A Study On The Taxation Reform Narrowing The Gap Of Income Distribution Between Residents

The reform of income distribution has been the focus of attention from different sectors and communities of the society, and as been attached great importance to by the Chinese government. The report of the18th National Congress proposed that "we should take speedy steps to improve the mechanism of secondary distribution regulating income distribution mainly through taxation, social security, and transfer payments", and the State Council declared approval and transfer of the guidelines of a statement, which further promoted that " the focus of the reform is to increase income of urban and rural residents, narrow income gap and regulate the distribution order", and that " to gradually form a reasonable and orderly pattern of income distribution".Since1949, the distribution guidelines in our county have been changed from the initial "equalitarianism", to the principle of "giving priority to efficiency with due consideration to fairness" after the reforming and opening-up policy, and the proposal that "the proper balance should be struck between efficiency and fairness in both primary and secondary distribution, with particular emphasis on fairness in secondary distribution" in the government report of the18th National Congress. While those guidelines differ from one another, the reasons lying behind are the same: all the changes are resulted from the development of the according social economy.The emphasis on fairness in secondary distribution is due to the ever widening income gap of our country.Firstly, there is sizable income gap among citizens of the whole country. Different Gini coefficient (a rich-poor index) versions of China vary according to their different data sources, while they all outnumber the warning level of0.4set by the United Nations, which tells a serious distribution situation. One report also said that the top10percent high-income families in China possess84.59percent of the society’s total assets, and the disposal incomes of these families make up56.96percent of the total family disposal incomes. Secondly, the income gap between urban and rural areas is widening, with the disposal income of urban residents more than two times bigger than that of their rural peers. Thirdly, income gap among different industries is widening. China’s income gap among industries hit15.3in2008, far outnumbered the level of3accepted by the international community. Fourthly, income gap among regions is increasing, which is mainly because of the income gap of different provinces.To examine the adjusting effects of China’s taxation system on income distribution, the article, based on the example of individual income tax, studies the effects of reforms of the individual tax on the urban-rural Gini coefficient. And it is concluded that adjustments in tax rate, tax exemption and taxation measures do have some effects on the decrease of Gini coefficient, while the effects are quite small.The reasons for the relatively small effects of taxation adjustments are as follows:firstly, the structure of the tax system is not reasonable, with a considerably low percentage of direct taxes, which are expected to cut high incomes. About70percent of tax incomes are indirect taxes including value-added tax and consumption tax, with the other30percent direct taxes, and of the total tax incomes, there are more than20percent corporate income taxes, no more than7percent individual income taxes, and no property taxes at all. Secondly, the design of taxation is improper. Individual tax is levied according to the income of a single person, with different rates and deduction numbers for different incomes, which is not suitable for income adjustment. In terms of consumption tax, commodities like cosmetics are still being levied though they are not suitable to be levied any more, while high-end commodities or services like luxury hotels and sauna are yet to be levied. The rate of resource tax, which is levied by a certain number according to the quantity of resources, is too low, thus the profits from resources are enjoyed by a small class and environment protection is challenged. Thirdly, property tax is wanting. Real estate tax is only levied from transactions and is still in pilot and the death and gift tax is not levied yet.To find solutions to the aforementioned problems, the article, based on social equity and income distribution policies, studies taxations in developed countries like the US, Japan, Britain, France and Germany, high-welfare north-Europe countries, as well as Latin American countries who have dragged themselves to the "middle income trap". By perfecting the systems of taxation, social security and transfer payment, north-Europe countries enjoy relatively small income gap and fair income distribution; Germany always focuses on equality, and its Gini coefficient has been staying around the level of0.3since the end of the20th century; the US put emphasis on a free market and dismisses high taxes, so its income gap is relatively larger, with a Gini coefficient of0.5in2010; the Latin America is considered to have the most unfair income distribution, with the Gini coefficients of most counties in this region all staying above0.5and relatively lighter tax burdens, and the tax income percentages of GDP of Mexico and Chile were18.7percent and20.9percent, respectively, the lowest among the members of the Organization for Economic Co-operation and Development (OECD).Based on the analysis above, this article proposes countermeasures as follows: firstly, levy property taxes like real estate tax and death and gift tax as soon as possible, to increase means of income adjustment; secondly, further reform individual income tax and introduce the mixed taxation method, in which the tax will be levied according to the income of a whole family, in a bid to perfect the taxation system; thirdly, adjust the base of consumption tax, exclude taxes of widely-consumed commodities like cosmetics and include those of high-end furniture and hotels; fourthly, reform taxation of resources by integrating tax ion items and increasing the taxation rate.