China lesson for Obama: tax the rich - Shaun Rein

Shaun Rein

Income inequality in the USA is larger than in China and Iran, says a report from the CIA, even though China has a huge income divide too. But one part it has done better than the USA: it taxed the rich, where the money is, not the poor, says business analyst Shaun Rein in Forbes. 

Partially because of those high consumption taxes, prices for luxury cars are often two or three times as much as in America. For instance, an S600 Mercedes runs about $350,000 in China, versus $120,000 in America. Even a souped-up Toyota Camry costs as much in China as an entry-level Porsche in America. The soaring sales of luxury cars there prove that the wealthy will continue to consume despite a high consumption tax, which won’t destroy confidence the way high incomes taxes would. 

By taxing consumption more, the Chinese government has been able to reduce income taxes for low and middle income earners while leaving income taxes for high earners untouched. In October of 2011, the government raised the minimum taxable wage level by about 10%, immediately enlarging the spending power of millions. Most Chinese now don’t pay any income tax. The government also reduced tax rates for small enterprises while maintaining tax rates for larger corporations, including state-owned enterprises... 

By raising consumption taxes on products and services targeting the affluent while reducing or maintaining income tax levels, the Chinese government has been able to sustain consumer confidence, increase spending (retail sales have risen 16-18% annually over the last three years), and get needed tax revenue for infrastructure projects required to maintain employment numbers. China has not cracked the income disparity problem, but its measures to reduce inequality have been more effective than America’s and have not polarized the nation.

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Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

More on Shaun Rein and his upcoming book "The End of Cheap China" in Storify.

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