What is a Tax Shield?

The tax principle is also called the "tax system principle". Guidelines or norms that guide the establishment, development, and formulation of tax policies for a country's tax system. The tax system and tax policy of any country must be based on certain tax principles. The principle of taxation reflects the will of a country's dominant class. For example, during the period of capitalist free competition, the "Four Principles of Taxation" put forward by Adam Smith reflected the historical requirements of taxation of the emerging bourgeoisie; and the subsequent "Four Principles of Taxation" of German tax scholar Wagner The tax systems and tax policies of monopoly capitalist countries have had a significant impact. China's socialist taxation principles have undergone a process of gradual development and improvement in accordance with the needs of changes in the country's political and economic situation in different periods. ^[1]

Tax principle

Synthesize the thoughts of various factions

The theory of taxation principles in China's history is relatively rich. To sum up, it is proposed based on the needs of four aspects. The first is to strive for popular support and stability of the ruling order, emphasizing the principles of taxation to be moral, fair, and for the people, and the second is to proceed from the needs of economic development. . The third is to start from the organization's fiscal revenue, emphasizing the principles of universality, flexibility, and tax urgency for taxation. Four is from

Tax principle

The basic meaning of the fiscal principles of taxation is that the establishment and reform of a country's taxation system must be conducive to ensuring the country's fiscal revenue, that is, to ensure the needs of various aspects of the country's expenditure. Since the country was born, taxes have been the basic source of fiscal revenue.

Professor Laffer, a well-known representative of the American Supply School, has long been dedicated to the study of the relationship between taxation and the economy. Based on the analysis and research of a large number of materials, he found that there is a special functional relationship between tax rates and tax revenues and economic growth: when the tax rate is zero, market economic activity or tax base is the largest, but the tax is zero. After the tax rate is slightly increased, the tax base will be correspondingly reduced, but to a lesser extent, the total tax will increase; when the tax rate rises to a certain most appropriate point, the tax is maximized to find the best tax rate. If you exceed this point and continue to increase the tax rate, you will enter the "Laver Closed Zone", because the tax base will be reduced to a greater extent, that is, market vitality or accelerated production shrinkage, which will lead to a decline in tax; when the tax rate is at the end of the closed zone, the tax rate is 100 At%, the tax will drop to zero accordingly.

Therefore, fiscal principles do not mean that the higher the tax rate, the greater the tax revenue.

Tax principle fair principle

The principle of fairness in taxation means that the government collects taxes, including the establishment of a tax system and the application of taxation policies. It should ensure fairness and follow the principle of fairness.

The principle of fairness of taxation requires that the same conditions pay the same tax (horizontal fairness), while those with different conditions should be treated differently (vertical fairness). To study the issue of fairness, we must look at the distribution state determined by the market. If the distribution status determined by the market has reached the fairness requirement, then the tax should interfere with the existing distribution status as little as possible; if the distribution status determined by the market does not meet the fairness requirements, the tax should perform its redistribution function To correct the existing distribution pattern until it meets the fairness requirements.

Fairness is the basic principle of taxation. Among the four principles of Adam Smith's taxation, the principle of fairness comes first. In China's history, there have been many discussions that emphasized tax fairness. In modern society, the principle of fair taxation is one of the goals pursued by governments to improve their tax systems. But how can taxes be considered fair? In different periods, the standards are often different and the understanding is different. Judging from the historical development process, tax fairness has undergone a development process from absolute fairness to relative fairness, from social fairness to economic fairness.

Tax fairness is first and foremost valued as a social equity issue. "Don't suffer from widows but suffer from unevenness." The issue of social equity has always been one of the important factors affecting the stability of the regime. Taxation is originally the government's unpaid distribution to taxpayers. Although there are various reasons for taxation, from the perspective of benefits, after all, taxation is a direct reduction of taxpayer's interests. Therefore, there is an objective benefit in the taxation process. Opposition and conflict, taxpayers naturally pay extra attention to whether the taxation is fair and reasonable. If the government's taxation is unfair, the resistance to taxation will be very large, and when tax evasion is serious, it will also cause social conflicts and even regime changes.

