| With the rapid step of economic globalization and integration of regional economy, international trade expands tremendously. The growth of international capital and labor flow and fluidity of materials enable countries become more and more closer. In recent years, western countries released their tax reduction policy gradually. Since 1998, China has taken the active fiscal policy through increasing government expenditure and releasing national bonds. These tools stimulated the growth of economy effectively. However, the room of increasing bonds is getting narrower, the function of government expenditure is decreasing. At the same time, China's macro tax revenue is increasing by years, which demonstrates an inconsistent phenomenon with active fiscal policy. Therefore, a debate on whether China should reduce tax and how to reduce is coming up. The paper begins with the western major economic schools fiscal theory and refers developed countries' tax reduction experiences, then analyzes the current situation of China's tax policy. Furthermore, the paper states how to promote the economic development with tax reduction tools and analyzes its effects. Finally, it gets the conclusion on China should reduce tax at this point of time. There are 3 parts besides the preface. 1. Background analysis of western economics tax reduction theoryEntering the 21st century, most western countries released their tax reduction policy and formed a tax reduction trend in the western world. By and large, the features of the trend are: applying reasonable tax rate, relieving the burden of firms and individual, enlarging the tax foundation, stimulating economic growth. Its measures are: decreasing the income tax of firms and individuals, increasing the exemption and rebate of income tax, releasing tax preferential policy to R&D, innovation, investment and medium and small-sized firms. In the 1980's, US began to apply tax reduction policy to stimulate economy. The policy objectively worked very well. Tax reduction policy played a very important role in helping economic recovery of USA. 2. Analysis on tax reduction theory of western economicsKenney's fiscal policy deals with the demand management, focuses on how to use tax tools under different situations. It states that if total demand is less than total supply, government should apply active fiscal policy to expand demand; if total demand is larger than total supply, government should apply tight fiscal policy to repress demand. During the depression period, tax reduction policy may increase the revenue of nations. Supply-side school begins their analysis with the supply side. They want to decrease marginal tax rate and increase save and investment of high-income people. They get a conclusion from the Laffer curve that the tax rate and tax revenue may not change toward the same direction. Moreover, it will change toward opposite direction sometimes. High tax rate neither increase the tax revenue nor stimulate the economic growth. 3. Reference meaning of tax reduction theory of western economics At present, China's tax revenue exists an inconsistency with the macroeconomic policy, that is, rapid increase of total tax revenue. On the other hand, comparing to other developing countries' firm and personal income tax rate and marginal tax rate, China's firm and individual load a relative heavy tax burden. High tax rate will affect the initiative of investment and works and high tariff will affect the competitive ability of China firms in international market. These factors will repress the health growth of economy. Western countries have more experiences on fiscal policy. We may draw some lessons from them. Especially in these few years, most of western countries decrease the income tax to encourage investment and relieve burden of domestic firms. They also decrease personal income tax to increase save and stimulate consumption, and decrease capital profit tax to encourage investment. Therefore, China may take these experiences as reference, such as uniting t...
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