Consumption, distribution and taxation
Many factors affect the state of consumption, among which scientific research and production are the most powerful internal drives; national redistribution policies – particularly taxes – also significantly affect the state of consumption and determine the level and direction of consumption. The reasonableness of the distribution system and tax policy could even affect scientific research and production, and determine whether social development is dynamic or not.
Distribution, consumption, and superstructure are three interlinks, whose relationship is like fish and water. The superstructure determines the gross revenue, expenditures, and overall distribution policies of the country and regulates overall consumption levels, while the distribution proportions and consumption level are fixed according to the overall development level of the country’s productivity and the overall national revenue and expenditure levels. Right and good distribution policies and consumption proportions in turn promote the development of productivity, an increase in consumption level, and the development of the whole national economic base; and it further solidifies the superstructure. In his speech in 1957 ‘On the Correct Handling of the Contradictions among the People’, Chairman Mao Zedong stated:
The socialist production relation, which adapts to the development of productivity, has been established. However, it is not perfect yet. These imperfect aspects are contradicted to the development of productivity. Besides the case of adaptation and contradiction between production relations and productivity, there also exists the adaptation and contradiction between superstructure and economic base.
Thus socialist economic development should constantly resolve the imperfect aspects of the superstructure and economic base, and constantly solve the imperfect aspects of production in relation to the development of productivity.
The development of an economic base and productivity is in a constant dynamic state. The development of economic base depends on the development of productivity. Owing to the increase in the cultural, scientific, and technological quality of human beings, science and technology are developed at a higher speed than ever before. This in turn increases productivity. Such an increase in productivity demands that production relations quickly adapt to its development.
The fast development of productivity inevitably promotes the development of the whole national economy and promptly increases the basic capital of the whole national economy and economic power. Thus, the superstructure – the country – will be stronger, safer, and more stable. The security and prosperity of the country will enrich and strengthen citizens.
Thanks to the fast development of productivity and the increase in the strength of a national economic base, the proportion and relative value of the country’s overall distribution of social wealth are increasing in the following ways:
Unbalanced proportions of the total social wealth distribution lead to unbalanced development of industrial structures, and therefore may affect the development of the entire economy. Thus, management and control must be strengthened especially over distribution and use of total social wealth for various social consumption needs. Severe waste must be reduced or eliminated. Investment efficiency and labor efficiency must be enhanced. Those are major responsibilities of the government. Or, it will be a case of obvious malfeasance.
At the primary stage of socialism, we have to practice the production of commodities and exchange of capital. The people at this stage are inevitably in a position to produce capital commodities and manage the relationship between production relations and productivity. In the process of commodity exchange and consumption, society has to conform to the distribution principle of more pay for more work and the principle of repeated redistributions of social wealth based on macro regulation. However, there are inevitable contradictions because of the differences between consumers and consumer groups. If not resolved well, these contradictions may lead to conflicts and become causes of instability in society, therefore:
3. The enterprise should implement macro regulations on the redistribution of overall state interests to meet minimum consumption needs, for the purpose of mitigating various types of contradictions and achieving the wealth of the nation, wellbeing of people, and the long-term stability of the country.
4. The policy on obtaining and redistributing social wealth by the government is the basis for resolving conflicts between consumers; it is a meaningful and yet difficult event to liberate the productive forces, constantly adjust production relations to productive forces, eliminate social consumption waste, corruption, and crime, and promote the harmonious development of society. Making progress for the benefit of the country and people in spite of difficulties and possible criticisms will finally win understanding from others and prove to be valuable.
The superstructure, which represents the interests of the people and masters the national machinery, completely serves citizens’ consumption and the whole country. Its purpose is to strive and struggle for an increase in human living consumption, social undertakings, and national defense. All the policies and strategies of the country and all its distribution policies and modes are based on the preconditions that they should accord with basic social and economic conditions, ensure the productivity initiative, ensure the stability and security of the country, and promote the comprehensive development of society. Distribution is an important element of state government to develop production and make production relations suit the development of productivity.
Superstructures and production relations determine the proportion of individual living consumption to the social consumption of social undertakings, the proportion of defense to the entire national machinery, and the proportion of all levels of consumption. The primary stage of socialism is still the stage for capital commodity production and value exchange. At this stage, the basic principles are more pay for more work, sharing of surplus wealth of social capital, as well as distribution of means of production and constant redistribution of overall social wealth.
The premise of redistributing social wealth many times is to narrow down distribution differences and ensure there is a minimum level of social consumption. We adhere to the distribution principle of more pay for more work, and pay attention to the difference between complex labor value and simple labor value, and to the quantitative difference between simple labor value and that of large, dirty, and hard labor. The difference in distribution should be substantial. Generally speaking, labor value can be divided into complex labor value and simple labor value. The pay for these two kinds of labor cannot be the same. Engels once said that many kinds of labor contain the techniques and knowledge obtained through use of more or less labor, time, and money. Does complex labor produce the same commodity value as simple labor, at the cost of pure simple labor? Apparently not. Therefore, complex laborers should get more pay. Otherwise, it is unfair. Unreasonable distribution proportions may influence the development of productivity.