The social fairness of taxation first referred to the absolute fairness of the tax amount, which required that every taxpayer should pay the same amount of tax. The reflection in tax practice is the prevalence of fixed and cap taxes (the cap and cap taxes have not completely disappeared even now). The fairness that Adam Smith refers to is the absolute fairness of the tax burden. It emphasizes that every taxpayer should pay the same percentage. This means that although taxpayers with different income levels pay different amounts of absolute taxes, they bear the same tax burden (or tax rate). Reflected in the tax system is the implementation of proportional tax rates. Adam Smith's fairness principle, while emphasizing the proportionate tax rate, also emphasized that taxation should be treated equally for all citizens, and there should be no tax-exempt privileges. This is actually aimed at the tax-free privileges of the aristocracy that existed as a feudal remnant in the early days of capitalist development. In theory, absolute fairness, whether it is the absolute fairness of the tax amount or the absolute fairness of the tax burden, requires universal taxation. It is in this sense that Wagner first proposed the universal principle in his principle of social justice. That is to say, taxation should be universal, and there should be no privileged class enjoying tax exemption. At the same time, Wagner developed the standard of fairness from absolute fairness to relative fairness, that is, taxation must consider the taxpayer's ability to pay taxes. It requires that the tax system should implement progressive tax rates. Today, in theory, relative equity is divided into "horizontal equity" and "vertical equity". The so-called horizontal fairness simply means that people with the same taxpaying capacity should bear the same tax; while vertical fairness means that people with different taxpaying ability should bear the same tax burden. It should be heavier. So, how to judge the size of tax payment capacity? Usually based on the amount of wealth owned by the taxpayer, the level of income, or the actual payment capacity. In the actual tax system, property tax is levied progressively on property and income tax according to income, tax exemption for low-income people, and allowance for family support deduction are all reflections of this fairness.

Taking the ability to pay taxes as a fair standard is called "capability theory" in theory. How to judge the ability to pay taxes is theoretically divided into "objective theory" and "subjective theory". Objectively speaking, the ability to pay taxes should be determined based on objective indicators such as the wealth held by the taxpayer, the income obtained, or the actual ability to pay. The subjective theory emphasizes that the sacrifice or reduction in utility felt by the taxpayer due to tax payment should be the same, or the marginal utility after taxation is the same.

The fairness standard, in addition to the "capability theory", also has the "benefit theory", that is, the measure of fairness is based on how much government services are enjoyed. According to this standard, taxpayers who enjoy the same benefits from government public services mean the same level of benefits. Therefore, they should bear the same tax to reflect horizontal fairness; taxpayers who enjoy more benefits have more advantages. High welfare level, therefore, higher taxes should be borne to achieve vertical equity. In reality, highway taxation and social security are often reflected, but in many cases the level of benefit is not easy to measure.

The importance of social equity in taxation is not only due to the public's concern and reaction to the above, but also a reflection of the progress of human civilization. The human society has evolved from a society that is respectable, lowly, and hierarchical, to a civilized society that advocates equality for all, and the right to equality of citizens has been established and strengthened. Reflected in taxation, it naturally requires equal treatment, that is, the taxation must follow the principle of fairness and the exemption of tax exemption privileges. The reason why the fairness standard transitions from absolute fairness to relative fairness and emphasizes vertical fairness is because the polarization between the rich and the poor has occurred during the development of the capitalist economy. This aspect has intensified social contradictions and lost absolute fairness to society. On the other hand, the polarization of rich people to pay more taxes is increasing. On the other hand, polarization also objectively leads to structural contradictions in the operation of the market economy, which inevitably leads to insufficient social effective demand. The government needs to adjust income distribution through taxation in order to Reduce the gap between the rich and the poor, and alleviate social and economic conflicts. At the same time, with the expansion of government functions, fiscal expenditure has increased sharply, which has increased the pressure on tax increase. The distribution of tax revenue is national wealth. To broaden the tax source and increase the tax burden, it is naturally necessary to rely more on the wealthier with a stronger tax capacity. Hierarchy, that is, taxation according to the ability to pay.

In Western taxation, equity usually refers to social equity, which Wagner calls the principle of social justice. In reality, government taxation must not only comply with the requirements of social fairness, but also achieve economic fairness. In other words, in the modern economy, taxation principles actually include not only social fairness, but also economic fairness. The economic fairness of taxation includes two levels of content: the first is to require that the taxation be neutral, that is, all taxpayers engaged in business, including business operators and investors, must be treated equally and treated equally in order to create a reasonable tax for the business operator Environment to promote fair competition among operators. The prevalence of value-added tax and corporate tax rates, which are dominated by proportional tax rates, are all reflections of this fairness requirement. The second is that objectively unfair factors, such as differences in resource endowments, need to be adjusted through differential taxation to create an objective competition environment that is substantially equal or fair. These two levels are also equivalent to horizontal equity and vertical equity in social equity.

