The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

What Chinese and Americans Have In Common . . . Taxes

09/23/2010

The Chinese have a progressive tax on income, which means your tax rate increases as your income increases, similar to ours. However, they have no estate tax, at least not yet.

As income inequality increases, so does social instability, which is the greatest fear of the Chinese government and can hardly be emphasized enough. To take more from the rich, there is now growing pressure to tax the estates of the rich.

What amuses me is the argument by the Chinese Academy of Social Sciences that says “Before imposing inheritance tax on the rich, the government must study international taxation laws and practices thoroughly. What happens if some countries do not impose inheritance tax at all or have much lower rates and China decides to implement it hastily? It could cause many rich Chinese to migrate abroad and lead to unnecessary outflow of domestic capital, harming the national tax revenue and even the national economy.”

This is pure classical economics, which says capital flees taxation and goes where it is appreciated. Funny, I haven’t noticed too many Americans leaving our great country just to avoid taxes . . . that aren’t even paid until after they’re already dead anyway. Let me know if you do!

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