The rational development of the whole consumption society is tied to productivity development of the whole consumption society, while unreasonable distribution principles restrain the development of productivity and react on the development of consumption. The slow development of consumption will affect the development of productivity and the advancement of social and cultural progress. Therefore, the relationship between consumption and distribution is like that between fish and water; consumption and distribution can also be compared to twin sisters who depend on each other, promote each other, and restrain each other. The relationship between consumption and distribution is the basic relation and a basic element of the entire political economics.
An individual’s consumption level is determined by his or her labor value spent in the process of his social production and labor. The latter also determines the way and quantity of the pay that can be claimed, the amount of capital surplus value in the process of his or her capital commodity production, and exchange. The individual’s consumption level is also determined by the policy of repeated redistributions of the national macro interests.
Correct labor distribution principles and methods can directly promote the development of productivity and consumption. In contrast, erroneous distribution principles and methods will restrict and affect the development of productivity and consumption. The slow development of consumption will in turn influence the development of productivity. It is a three-link relationship, in which distribution is the main contradiction as well as the main aspect of contradiction.
Reasonable allocation of the leaders of a factory such as managers or directors, researchers, and workers will mobilize the initiatives of the personnel of the factory to the maximum. Human resources are the most active factor of productivity. Only if employee initiatives are mobilized can their talent be fully used to reduce costs to the utmost. Meanwhile, they will produce the best products on the basis of certain material production capability, to better satisfy the consumption needs of society.
In the working process of the laborers, the more pay they get, the more and faster their social consumption will be developed, and the more the development of scientific research and production will be promoted.
The economic benefits of the enterprise are directly related to the income distribution of the personnel and their purchasing power for consumer goods. Therefore, at certain times, in certain places, and in certain spaces, the principals of the enterprise determine the development speed of the enterprise’s productivity, the entire consumption level of the enterprise, and the income of the personnel and their purchasing power. The economic benefits of the enterprise are mainly determined by the principals of the enterprise aside from the policies of the country.
The innovation and creation as the result of scientific and technological research is the crystal of knowledge inspiration and wisdom. It is always the most direct goal of consumers as well. The consumer of commodities is the impetus for scientific and technological research, invention, and creation, and promotes the improvement of consumer goods from primitive to sophistication.
The purpose of scientific experimentation is constantly to create new consumption demand and desire; any scientific experiments without a consideration for consumption are purposeless and blind, and hard to transfer into productivity in a consumption society. What should be noted here is that goal-oriented fundamental scientific experimentation and applied research should be unified. The former is the premise for the later.
To ensure the realization of the above-mentioned purpose, basic scientific research should be undertaken by national scientific research institutions, research oriented universities, and competent science laboratories of large business groups. Once there is a breakthrough in basic scientific experimentation, we should promptly turn to applied research, so as to transfer such a breakthrough into productivity as soon as possible, to promote economic development and prevent the split between basic scientific experimentation and applied science and technology research.
Universities, research institutions, and competent manufacturers should all establish information organizations to get information about the consumer market, research results of science and technology research institutions, and all the information about the trends in science and technology. These organizations should collect and study the information in time, establish updated research projects, and, standing in the forefront of the profession or the world, promptly organize labor and material resources to carry out relevant experiments, to produce results and secure market share as soon as possible.
Organize the unification of science, industry, and trade for the purpose of achieving internalization of domestic market and internalization of international market, to the largest extent and at the fastest speed, in market share, transfer of science, and technology innovation into productivity, and creation of maximum social and enterprise benefits. The success of Sanzhu Group serves as a good example.
Tax revenue is the main source of Chinese national income, the economic lever to regulate and adjust national economic development, the main method of adjusting income, distribution, and redistribution, and the main economic lever to adjust consumption funds and ration and ensure the steady and balanced development of society. The government carries out the following actions:
• It uses different tax rates to adjust and control social consumption, for example collecting sales taxes on top-grade non-producer commodities and devices and collecting TV tax, car tax, banquet tax in order to regulate consumption.
• On living necessaries and urgent living consumption and social welfare, it adopts low tax rates, tax cuts, or tax free policies to cut down merchandise cost, promote consumption and economy, and spur the entire economic development.
New technological achievements and high scientific achievements should be tax free. At a certain production stage, not collecting tax or reducing it to a certain amount will spur the rapid transform of scientific achievements and encourage rapid transformation into productivity of a consumption society. This process of transformation is one of reorganization, acceptance, and consumption of high and new technological achievements in society.