The reason why economic fairness of taxes is emphasized is inseparable from economic development. The development of the economy has made companies and enterprises become important taxpayers. Compared with individuals, they require economic equality to be more urgent and more realistic than social justice. Moreover, economic fairness is also an inevitable requirement of the principle of tax efficiency. The principle of tax efficiency is also one of the important principles of taxation, and efficiency and fairness are dialectically unified. In particular, economic fairness is aimed at efficiency. To make taxation efficient, economic fairness is required.

Tax fairness, especially economic fairness, has important guiding significance for the construction and improvement of the taxation system in the process of China's transition to a market economic system. Because the market development in China is still relatively imperfect, there are many external factors of unfair competition. At the same time, the tax system that meets the requirements of the development of the market economy needs to be further improved. Therefore, how to make the tax system more fair and create a market economy development A fair and reasonable tax environment is an important research topic for further tax reform in China.

Tax principle

The principle of tax efficiency means that the government collects taxes, including the establishment of a tax system and the application of tax policies. It should emphasize efficiency and follow the principle of efficiency.

Requesting government taxation is conducive to the effective allocation of resources and the effective operation of economic mechanisms, and to improve the efficiency of tax administration. It can be divided into two aspects: the principle of tax efficiency and the principle of efficiency of tax itself.

Taxation should not only be fair, but also efficient. Efficiency here usually has two meanings: first, administrative efficiency, that is, the efficiency of the taxation process itself, which requires the tax to consume the least cost during the collection and payment process. Second, economic efficiency, that is, taxation should be conducive to the promotion of economic efficiency, or have the least adverse effect on economic efficiency.

Tax administrative efficiency can be reflected by the tax cost rate, that is, the ratio of tax administrative costs to tax revenue. Effectiveness requires that as much tax revenue as possible be collected with as little tax administrative costs as possible, that is, the lower the tax cost rate, the better. Obviously, the administrative costs of taxation include both the levy costs that the government spends for tax collection and the payment costs that taxpayers spend for paying taxes, which is what the West calls "practice costs." What Adam Smith and Wagner called the "convenience and economy" principle is essentially the principle of administrative efficiency of taxation. The convenience principle emphasizes that the tax system should make it easier for taxpayers to pay taxes, including the time, method and procedures of tax payment. This is undoubtedly conducive to saving payment costs and meeting the administrative efficiency requirements of taxation. And the principle of savings, which Adam Smith and Wagner called the "least levy principle," emphasizes that taxation costs should be as small as possible. Adam Smith made it very clear that "the collection of all taxes must make the national pay as much as possible the income of the state." The so-called expenses here are actually limited to the government's collection costs. It should be pointed out that the collection cost and payment cost of taxes are closely related, and sometimes they can be converted to each other. The introduction of a tax policy may help reduce the collection costs, but it may be based on the taxpayer's payment costs. Increase at the cost, or vice versa. This shows that the administrative efficiency of taxation must have a comprehensive consideration of the cost of collection and payment, and then it has real meaning. In reality, how to improve the administrative efficiency of taxation is an important goal to be solved by tax collection and management.

The economic efficiency of taxation is a higher level of the principle of tax efficiency. The economy determines taxation, which in turn affects the economy. The tax distribution must have an impact on the operation of the economy and the allocation of resources. This is an inevitable objective law. However, whether the impact of taxation on the economy is positive or negative, and the extent and scope of the impact is controversial. There is also a continuous development process in understanding. Reflected in the economic efficiency of taxation, there are different levels of understanding. The first is to require minimal "extra burden" on taxes. The so-called additional burden of taxation is simply the decline in the efficiency of resource allocation caused by taxation. It is an economic loss other than the administrative cost of taxation, that is, the "additional burden". Therefore, compared to the administrative cost of taxation, it is usually This is called the economic cost of taxes. Although Adam Smith did not put forward the principle of economic efficiency of taxation or the concept of additional tax burden or economic cost of taxation, he believed that the self-regulating economic operation through the "invisible hand" of the market is the best That is to say, the efficiency of allocating resources through the market is the best. Any levy of a tax will adversely affect the good economic operation and cause distortion of resource allocation. Therefore, he advocates a laissez-faire policy, and believes that the less the government should levy taxes, the better. This is actually based on the premise that the impact of taxation on the economy is always negative and that taxation is always detrimental to economic development. Therefore, logically, under the premise that the government is bound to levy taxes, it is naturally required that the government levies taxes to minimize distortions to economic behavior. In addition, different taxation methods have different impacts or distortions on the economy. Therefore, the government should choose a reasonable taxation method to minimize the additional tax burden. So, what kind of taxation method has less distortion to the economy? It is generally believed that taxation should be kept neutral.

