The income tax rate was decreased to 21 by January 2008.

As defined in the proposed legislation, the tax rate is 23 for the first year.

Defenders of low rates for capital owners argue that it minimizes double taxation of corporate income first of the corporation and then of its shareholders.

The tax rate that achieves optimum, or highest government revenues is somewhere in between these two values.

The ratio of savings to gross domestic product has risen.

The past three months, however, have seen a significant slowdown in China s exports, domestic investment, industrial output, and tax revenues.

A recent study found that taxing capital gains and dividends as ordinary income, subject to a maximum 28 rate on long term capital gains (the pre 1997 rate), could finance a cut in the corporate tax rate from 35 to 26 .

However, on the local level things were different, as in the municipal elections the number of votes was tied to amount of tax paid.

To see why, consider the tax rate necessary to pay for social benefits, which equals the replacement rate (the average level of benefits relative to taxpayer incomes) multiplied by the dependency ratio (the share of the population receiving the benefits). The higher the replacement rate and or dependency ratio, the higher the tax rate needed to pay for the benefits.

Household saving had risen from less than 2 of after tax incomes in 2007 to 6.3 in the spring of 2010.

And lagging household income clearly contributes to China s trade surplus, because low domestic consumption tends to keep exports higher than imports.

Saving. A domestic saving rate in excess of 50 has served China well.

GDP annual average growth for the period of 1995 2002 was 5.1 .

The latter continues to climb at a rate much faster than that of domestic production.

The Government has handed over responsibility for major administrative services in education, health and agriculture to local councils, and carried out a review of tax rates at the local level.

Moreover, a high corporate tax rate is an ineffective and costly tool for producing revenues, owing to innovative financial transactions and legal tax avoidance mechanisms.

In 2012, the growth rate of M2 was about 14 , relatively low by historical standards, but still significantly higher than the nominal GDP growth rate.

That would leave a net national saving rate of just 2.5 of GDP.

)The GDP grew after 1996 at an annual rate that averaged 3.2 real growth.

That Old Tax Magic

In 2005, GDP increased by 9.9 the inflation rate averaged 9.5 .

A drop of one percentage point in China s investment rate is estimated to reduce Taiwan s GDP growth rate by 0.9 percentage points and Korea s by 0.6 percentage points.

The rapid rise in saving has reduced consumer spending, slowing the pace of GDP growth in 2009 and in early 2010.

The GDP growth rate was only 1.7 in 2011, and it is not significantly higher now.

The Japanese government has been able to sell its bonds to domestic buyers because of the high rate of domestic saving.

China has shown how quickly progress can be made on infrastructure. But, unlike China, Africa s domestic savings rate is a meager 15 of GDP, grossly inadequate to finance the infrastructure gap.

Reducing individual tax rates and taxes on savings and investment at best fosters modest increases in employment, work effort, and income.

By contrast, China had a fixed investment rate of 41.7 of GDP and a savings rate of 51.9 , reflected in a large surplus.

The huge surge in the GDP growth rate of the more diversified economies brought overall per capita income up to its highest rate of 2.7 per cent.

So, by the end of the year, we will see a slightly improved level of GDP, but the rate of GDP growth is likely to return to negative territory.

Even an economy with an overall budget deficit will have a declining government debt GDP ratio if the growth rate of its nominal GDP exceeds that of its debt.

Their net effect will be to raise consumption as a share of GDP and to reduce the national saving rate.

Even more worrying, the rate of GDP growth has been declining almost from the start of the recovery.

Therefore, cutting the payroll tax rate in 2011 2012 and making the rate schedule more graduated (on the Medicare side) were mistakes from the standpoint of efficient taxation.

No politician has publicly stated that US solvency requires such draconian adjustments, because the American public is far from agreeing to the sacrifice needed.

At the same time, the effective corporate tax rate in Japan is higher than it is elsewhere, making it difficult for Japan to attract investment, foreign or domestic.

But what China really needs is a greater effort to promote domestic consumption and lower the savings rate.

The service sector of the economy, including tourism, education, and financial services, accounts for about 70 of GDP.

First, in the last 10 years we have achieved a sustained growth rate of over 5 per cent of our gross domestic product (GDP).

In 2007, the United States had a savings rate of 14.6 of GDP, but an investment rate of 19.6 , generating a current account deficit.

Western economists typically favor gradual tax increases Jeffrey Frankel, for example, recommends a pre announced plan to increase the tax rate by, say, one percentage point annually for five years.

In 1994, based on the economic theories of Milton Friedman, Estonia became one of the first countries to adopt a flat tax, with a uniform rate of 26 regardless of personal income.

Its unemployment rate is currently 10 , and GDP growth this year will be in the vicinity of 1.3 , only slightly above the EU average.

With an agriculture based economy, in which the growth rate of GDP was lower than that of the population, the Government needed to lay the foundations of sustainable economic development in order to reinforce political stability.

Since after tax personal income accounts for about 75 of GDP, a household saving rate of 6 translates into just 4.5 of GDP.