Once high and new scientific achievements are transformed into productivity, a good economic situation with high tech, high consumption, high taxes, high accumulation, and high speed will come into being in the process of market consumption; it is supported by tax cuts and tax waivers, and has high added value. After a short period of tax reduction or tax waivers, the process is formed of accumulating and cultivating the tax source. Developing high and new technology is highly profitable; the consequential high consumption brings the enterprises high accumulation and rapid development, which in turn promotes the development of high and new technology, creates high tax income, and spurs rapid development of national economy.
The ultimate purpose of taxation is to ensure the development of production and a reasonable national economic structure. Taxation is an important method to perform regulation and adjustment besides bank credit control. It is common to reduce the tax payments of supporting enterprises and businesses and collect additional adjustment tax from industries and businesses that are not in favor of regulation. When expenses and the cost of production become higher than the commodity price, the entity enterprise has to claim bankruptcy and close down. New consumption needs drive emerging and competent enterprises to grow and expand through merging and acquiring the bankrupt enterprises, which activates the change in industrial structure and development of reasonable consumption, and promotes economic development.
1. Consumption and donation are the opposites of a unity. Consumption is the need for human survival; human beings unceasingly explore high and new technology to improve productivity, to obtain better consumer goods, and to raise their own consumption level. With the development of material civilization, spiritual civilization also develops and makes great progress; thus, the great spirit of donation is produced, which is for other people’s happiness, for the development of national happiness, for the security of country, and for the safety and happiness of the people. This great dedication reacts to the progress of all society, and promotes the development of human material civilization and spiritual and cultural civilization. At the same time, it promotes the development of productivity, social consumption, and the progress of the entire social culture.
2. Voluntary donation. A person lives not only for food, clothing, housing, transportation and security. Making contributions to the happiness of others and the entire social consumption is always regarded higher than demands on society and material enjoyment. Because of this, millions of ambitious people’s spirit of donation also react on the progress of world science, technology, and material civilization, which promotes the progress of social spirit and culture, and the human consumption level will develop unceasingly from the preliminary to a higher phase.
3. At the historical stage of exchanging commodities through money, people are aware or unaware of being the producer and consumer of commodities. Though people have not realized they contribute to society, in fact, in society exchange, their surplus products also have made contributions to others.
4. The spirit of self-sacrifice. For common happiness and safety in life, people need to develop the spirit of self-sacrifice for collective and national interests. They need to take the individual or a small number of people’s sacrifice as the price for ensuring most people’s happiness and safety.
5. The spirit of donation for other people’s happiness despite one’s own hardness. The progress of humanity and society inevitably create a great spirit of donation. Someone who endlessly enjoys other people’s happiness will always think about other people and seldom care only about him or herself. After being brought to a great height of development, this great spirit of donation also educates people and enhances their enthusiasm for constructing spiritual and moral civilization.
6. The great spirit of devotion of educationalists and scientists. Teachers and educationalists are the engineers of the human soul, like gardeners. They develop people’s talents and devote themselves silently. Scientists work selflessly for the progress and development of humanity’s material and spiritual consumption. Scientists are very great; their inventions impel the higher development of social material and spiritual civilization consumption levels.
If we say that the diligence and frugality of ‘saving each penny for revolution’ is a kind of devotion, then from the viewpoint of economy, consumption creates and devotes everything. First, general consumption, the basic living consumption of consumers, can complete the ultimate goal of production. If general consumption has the function of capital appreciation, it may develop simple social reproductions and use the saved fund in reproduction consumption, which may increase social consumption in expanded reproduction. Therefore, to be economic in consumption increases the need for consumption and speeds up economic development.
Second, high-class consumption may promote the development of scientific research and production. With the development of scientific research and improvements in people’s purchasing power, past needs for enjoyment transform unceasingly into primary needs. This kind of unceasing pursuit, the unceasing improvement of consumption levels, stimulates scientific research and products, thus scientific research and production develop unceasingly from one stage to another, new one.
Third, consumption can accumulate capital for country and enterprise. From the macroscopic societal angle, through tax revenue, the country may nationalize a part of the fund that consumers provide for producers through purchasing. This kind of unceasing accumulation of state-owned funds may improve social welfare and perfect the services of culture, education, health, and so on. All wealth in society is created by consumption.
Therefore, consumption is a kind of devotion to enterprises, scientific research, production, and society. Consumers’ earned income is a kind of devotion to society. It is not only a consumption power, but also a devotion to society through consumption. This kind of consumption devotion is an endless chain of economic development.
Here, we should explain that consumption is different from luxury and waste; waste is a kind of criminality. Making the best use of things is the full use of social resources. It is not contrary to our traditional virtue of ‘diligence and frugality’. People of our time should inherit the glorious traditions of the Chinese nation – diligence and frugality. The spirit of diligence and frugality is still needed to be brought to a great height of development.