The second level of demand for tax economic efficiency is to protect the tax base. Wagner proposed amendments to Adam Smith's non-intervention policy, arguing that taxation has a positive role in promoting economic development. Government taxation should try to avoid the adverse impact of taxation on the economy and exert the role of taxation on the economy. Based on this, he put forward the national economic principles of taxation, including the principle of selecting tax sources and the principle of selecting tax types. It is believed that in order to protect and develop the national economy and make tax revenues more profitable and avoid harm, the government should carefully select tax sources for taxation. In principle, the tax source should come from national income, not from the tax base, which is the source of tax revenue. It is generally believed that national production is the tax base and national income is the source of taxation. In principle, taxation can only participate in the distribution of national income and cannot hurt national production. This is like picking fruit from a tree. The fruit is the source and the tree is the root. We can only pick the fruit and not hurt the tree.

The third and highest level of taxation economic tax rate is to improve the efficiency of resource allocation through tax allocation. It is based on a positive understanding of the role of tax regulation. I believe that taxation does not only negatively affect the economy. Because the market is not perfect and effective as ancient economists like Adam Smith said, there is market failure in reality. Therefore, government intervention is necessary, and tax distribution is Effective means of government intervention in the economy. From the perspective of taxation, an unreasonable taxation system will distort the allocation of resources, so there is an economic cost of taxation. However, if the taxation system is properly designed and the taxation policy is used properly, it will not only reduce the economic cost of taxation, but also make up for Defects, improve the efficiency of economic operations, and make resource allocation more effective. That is to say, improper taxation will generate additional burdens, and taxation has economic costs, which is manifested in the decline in the efficiency of resource allocation due to taxation; and appropriate and reasonable taxation will generate "extra benefits", and taxation has Economic benefits are specifically manifested in the increased efficiency of resource allocation due to taxation. The high-level requirement of the principle of tax efficiency is to actively play the role of tax regulation in order to effectively promote economic development. The principle of tax-stabilizing economy in modern western taxation theory actually belongs to this level of efficiency requirements. It emphasizes smoothing economic fluctuations through the inherent stability of taxation and the camera's choice of taxation policies to achieve stable economic growth.

From the different levels of tax economic efficiency, it can be seen that whether the tax is efficient must be examined in conjunction with the efficiency of the economic operation itself. If the economic operation itself is highly efficient, it should be considered as efficient if the tax does not interfere or interfere with the economic operation, that is, the minimum tax economic cost is used as the basis for judging tax efficiency; and when the economic operation is in an inefficient or inefficient state Tax efficiency should be reflected in effective intervention in economic operations.

In short, following administrative efficiency is the most basic and direct requirement for taxation, and the pursuit of economic efficiency is a high-level requirement for taxation. It also reflects the increase in people's understanding of the role of tax regulation.

Tax principle

The principle of appropriate taxation means that government taxation, including the establishment of a tax system and the application of taxation policies, should take into account both needs and possibilities to achieve a proper degree. Here, "need" refers to financial needs, and "possible" refers to the possibility of tax burden, that is, the affordability of the economy. Following the principle of moderation, the tax burden should be moderate, and the tax revenue can meet the needs of normal fiscal expenditures while maintaining coordination and synchronization with economic development. Based on this, the macro tax burden should be as light as possible.

If the principle of fairness and efficiency are the principles to be followed in taxation from a social and economic perspective, then the principle of moderation is the basic regulation of the amount of taxation from a fiscal perspective and the fundamental embodiment of the principle of taxation and finance. Satisfying financial needs is the direct goal and primary function of taxation. Therefore, many scholars regard meeting financial needs as the primary principle of taxation. For example, the principle of "quantity, expenditure, and income," put forward by Tang's agent in China, is to arrange and raise tax revenue according to the needs of the state's fiscal expenditures. Wagner put the fiscal principles of taxation at the top of the four taxation principles, including the principle of fullness and flexibility. Among them, the sufficient principle requires that taxes should meet the needs of government fiscal expenditures. Therefore, the government levies taxes, chooses sufficient tax sources, and has reliable income; the principle of flexibility requires that taxes have a good income-increasing mechanism to ensure that tax revenue can increase accordingly when fiscal expenditure increases or other non-tax revenues decrease. Obviously, these are just asking for taxes from the aspect of financial needs, and they do not take into account the economic realities. Therefore, as a principled requirement for taxation, it is not comprehensive enough. First, fiscal expenditure itself is rigid and has an impetus for unlimited expansion. The goal of taxation to meet the needs of fiscal expenditure is bound to fuel the excessive expansion of fiscal expenditure. Secondly, if the goal is to meet the financial needs alone, it will easily cause pressure to increase taxes and make the tax burden too heavy. Therefore, the scientific principle of taxation and finance should not only emphasize sufficient income, but also moderate income, that is, from a fiscal perspective, taxation should follow the principle of moderation.

