Monday, November 14, 2011

Taxes and Old Chinese Commerce

I’ve been researching Chinese mercantile culture during its imperial years (prior to 1911). It’s interesting to note some of what history considers as enlightened periods, the emperors of those periods almost always followed Confucian virtue to regulate business laws and business tax to the regional influences outside of official capacity – many Chinese mercantile were family orientated and focused on taking care of their communities in order to survive as profitable business models. They paid their dues to a guild and the guild paid their taxes to the community in forms of good will, welfare, job opportunities, etc. The government took its share, but left most of the additional tax duties under the principles of virtue ethics and obligations owed to communities. It’s very efficient because each mercantile from each city benefited from the people they took care of; nothing was left to the interference of government officials, less the corruption in later dynastic periods. Corruption seems an ancient and difficult problem to solve and onsets at later stages of a stable political environment.

At times, I wished China never traded Communism for such a model; perhaps more sustainable, old Chinese businesses are forced to pay back what they reap from their transactions and their profit model are inherently mandated by a philosophy that calls for responsible practices. Today, China’s State Owned Enterprises are inefficient and out of control, and private entities are profitable but irresponsible; everyone is single mindedly focused on “getting rich” – a legacy of Deng Xiao Peng era. The central government is trying to cure its Environmental and Sustainability problems by enacting western style legislations (cf. Clean Production Law, 2005; Circular Economy Laws, 2009). On a closer look, these laws face inherent inconsistencies with Chinese tradition in virtue ethics as laws. China has recently announced its “soft power” strategies perhaps knowing these inconsistencies’ only remedy is by engaging the virtue ethics as a tool, and not censoring it.

On the other side of the pond, I’m not sure what the solution would be for our very different sustainability crisis. The U.S., we may not have as egregious environmental problems due to only a fraction of the world’s population occupying a larger and more fertile land (one which we have heavily petro-chemically fertilized), we still consume so much more by proportion and pollute on a much larger scale by ratio. While we chant human rights concerns and hold China out as some sort of boogie man story to our green innovation sector with WTO complaints, American political systems are clogged, its business machines rusting, and we are all diverging to different directions and are all missing the point about social equality and environmental justice. 

Michael Shank recently wrote an article about our problems with income inequality and taxes. He pointed out that 30 of our top 300 companies paid no taxes at all or have a negative tax rate. (See report by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy).  He then focused on income inequalities, one China is taking very serious note of and America is lacking the attention span for.

The UN Human Development Report shows that while the United States remains the fourth best country in the world to live, after adjusting for internal income inequality it drops it into 23rd place. And the report by the Congressional Budget Office showed that in the last 30 years US government policy failed to equally distribute wealth, enabling the richest in America to grow their income 15 times faster than the poor and shifting more than 80 percent of all US income wealth to the top 20 percent of earners.

According to Shank, Americans are now seeing the highest poverty rate since World War II (one in six Americans living below the poverty line) and the highest youth poverty rate (one in five young people, with Hispanic youth suffering most).

With income inequality, there comes a host of environmental injustice, health and social inequality problems as well.

The higher a country's income inequality, the higher its infant mortality rates, obesity rates, homicide rates, illiteracy rates, mental illness rates, teenage births, incarceration rates, drug addiction rates, social immobility and lower life expectancy.Anyone noticed we are beginning to fit that mold?

Income inequality also contributes to long-term healthcare crisis and cost problems. The poor often lack access or the means to eat healthy and exercise and they often don’t have health insurance thus burdens on emergency visits that does not treat long term problems nor provide meaningful preventive care. “Centers for Disease Control and Prevention calculate that the economy loses $1.65 million in medical costs, loss of lifelong employment and economic productivity costs.” (Shank)

Inequality also comes with tangible consequences such as “homicide, infant mortality, teenage births, drug addiction, mental illness, incarceration, social immobility and illiteracy. Name the social ill and we excel at it.” (Shank) These are line items that burdens on our budget balance sheet directly from social welfare programs and indirectly from loss of productivity and low quality of labor force. Elsewhere in the world, China is upgrading its economy and labor force to close their income inequality gap. This is one promise their old Communist founders established their legitimacy. In performing this task, they are not only out-competing us by a conservative fiscal policy, they are also outpacing us with an aggressive income equality model. They have brought over 600 million people out of poverty in the last 30 years, twice the size of U.S.

Their political will is now focused on the things they have not addressed: environmental and human rights. They are implementing some rather uniquely Chinese methods. I wonder what would be an uniquely American solution to our income inequality problem? Can we stand to learn something from the old Chinese mercantile culture while enforcing its virtue ethic principles in a grassroots business law structure - aim to reduce regulation requirements and ramp up voluntary tax compliance measures such as LEED to balance people's interests with planet's to profit the community in general?

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