By William de Tocqueville
Getting ahead means getting access to special treatment. China’s tax system is a case in point. The country’s tax authorities estimate that mid- to low-income workers account for two-thirds of personal income taxes paid, in sharp contrast to the United States, where the top 5 percent of income earners pay nearly 60 percent. The difference isn’t the tax rate—with its top tax bracket at 45 percent, China actually has a higher marginal rate than the United States, scoring second only to France in Forbes’ ‘tax misery index’ based on nominal rates. The disparity is due to rampant tax evasion. China’s millionaires may owe more in theory, but they pay very little in practice.
According to a recent study commissioned by Credit Suisse, and conducted by Prof. Wang Xiaolu of the China Reform Foundation, hidden, undeclared income in China may total as much as RMB 9.3 trillion ($ 1.4 trillion), equivalent to 30 percent of GDP. Nearly two-thirds of hidden income belongs to the top 10 percent of households; 80 percent belongs to the top 20 percent. As a result, the per capita income gap between the top 10 percent and bottom 10 percent of urban households is much wider (26 times) than official statistics suggest (9 times).
The nature of this income is what rankles. According to the Credit Suisse report, ‘The facts show that grey income has its origins in the misuse of power and is closely connected with corruption.’ In other words, it’s the power wielded by government officials, not the absence of it, that’s fuelling inequality and fanning popular discontent.
Resentment has been dampened, somewhat, by China’s spectacular rates of economic growth, which helps explain the Chinese government’s obsession with hitting its growth targets. For the past two years in particular, China has been able to say to its citizens, ‘You think you’re unhappy? Just count your blessings that you’re here, and not someplace else.’ But what would happen if growth faltered?
The other day, I was parking my car in an underground garage in Beijing, when I came across an all-too-common scene. A black luxury sedan with official red People’s Armed Police plates had just parked in a spot reserved for someone else. When the garage attendant came over and rather meekly suggested that he move the car, the driver turned on him viciously. ‘Who are you? You’re nothing!’ he bellowed, with such force the concrete walls seemed to reverberate. ‘I will squash you like a bug!’ His father may not have been Li Gang, but the point was still clear. In today’s China, like in Orwell’s Animal Farm, some animals are more equal than others.