China’s new personal income tax cuts came into force on Jan.1, 2019. This time, the government not only raises the tax exemption threshold but also changes the tax rates and adds tax deduction items. Facing all these new policies, we are wondering what kind of people being affected the most, or in other words, who benefits the most? Does the new tax cuts policy really work out as what the policymakers planned?
The average staying time on this project is more than four minutes, which doubles the average staying time for our other projects. It shows our personalization storytelling approach helps readers digest the effects of the new tax cuts policy.
To answer the question, we use a census dataset named CHIP to simulate the tax cuts impact on different income groups. The CHIP dataset is produced by the China Institute for Income Distribution. The institute takes sampling surveys on different income groups across various provinces in China, which mirrors the income distribution around the nation. The dataset records interviewees’ jobs, income, the status of assets, family members, education background and more.
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What was the hardest part of this project?
1) The income tax cut was a trendy topic for several months after it was announced. However, other than explaining the new rules, and interviewing experts, the readers had few access to understand the effects of this new policy. We chose to measure the effects of the new tax cut policy, providing a very important aspect of the topic.
2) To be able to measure the effects, we used the CHIP database from the China Institute for Income Distribution in Beijing Normal Unversity. The dataset records interviewees’ jobs, income, the status of assets, family members, education background and more. The institute takes sampling surveys on different income groups across various provinces in China, which mirrors the income distribution around the nation, so that it is meaningful to use this dataset to estimate the tax cut effects on the working population in China. We interviewed professors in this topic area to supervise our analysis, and explained the sample and methodology in details in the project.
3) As for the storytelling part, we used a personalisation approach to start, asking users to input their monthly income, and calculating their tax cuts and ranking the results in the sampling group, so that the story feels more related to them. Then we unfolded the story, mearsured the effects in terms of different income and education levels, social security statuses, employer categories, and etc.
4) We further questions the tax cut impact on income equality, which is the ultimate goal of any tax reforms.
What can others learn from this project?
The new tax-exempt group has different characteristics compared to the old group. In the new tax-exempt group, we can find people with higher education degrees, better jobs, and social security benefits; while the old group earn only pocket cash and seldom has any social benefits. However, unlike tax cuts in the US, the rich still get more tax cuts than the poor because the principle stands- the higher income you earned, the more tax cuts you get. Hence, if people are divided into groups based on their jobs, the employees in the foreign company and the private company can save more money from the tax cut while self-employed taxpayers won’t be affected much. Similarly, people with graduates degrees will certainly save up more money than people with primary school degrees.
We discover that middle-to-high income groups benefit from the new tax policy the most. By that, we mean people who at least earn 15,000 yuan per month. For people who earn more than 30,000 yuan monthly, the new tax policy won’t affect them at all because the applied tax rates stay the same.
we use the Gini index to measure how the new tax policy improves China’s income equality. Unfortunately, it doesn’t change much. You can tell from the last chart on the bottom that the curve stays the same before and after the new tax cuts.