Study On The Income Redistribution Effect Of Personal Income Tax Special Surcharge Deduction

Since the reform and opening up,China’s economic development has been remarkable.However,as the level of disposable income of our residents has increased,so has the disparity in their income.Whether personal income tax can reasonably and effectively regulate the income disparity among residents has become a growing concern.Starting from 1 January2019,the new personal income tax system will gradually come into effect nationwide.This reform differs from the previous "small steps and slight adjustments" in that it innovatively adds special additional deductions.The introduction of the special additional deduction is of great practical importance,given that the current structure of income distribution in China needs to be further improved.In terms of deductions,it covers important aspects of taxpayers’ lives and can reduce their tax burden,but in practice,it needs to be further tested whether the addition of special additional deductions is conducive to regulating income distribution.Therefore,this thesis conducts an empirical study on the role of the special surcharge deduction in income distribution based on its objective of narrowing the income gap and regulating income distribution,so as to test its implementation effect.The whole thesis is oriented towards the current goal of common prosperity in China,leading to an exploration of the role and significance of special additional deductions for income redistribution.On the basis of the relevant studies conducted by scholars at home and abroad,the existing research results are analysed and summarised,so as to determine the research idea of this article.The article focuses on the theory of tax equity,the theory of income redistribution and the mechanism of special additional deductions to regulate income redistribution,and then analyses the current situation of income distribution in China,the basic situation of the new special additional deductions and the social significance reflected in the article.Then,an empirical analysis of the research content is carried out from three perspectives: overall,different regions and different income levels,to arrive at a more comprehensive and complete picture of the effect of the tax deduction.Finally,relevant policy recommendations are made based on the conclusions drawn.The specific research framework is as follows:Part I is an introduction.Firstly,the research background of the selected topic is explained,and the theoretical and practical significance of the selected topic is pointed out.Secondly,the different views and conclusions of scholars at home and abroad who have studied personal income tax expense deduction and redistribution effects are summarised.Accordingly,the ideas and methods of this thesis’ s research are presented,and the innovations and shortcomings of this thesis are pointed out.The second part is the theoretical foundation.Starting from the meaning of personal tax special additional deduction and income redistribution,a theoretical analysis is made on the relationship between the two and their mutual influence.The role of personal income tax in regulating income distribution and the role of special additional deductions in this regard are explained,as well as the measurement indicators used in this thesis.The third part is an introduction to the relevant system and the current situation of income distribution in China.The current situation of income distribution in China is explained,and the significance and effectiveness of the implementation of the special additional deduction added to the newly implemented personal tax in 2019 are elaborated,and the problems of the policy are discussed.The fourth part is an empirical analysis.Based on the data released by the China Household Tracking Survey(CFPS)2018,individual and household-level data are extracted and taxpayers’ incomes before and after the special additional deduction are calculated according to an appropriate matching calculation,the calculated data are used to further measure the Gini coefficient,and the MT index is calculated based on the change in the Gini coefficient,which is decomposed and analysed to compare the impact of the implementation of the special additional deduction policy on The MT index is then decomposed and analysed to compare the effect of the implementation of the special deduction policy on income redistribution.The fifth part is the policy recommendations.Based on the theoretical analysis and the empirical results in the previous section,reasonable suggestions are made on how to further improve the income redistribution effect.It is found that the special additional deduction has a weakening effect on the income redistribution effect of individual income tax.The reason for this is that although the addition of the special additional deduction reduces the overall tax burden,the deduction is mainly enjoyed by the higher income groups,while the lower income groups cannot enjoy the deduction or can only enjoy a smaller deduction,thus deepening the vertical inequity.By region,the weakening effect of the deduction on income redistribution is reflected in all regions,with the most pronounced in the East and relatively less in the Midwest and Northeast.By income range,the income redistribution effect of the special surcharge deduction is weakened for the three subgroups with incomes below ￥400,000,and only the income redistribution effect of the group with incomes above ￥400,000 is enhanced after the addition of the special surcharge deduction,which shows that the implementation of the special surcharge deduction is more beneficial to the income redistribution of the high-income group.Based on the above analysis,the final part of the article proposes policy recommendations to increase the number of special additional deductions,optimise the special additional deduction criteria,adjust the tax rate structure and improve the personal tax collection and administration system in response to the findings of different aspects of the study.