Harvey Dzodin: China will win the race to achieve “common prosperity”

September 14 , 2021

A traffic policeman works near the bund overlooking the skyline in Shanghai, China, Monday, Sept. 13, 2021. Flights and train service were being canceled in Shanghai, China’s largest city, as Typhoon Chanthu moved up the mainland coast Monday after bringing heavy rain and wind to Taiwan. (AP Photo/Chen Si)

By Harvey Dzodin,a senior research fellow at the Center for China and Globalization(CCG).

A newly released study by a 32-year old Harvard-trained economist shows the Biden administration’s desire to make tax collections in the US more fair for the vast majority of US taxpayers, but is unlikely to be successful. Even if the effort were to succeed, it is at best only a partial solution in a tax system that would continue to saddle the middle class with the disproportionate share of the tax burden and allow the top 1% to escape paying their fair share. In China, in sharp contrast, President Xi Jinping’s recently announced initiative to promote “common prosperity” has a much higher probability of success and is already bearing fruit.

Deputy Assistant Secretary for Tax Policy of the US Treasury, Natasha Sarin, made waves this week in pointing out the huge gap in US tax collection between the top one-percenter fat cats and the rest of us. She points out that the tax gap, the difference between taxes owed and collected is about $600 billion annually, resulting in $7 trillion in lost revenue in the next decade, assuming nothing is done to correct this situation. This gap equals all income taxes paid by the lowest earning 90% of taxpayers.

The gap exists because the churlish Republicans have constantly done everything in their power to limit the American tax collector, the Internal Revenue Service (IRS), from being able to fully investigate and collect taxes owed. It’s estimated that the fat cats have the highest percentage of unpaid taxes at 28% resulting in two disparate tax models, tax avoidance for the rich and a resultant heavier shifted tax burden for everyone else. The Republican opposition to tax law enforcement explains why the IRS is still somewhat reliant on ancient 60-year old computers programmed in obsolete language not used for decades, the technical equivalent of Egyptian hieroglyphics. These digital dinosaurs should have long ago been donated to the Smithsonian’s National Museum of American History.

Republicans don’t like paying their fair share of taxes and resent social programs designed to provide safety nets to the middle and working classes whether it’s social security, healthcare or food assistance. They derogatorily call this “welfare”, yet their own form of welfare is Robin Hood in reverse by sticking the 99% with the tax burden the one-percenters should morally and legally be shouldering.

Since the actor-turned-politician Ronald Reagan became president in 1981, the Republicans, and even some Democrats, have seen government assistance as a source of the nation’s problems, not as the source of solutions. In so doing, they have perverted the philosophy of one of their founding members, Abraham Lincoln, who said “that government should do for people only what they cannot do better by themselves.”

Even if Ms. Sarin and her Democratic colleagues are successful, unlikely because of Joe Biden’s razor thin majority in both houses of Congress, the system will continue to favor the rich over all others. This is because the 70,000-plus pages of tax laws and IRS regulations are like an ornament-laden Christmas tree. Virtually every ornament is a tax loophole devised by an army of expensive lobbyists to enable their rich clients to avoid taxes thereby shifting the financial burden to most of the rest of us, who are priced out of the lobbyist market.

This is the polar opposite of the orientation of the Communist Party of China (CPC) and its General Secretary, Xi Jinping. Last month, President Xi announced the CPC’s new policy of “common prosperity” which he defined as “affluence shared by everyone, both in material and cultural terms.” He promised to “adjust excessive incomes”, increase the size of the middle class and in the name of “social fairness and justice” to limit illicit income. Even before the announcement, Chinese fat cats and their companies saw the writing on the wall and have pledged billions of RMB to fulfill their previously largely neglected corporate social responsibilities.

Will the CPC be successful? Yes, just as they have recently eliminated extreme poverty and met the first centennial goal of building a moderately prosperous society in all respects.

The Gini-coefficient is the standard measure for determining economic equality in a society. A “0” represents complete equality and “1” its opposite. China’s is at roughly 0.47 and the US at roughly 0.41 is slightly better. Given trends in the US compared to China, I have every confidence that China will meet and surpass the US. This will likely happen no later than 2035 when the CPC aims to basically achieve socialist modernization thanks to its leadership using its successful model of Five Year Plans administered by competent officials promoted upward by the CPC based on performance.

From China Plus, 2021-9-14
Keyword Harvey Dzodin