In fact, the principle of moderation does not preclude the requirement for ample income. The Laffer curve reflects this principle, that is, the tax revenue is not always directly proportional to the tax burden. The higher the tax burden (rate), it does not mean that the income is more abundant, but may be the opposite, that is, when the tax burden (rate) After exceeding a certain threshold, the actual tax revenue may actually decrease, because an excessive tax burden will cause the tax source to shrink. This shows that too high and too low a tax burden is not good; too low a tax burden cannot meet the government's normal expenditure needs; too high a tax burden will not only increase income, but will restrict economic development. As a theoretical principle requirement, by its nature, moderation means taking into account the normal needs of finances and the economic realities. In terms of quantity, it means trying to make the macro tax burden fall on or near the "best point" of the Laffer curve. .

Tax principles

The rule of law in taxation is that government taxation, including the establishment of a taxation system and the use of taxation policies, should be based on law and govern taxation according to law. The content of the principle of the rule of law includes two aspects: the principle of procedural norms of taxation and the principle of clear content. The former requires taxation procedures-including legislative procedures, law enforcement procedures and judicial procedures-for taxation; the latter requires taxation content to be statutory. The rule of law in taxation is consistent with the "tax legalism" in tax law.

In the previous theory of taxation principles, although the principle of the rule of law was not explicitly put forward, the requirements for the content of taxation are clearly defined, which has already become a generally accepted taxation principle. For example, Wei Xuan, a farmer from the Western Jin Dian Agricultural School of China, put forward the principle of "being constant", that is, the levy of enlistment must have a clear and fixed system. Adam Smith also listed the "true" principle as one of the four tax principles. He believed that the tax content, such as the date of taxation and the method of taxation, should be clearly notified to the taxpayer and should not be changed at will. The principle of truth as an important principle of taxation has been accepted by future generations, including Wagner. However, the most effective way to make the tax content "true" is to provide it in legal form. In fact, not only the content of taxation needs to be statutory, but more importantly, the taxation process also needs to be statutory, that is, to clarify and regulate the entire tax distribution behavior through legal provisions. From the perspective of tax practice, taxation is closely related to law. The compulsory, unpaid, fixed, and standardized nature of tax distribution is based on the statutory taxation. In other words, the principle of tax law is fundamentally determined by the nature of taxation. Because only by statutory taxation and clear taxation obligations in legal form can we truly reflect the "mandatory" taxation, realize "free" taxation, and tax distribution can be standardized, determined and predictable. This is crucial for economic decision-making. Because for the operator, taxation is a very important operating cost, and the level of tax burden greatly affects investment decisions. Therefore, if the tax distribution is not standardized and uncertain, and the tax burden cannot be predicted in advance, then It is difficult to conduct investment decision analysis normally. In addition, the "openness, justice, and fairness" of laws also contributes to the fairness and efficiency of taxation. The openness and high transparency of tax law will undoubtedly help to improve the administrative efficiency of taxation and correctly guide the flow of resources, especially in the collection relationship. Compared with the government, the taxpayer is objectively weak, and the government itself has increased revenue Pressure and impulse, therefore, it is necessary to improve the legal status of taxpayers and ensure the rights of taxpayers through legal regulations. Therefore, emphasizing the "rule of law" principle of taxation is important and meaningful. At present, China's legal system is not complete enough. In the field of taxation, there are still cases where there is no legal basis, non-compliance, and illegal investigation. The market economy is an economy governed by law. To develop a socialist market economy in China, we need to govern the country according to law, and even more to govern taxes according to law. Therefore, in the process of establishing and improving a tax system that meets the requirements of the development of a socialist market economy in China, it is even more important and urgent to promote and emphasize the principle of taxation. ^[2]