A Study on the Comparison of Fiscal Revenue and Expenditure between China and America

Li+Ziyang

【摘要】Policymakers use taxes both to influence market outcomes and to raise revenue for public purpose.As a large part of a countrys economy，taxation plays an essential role in a countrys developed economy.China and America has different taxation and expenditure due to different financial structure and regime.Therefore，this paper aims to illustrate the two structures in China and America.

【關鍵詞】Revenue expenditure China and America

【中圖分類號】F812 【文獻標識碼】A 【文章編號】2095-3089（2017）02-0010-02

1.Introduction

The purpose of taxes is to raise revenue to fund government.Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions.Some of these include expenditures on economic infrastructure，military，scientific research，culture and the arts，public works，distribution，data collection and dissemination，public insurance，and the operation of government itself.A nation's tax system is often a reflection of its communal values and the values of those in current political power.The aim of this paper is to analyze the different structure of taxation in China and America.

2.The Fiscal Revenue of China and America

2.1 Chinas Revenue in 2014

As is shown in the pie chart，a substantial proportion of Chinas fiscal revenue was in value added taxes，with 22%.Corporate tax accounted for slightly less than that of value added tax，which was 18%.Then sales tax and consumption shared almost equal percentage，approximately 13%.In contrast，individual income tax and tariff took up only 5% and 2% respectively in the total revenue.

2.2 Americas Revenue in 2014

As is shown in the Chart II，we can conclude that the biggest source of government revenue came from income tax，which account for 36%.Compared with income tax，social insurance tax had a sight lower share of 26%.In addition，ad valorem tax takes up 22%，while fees and charges and business revenue share the same percentage of 8%.

2.3 The Comparison of Revenue in China and America

From the data above，it was found that in 2014，the total government revenue of China amounted to 14 trillion Yuan or $2.1 trillion according to the exchange rate of 6.6，while nearly twice than that of China，which reached $5.8 trillion.Furthermore，the main source of revenue was the tax income both in China and America.

Differently，the main source of tax in China was value added tax and corporate tax，while the main source of tax in America is income tax.According to the general statistics，the individual income tax of America accounts for 50% in the total tax revenue，while China accounts for 8% only.It must be mentioned that，In America，everyone need to pay tax no matter how low his salary is，even lower than the base of taxation，the tax ratio imposed on the low-income people amount to at least 10%，as for high-income people，it is at most 35%.By contrast，China doesnt impose tax on low-income people，while the tax ratio of high-income people is up to 45% at most.It can be easily concluded that China does more effectively in regulating the gap between the rich and the poor.

Besides income tax，social insurance tax is also the main source of total federal revenue in America，which is equivalent of Chinas social insurance.The income of Chinas social insurance is $0.8 trillion，i.e.4.6 trillion Yuan.While in America，social security and medicare taxes impose on both employers and employees equally，at a combined rate of 15.3%.However，in China，corporation pays for 70%，while individual pays for 30% only.

Fees and charges in America is equivalent of Chinas value added tax and consumption tax，but these taxes in China are only levied on tobacco，liquor，cosmetic and luxury etc.So the rich contribute more than the poor to VAT in China.Whats more，VAT has become the major source of fiscal revenue for the government in China.

In addition to the three types of tax mentioned above，America has property tax，which varies by state，in local direct revenue.Take buildings as an example，different from China，property owners must pay this tax yearly，no matter you live in it or not，generally the tax ratio ranges from 1.2% to 3.5%.

In summary，more than 80% of tax revenue in America comes from individual，the tax ratio between the rich and the poor is far lower than that in China.While Chinas tax revenue mainly comes from corporation and high-income people，the tax ratio imposed on low-income people is approximately near 0%.In addition，the indirect tax in China is no more than that of America，because it mainly comes from VAT.So in China，it is mainly the rich who undertake the tax liability.Contrarily，in America，both the rich and the poor undertake the tax liability.

3.The Fiscal Expenditure of China and America

3.1 Chinas Expenditure in 2014

According to the statistics from Chinese Ministry of Finance，we could clearly found that among all the items of expenditure （expect for economic construction），the education occupied the biggest share，with 15.1%.Then comes the social security，with the share of 10.5%.The spending on agriculture and forestry，urban and rural community，health care and transportation almost shared the same percentage，which ranged from 7% to 9%.As for the rest，defense，economic construction and others took up over one third in Chinas total fiscal expenditure.

3.2 Americas Expenditure in 2014

As is shown in the chart IV，we can easily conclude that about 22 % of the total Americas fiscal expenditure was spend in health care，and the pensions also took up 20%.These two kinds of government spending almost occupied half of the total spending.In addition，national defense and education also took up approximately 30%.The total expenditure of America in 2014 was about $6 trillion，which was a fiscal deficit year with a government revenue of $5.8 trillion.

3.3 The Comparison of Expenditure in China and America

Compared with the revenue structure，its more complex when analyzing the expenditure structure.To have a better understanding of the two countriesspending structure，lets focus on each country respectively.

The expenditure in the year of 2000，2005 and 2009 have been chosen.

Through the comparison of the Chart VI and Chart VII，we can conclude that the absolute number of Americas expenditure was rising，while the relative number of that kept balance.According to the exact statistics，the fiscal spending in America reached $18.3 trillion in 2009 from $10.8 trillion in 2001.And its proportion of the GDP was floating around 12%.As for China，the two number both went up these years，ranging from 12.8 trillion yuan in 2000 to 76.3 trillion yuan in 2009.Meanwhile，the proportion of the total expenditure to the GDP was also growing，from 16% to 22.8%.

From the statistics，we can come to several conclusions on Chinas expenditure.Firstly，the spending on the nations economic construction accounted for the most，though it presented a decreasing trend.Secondly，productive construction expenditure was more than infrastructure construction.More attention need to be paid to infrastructure construction of the western area.Thirdly，expenditure in defense was relatively rational，while expenditure in education and social insurance need improving.

In conclusion，the difference of the expenditure structure of these two countries boils down to the different social system.As the United States implement the capitalist market economy，the investment to the state-owned business is not so much，unlike China.Therefore，the expenditure in the economic construction is much less than the public service.Another important factor is that，in America the federal government is in charge of the social welfare，while in China the local governments are responsible for social welfare.Although from the statistics of fiscal expenditure，the proportion of social welfare in China is much lower than that in America，yet its hard to say that whos real ratio is higher.Actually，what we should pay attention to is the distribution system of America.We need to notice the hidden problem behind the difference of these two systems，so that we can optimize the total revenue and expenditure in China.