they started to change the way collecting industrial taxes from business. Instead of visiting factories in person, they got all the workflow set up on a website. Most field trips on both sides have been saved, the process became much transparent, the effectiveness and efficiency going sky high. Their model was started to get copied to all over the nation.

On the policy side, there are many changes that each can be said a "major" change:

1) Reduce tax rate for domestic business entities,

2) Increase tax for foreign own business entities,

3) Increase tax for individuals by introducing "gross income tax" filing requirement,
which has strong implications on capital gains, even as of now only capital gains from
real estate is taxed and gain from stocks are specially excluded, the trend is clear

4) There has started to see some discussions on property tax,

Obviously, the gov't is trying to stimulate business activities, increase local competitiveness, reduce some loopholes and discourage rampant speculations from individuals,


In a modern society, tax is the way to collect society common resource, it's
also a very effective tool to direct investment from private resource. In an ideal
situation, if tax revenue is sufficient, for example as in Clinton's era, gov't should
not rely on bond debt to go through day and day. Economy will be in a virtuous cycle.

The other very important consequence of a tax funded gov't is that, the tax payers, collectively, will have more weight in shaping the economy policies. This is basically the other side of story, how to spend the common money. Once it's clear that the common money is not produced from some little dark room in the central bank, the gov't will have obligations to explain it budgets, for what and how much. Recent news from China seems to confirm that the gov't is indeed moving to this direction.

It might sound a little ironic, but it's my view that to go to a true republic, tax is the path!