Posted 10:05 pm Thursday, July 19, 2012
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China Understands Basic Economics
It's a bit sad when one of the world's last communist countries gets free market economics better than the United States does, but it's happened again. Facing a recession and declining demand for its products and labor, China has announced it will cut taxes on businesses.
China will cut taxes on the profits that foreign companies take out of the country by up to 50 per cent after rules on withholding taxes were relaxed to encourage more overseas investment,” Financial Times reported on Monday. “The move will also apply to dividends paid by Chinese listed companies to foreign shareholders through the Qualified Foreign Institutional Investor scheme. In both cases, the lower tax rates will apply only to companies and shareholders based in countries, such as the U.K., that have double taxation agreements with China.”
Of course, the United States isn't included in that; we tax our businesses on a “global” basis.
But companies from other nations will benefit. So will China.
As one Chinese trade official explained, “The new rule will reduce the tax cost of investment in China, and will make investment in China more attractive.”
Seems simple enough; lower taxes will encourage more business, which will boost the economy. Right?
The Obama administration doesn't seem to get it.
Last weekend, President Barack Obama fired a poorly aimed broadside against business, and in particular against the men and women who worked to build them up.
China will cut taxes on the profits that foreign companies take out of the country by up to 50 per cent after rules on withholding taxes were relaxed to encourage more overseas investment,” Financial Times reported on Monday. “The move will also apply to dividends paid by Chinese listed companies to foreign shareholders through the Qualified Foreign Institutional Investor scheme. In both cases, the lower tax rates will apply only to companies and shareholders based in countries, such as the U.K., that have double taxation agreements with China.”
Of course, the United States isn't included in that; we tax our businesses on a “global” basis.
But companies from other nations will benefit. So will China.
As one Chinese trade official explained, “The new rule will reduce the tax cost of investment in China, and will make investment in China more attractive.”
Seems simple enough; lower taxes will encourage more business, which will boost the economy. Right?
The Obama administration doesn't seem to get it.
Last weekend, President Barack Obama fired a poorly aimed broadside against business, and in particular against the men and women who worked to build them up.
“Look, if you've been successful, you didn't get there on your own,” he said. “I'm always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something — there are a whole bunch of hardworking people out there… If you've got a business — you didn't build that. Somebody else made that happen.”
This attitude is behind his determination to tax “high-income” Americans, who make more than $200,000 per year — a move that would penalize more than a million small businesses, whose owners file taxes as individuals.
In his Saturday radio address, Obama denounced what he called “top-down” economics.
“We already tried it that way for most of the last decade, and it didn't work,” he said. “We're still paying for trillions of dollars in tax cuts that benefitted the wealthiest Americans more than anyone else; tax cuts that didn't lead to the rise in wages and middle class jobs that we were promised; and that helped take us from record surpluses to record deficits.”
Actually, no — we're still paying for the spending spree Congress went on during the decade. Observes Heritage Foundation economist Brian Reidl, “Entitlements and other obligations are driving the deficits.
Specifically, Social Security, Medicare, Medicaid and net interest costs are projected to rise by 5.4 percent of GDP between 2008 and 2020. The Bush tax cuts are a convenient scapegoat for past and future budget woes. But it is the dramatic upward arc of federal spending that is the root of the problem.”
It's the spending, not the tax rates on upper incomes. How come everyone else in the world gets this? It's not just China. Even Greece — Greece — realizes this. That country is lowering its corporate tax rate.
“Greece's Finance Ministry plans to introduce a single tax rate of 20 percent on company earnings, replacing rates that range as high as 45 percent today,” the Bloomberg News Service reports.
This attitude is behind his determination to tax “high-income” Americans, who make more than $200,000 per year — a move that would penalize more than a million small businesses, whose owners file taxes as individuals.
In his Saturday radio address, Obama denounced what he called “top-down” economics.
“We already tried it that way for most of the last decade, and it didn't work,” he said. “We're still paying for trillions of dollars in tax cuts that benefitted the wealthiest Americans more than anyone else; tax cuts that didn't lead to the rise in wages and middle class jobs that we were promised; and that helped take us from record surpluses to record deficits.”
Actually, no — we're still paying for the spending spree Congress went on during the decade. Observes Heritage Foundation economist Brian Reidl, “Entitlements and other obligations are driving the deficits.
Specifically, Social Security, Medicare, Medicaid and net interest costs are projected to rise by 5.4 percent of GDP between 2008 and 2020. The Bush tax cuts are a convenient scapegoat for past and future budget woes. But it is the dramatic upward arc of federal spending that is the root of the problem.”
It's the spending, not the tax rates on upper incomes. How come everyone else in the world gets this? It's not just China. Even Greece — Greece — realizes this. That country is lowering its corporate tax rate.
“Greece's Finance Ministry plans to introduce a single tax rate of 20 percent on company earnings, replacing rates that range as high as 45 percent today,” the Bloomberg News Service reports.
In a recession, government should do anything it can to encourage business and commerce. You'd think the U.S. government would understand that.