Section 10 Scientific and reasonable taxation policies to promote continuous growth of three important consumptions
Studying China’s economic development, we find that the major problem in China now is deficiency in effective demand. To solve this problem, the central government has to adopt a proactive fiscal policy, integrate various economic means, start investment, guide and encourage consumption, use every conceivable means to explore international markets, and ensure the sustained, rapid and healthy development of the national economy. Only in this way can we promote investment demand, consumption demand, and export consumption demand.
Some tax policies in China are unfavorable to the growth of total social demand, for example, the heavy burden of taxes and fees reduces the yield of investment; various and overabundant government charges greatly increase the burden on investors; besides, the heavy burden of some kinds of taxes increases the burden on investors and consumers.
VAT threshold is too low, yet the tax rate is too high. The preferential treatment of key industries, especially new high-tech industry encouraged by the state for development, is not enough and the preferential approach is rather simplistic. The tax levy on fixed asset investment is too wide and the tax rate is too high (up to 30%), which does not encourage private investment. In addition, the current preferential treatment does not guide investment orientation, optimize industrial structure, and stabilize capital resources. Besides the above-mentioned burdens of taxes and fees, a more important reason for the lack of enthusiasm in private investment is the lack of stable capital resources and policy guidance from the government.
1. It should reduce the tax burden. In VAT, increase the threshold for small-scale taxpayers and reduce the tax rate appropriately. Reduce the rate of some tax items, such as cosmetics. For corporate income tax, it should strengthen preferential treatment for new high-tech industry and basic industries like infrastructure and agriculture and increase the preferential approaches.
2. It should reform preferential tax policies; change the regional-based tax preference to industry-based tax preference with special attention to backward areas. In investment direction, it should make full use of tax policies, and guide state-owned and private capital (including foreign capital) to invest in much-needed industry, products, technology, and backward areas, and encourage companies to invest in technological advancement and structure upgrading, including investment in research and development, technological transformation, and the introduction and innovation of equipment. Give utmost preferential treatment to these investments, regardless of domestic or foreign ownership.
4. It should enhance residents’ consumption capacity. Increase the income of medium and low-income residents and reduce their burdens by adjusting taxation and promoting distributive justice. It should support agricultural industrialization and rural urbanization; encourage the development of township enterprises to increase the income of farmers and reduce their burdens; and encourage domestic and foreign investments in towns and villages. It should give tax preferences to companies investing in agriculture (especially high-tech agriculture) and rural infrastructure; and cancel numerous unreasonable charges in rural areas, levy taxes for public welfare undertakings, but reduce the amount of tax in general.
5. It should expand support for laid-off and unemployed workers in taxation, encouraging them to start work again. Laid-off and unemployed workers who engage in community services should be exempt from personal income taxes; the preferential policies for business tax, extra charges on education funds, and city planning taxes should be expanded to other industries and taxes, including not only community services, but also other industries and trades encouraged by the state and including not only the above-mentioned local taxes, but also national taxes like VAT.
6. It should improve personal income tax, start estate tax, and gift tax; promote justified income distribution; increase the threshold of personal income tax and the top marginal federal tax rate; and strengthen the monitoring of tax sources.
7. It should refine and improve the import and export tax rebate policy. Apart from further raising the rate of export tax rebate, improving the ‘exemption, offset and refund’ policy, handling work related to export tax refunds in time and implementing the principle of ‘how much to be levied, how much to be refunded’, we should also strongly support foreign economic cooperation, make full use of China’s abundant labor resources and unused, surplus technology and equipment, and encourage labor services, overseas project contracts, and foreign investment. Therefore, a systemic preferential tax policy should be issued early to improve the business tax policy in cooperation with foreign enterprises. Enterprises that invest in foreign countries and at the same time lead product and service exports should get as much preferential tax policy support as possible.
8. It should develop policies to keep down inflation, starting by controlling the prices of main production factors. Because of the constant increase in costs under the current inflation, industries and factors that involve the interests of the state and people, like food, oil, coal, electricity, water, liquid gas, and natural gas, still have expected price rises. Ineffective regulation and control would lead to a runaway economy, severely reduce residents’ income, hurt consumer confidence and expectation, and then inhibit consumption. In response to the rise in prices for production factors, especially for energy products, to put a cap on price cannot be a permanent solution. The government should study the reasons for the rise in prices, find a way to deal with it, and then relieve it.
China is a developing country with great potential for consumption demand, which is an important attraction for the sustainable development of China’s economy. At the same time, the government should examine the effectiveness of social spending to reduce waste. Eliminating ineffective investment consumption is an important task in macro-leadership management and things that are extremely urgent should be solved first. Social consumption definitely promotes, guarantees, and develops personal consumption.